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Indian second-largest software company, Infosys, found out last month that sometimes beating expectations on profits isn’t enough to please the markets.

On Wednesday, Cognizant – the US-headquartered competitor that’s making things tough for Indian behemoths like Infosys and Tata Consultancy Services – found out that sometimes projecting double-industry-standard growth just isn’t enough either, when its stock fell 1.75 per cent compared to a 0.41 per cent rise in the Nasdaq. What’s the problem? And what are the lessons for its Indian competitors?

The problem it seems is that Cognizant, after eight straight quarters of outperformance, merely met expectations. It saw a 16.4 per cent rise in net income to $240.1m for the quarter ending in December, on the back of a 26.9 per cent rise in revenues, to $1.66bn, just below the $1.67bn consensus. It forecast a minimum 23 per cent rise in revenues for 2012, to $7.53bn, according to results released on Wednesday.

Analysts told beyondbrics that the company will benefit from an improving economic environment in the US – where it earned nearly 80 per cent of its revenue in the quarter ending in December – but that its growth projection for the coming year, despite its 33 per cent increase in revenues for 2011, might be a tad ambitious, given the overall economic picture.

“Twenty-three per cent minimum guidance is a good number, but for the first quarter of next year, they are guiding at 2.2 per cent which means that the growth rate for the remaining 3 quarters would have to be at 6.8-6.9 per cent,” said Ashish Chopra, analyst at Motilal Oswal. “[That]is a strong number to assume in the current environment.”

But R Chandrasekaran, Cognizant’s chief executive for technology and operations, told beyondbrics that the company was confident that it could maintain much greater growth than the 11-14 per cent projected for the industry during the fiscal year ending in March 2013 by trade group Nasscom.

“We are also entering 2012 with a great deal of confidence stemming from a very loyal customer base,” he said. “The traction we are seeing from some of the new [products] like consulting [and] infrastructure outsourcing… is really helping us.”

Cognizant, which has around three-quarters of its workforce in India, took over from Infosys in the north American market last year. It competes with the “big four” Indian IT services and consulting firms of Wipro, Infosys, TCS and HCL, and overtook Wipro in terms of reveune mid-2011.

Indeed, analysts told beyondbrics that what separates Cognizant from its Indian competitors is the way it reinvests in itself in order to build up the company’s front-end and sales operations.

“They’re much more market facing, their ability to understand clients’ needs is much higher, their ability to connect with clients is much better and they are more business focused,” said Sudin Apte, analyst at Offshore Insights. “That has helped them to bring in better returns.”

When it comes to tough economic times, IT companies like Cognizant can benefit as other companies need to save money, by outsourcing operations that would cost more to do in-house.

“Even if [a customer’s budget] remains flat… in absolute dollars he’s spending same amount on technology but wants to do more with the same budget,” said Chopra. “The only way to do that is to take out costs on the existing work – if it’s being done onsite then you have to move it off-shore, and that directly plays into the hands of the offshore providers.”

“That drives the growth for these guys even during the tough times,” he added.

It’s not necessarily a new lesson – just one that needs to be done better than before as competition increases and the market demands ever-better results.

Source:http://blogs.ft.com/beyond-brics/2012/02/09/cognizant-lessons-for-indian-it/#axzz1lxmYyVXN

The Indian IT industry is hopeful of maintaining its growth momentum in 2012 despite global economic uncertainty and concerns over the fallout of the sovereign debt crisis in Europe.

“The Indian IT sector, especially software services, will do well to sustain the growth momentum as demand for its offerings in export and domestic markets continue to be favorable despite uncertainty, arising mainly out of the Euro crisis,” a top industry representative told IANS ahead of the third quarterly (Oct-Dec) earnings season.

Asserting that the market conditions were not as bad as they were in 2008-10 when global financial meltdown reduced the industry’s growth to single digit (six per cent) in fiscal 2009-10, National Association of Software and Services Companies (Nasscom) president Som Mittal said software exports would be in line with the projected 15-17 per cent to generate about $70 billion in 2011-12 as against $59 billion in 2010-11.

“We are cautious about the outlook for the ensuing fiscal (2012-13) due to concerns over the Euro crisis. Though we don’t know how it (crisis) would play out eventually, we are optimistic that our services will be in demand as clients will continue to engage us for their business operations, which are non-discretionary,” Mittal said.

The results season starts Jan 12 when bellwether Infosys will announce results for its third quarter ending Dec 31, 2011.

Analysts are also upbeat on the overall performance of the software services sector owing to the long-term contracts of IT projects and the transformational jobs they are involved in providing more for less.

“As evident from their robust performance during the first half (April-September) of this fiscal, we expect the topline growth of the IT majors to be higher than a year ago and sequentially better than the second quarter due to increase in service offerings, client acquisitions and new lines of business such as cloud computing, mobile applications and outsourcing of more IT-enabled services, including remote infrastructure management and data mining,” an analyst told IANS.

A sharp depreciation of the rupee to 53 from 49 against the US dollar during the October-December quarter is also expected to improve the operating margins and profitability of the software export firms despite anticipated losses in hedging at a higher rate.

“Benefit from a depreciating rupee will only be a short-term gain on exports but continued volatility in the forex (foreign exchange) market is a cause for concern as it will have an impact on the overseas operations of IT majors and budgets in exploring businesses in emerging markets. Sharp fluctuations in shorter cycles are detrimental either way,” Mittal noted.

Notwithstanding the looming Euro crisis, the latest data on job gains in the US, which accounts for over 60 per cent of the Indian IT exports, augurs well, though the pace of economic recovery has been slower than expected.

“Job gains or losses in the US are largely in the manufacturing, transportation, retail trade and construction sectors and not in the services sector, which continues to be healthy. Increase in employment in other sectors indicates signs of recovery and investments,” Mittal said.

According a research study by an international bank, the Indian IT vendors are in a position to pitch for multi-billion dollar deals that are due for renewal this year and compete for large annual contracts that are up for grabs in new service lines.

“In hard times, when companies across verticals look for cutting costs and focus on core business, they will scout for partners to manage their non-core activities such as IT services, which means more business for our sector,” Mittal added.

Source:http://news.ciol.com/News/News-Reports/Indian-IT-industry-to-grow-despite-global-crisis/158652/0/

Given the financial turmoil in Europe and its lingering cascading effects on other developed economies, including USA, it is generally believed that the outlook for India’s $70 billion information technology (IT) and business process outsourcing (BPO) industry is not very optimistic.

The perception is that, lower revenue and profits will make large global corporations, typical clients of Indian IT industry, cut IT spending to save cost.

An in-depth analysis of the IT market scenario by the research team of Standard Chartered Bank, however, reveals that in reality Indian IT companies, specially the big ones like TCS, Infosys, Wipro and HCL Technologies, stand to gain a lot in the next couple of years.

The major reasons behind this optimism, the research report pointed out, is the fact that a large number of IT annuity deals (these are multi year maintenance contracts with predictable revenue streams) of large global clients are coming up for renewal in the next couple of years and Indian companies have an edge in grabbing many of them.

“In our view, the next leg of growth for Indian offshore players will be driven by market share grab from global players in existing contracts coming for renewals, as clients strive to optimise their spend on operational expenses,” said the Standard Chartered report. Its analysis indicated a pipeline of 1,095 contracts that are now with non-Indian vendors with a combined total contract value (TCV) of $207billion due for renewal over the next five years. This could translate into a $25bn opportunity for Indian offshore players, the report added.

IT industry veteran and Nasscom President Som Mittal also thinks that there are great opportunities for India-based IT work. “Uncertainty in the global market is certainly an opportunity for India,” he told Deccan Herald. “When growth slows down people will have to find out ways to cut cost, enhance manpower utilisation and outsource non-core activities. So India stands to gain,” he said.

Blended outsourcing
One of the two major factors that will help Indian IT companies is that IT clients are increasingly going for blended outsourcing model in annuity deals. There is a shift in corporate outsourcing pattern over the past few years from a total outsourcing model, where the entire/bulk of non-discretionary IT services is handed over to a single system integrator (such as EDS, IBM GS or CSC), to a blended outsourcing model, where large deals are broken into smaller sizes and are distributed to multiple vendors to optimise the total cost of ownership.

HCL Vice Chairman & CEO Vineet Nayar, also thinks that this trend is very clear and getting stronger. “Many large client organisations who were locked in with deals having high billing rates during the recession time, are now restructuring such deals by opening them up for competitive bidding,” Nayar told Deccan Herald. “We are seeing that the deal sizes are getting smaller and vendor-churn is happening in 30 per cent of the deals as against only the earlier 5 per cent,” he said.

Emergence of niche players is also because of the growing realisation among IT clients that large all-inclusive deals have not achieved the expected cost savings or operational efficiencies. A US-based senior marketing official with one of the large four India IT companies said: “The flavour of the day is to go for ‘specialists,’ with smaller deal sizes, to get more flexibility in terms of delivery, pricing and tweaking, as per the clients’ need.”

Besides, typical contracts by global system integrators have a high degree of rigidity and lock-ins with severe termination penalties. We expect this has fed a trend towards smaller outsourcing agreements with specific business goals, said the report.

Some of the large deals coming up for renewal in 2012 are, Empire Blue Cross (TCV $1,000m), Commonwealth Bank ($669m), Deutsche Bank ($675m), Rolls Royce Plc ($2,100m), etc.

Another favourable factor for Indian IT companies is the large offshoring capability of Indian vendors, resulting in savings for the clients. Since most of the existing large deals coming up for renewal have small offshore component, new contracts will favour those who can bring down cost by moving work to low-cost geographies.

“We expect Indian vendors to continue to benefit from the ongoing shift in annuity deals towards multi-vendor, smaller size and shorter duration, as clients increasingly look to fund incremental discretionary IT investments through savings in run-the-business operations,” the report said. It is expected that TCV deal size of $50-250m would be the sweet spot for Indian offshore vendors and the average contract period will be five years.

An analysis of how the deals moved in the recession-hit years of 2008 to 2010, also shows that Indian vendors gained in difficult times too. The Standard Chartered analysis of the 2008-09 period suggests that while macroeconomic concerns did affect the decision-making cycle, the impact was restricted primarily to larger TCV deals of $300m and above.

However, Indian vendors, catering to much smaller $25-200m TCV band, were net gainers, as the smaller deals pipeline was unaffected and possibly gained from rescaling and re-scoping, during this period. The fact, that in the nine months of 2010-11, top four Indian IT vendors have won 80 odd deals worth $ 8 billion is another indicator of our might.

Source:http://www.deccanherald.com/content/213461/indian-biz-gain-despite-difficult.html

The offshoring of work by foreign corporations has helped build India’s showpiece $76-billion IT industry.

Now many small businesses and families in the US and Europe are doing a mini version of offshoring by engaging ‘virtual assistants’ from Indian firms for their personal tasks, creating lucrative business opportunities. In the process, they are calling upon these loyal aides to play matchmaker, agony aunt and consciencekeeper.

Unlike traditional outsourcing which is a business service, remote assistance is a consumer-focused service that even provides emotional support to many.

One such provider is Bangalore-headquartered GetFriday, whose name is drawn from the term Man Friday, or personal assistant. Among the requests it received recently was one from an Australian client who wanted help before she had a chat with her boss.

The woman wanted to switch to a work-from-home schedule and needed assistance and tips on how to handle objections by the boss, mock sessions that simulated the event, and loads of emotional support. The switch did not happen because some key employees were about to leave and the work-from-home option wasn’t feasible at that point.

“Nonetheless, the client was happy,” said Sunder Prakasham, CEO of TTK Services, which runs GetFriday. Virtual assistance is fast catching up in US and Europe, opening opportunities for Indian entrepreneurs and start-ups such as Brickwork India and GetFriday.

Evalueserve, a research firm, predicts that person-to-person offshoring, both consumer services and services for small businesses, will grow to over $2 billion (Rs10,000 crore) by 2015 from the current $887 million.

At Brickwork, one of the more unusual requests it got was from Gail Dick, the owner of Millermeade Farms in the US and a passionate breeder of hedgehogs. When Dick wanted her website to be an encyclopedia of information on hedgehogs, she outsourced the work for around $12-30 an hour to a virtual assistant at the Bangalore-based knowledge process outsourcing start-up founded by former Karnataka IT secretary Vivek Kulkarni and his wife Sangeeta.

The virtual assistant helped her to format and reference the huge number of articles she had gathered over the years. The articles were based on hedgehog behaviour, including eating, bathing and sleeping habits, the diseases they suffer and patterns of hibernation they follow.

“Great! I feel like having a party as we are moving ahead on a project that has been in a stand-still for several years,” said Dick. The project was stalled for several years as Dick could find neither the time nor the experts who could do this job for her in the US. She would also have had to pay nearly double the amount for a similar service in the US.

Source:http://economictimes.indiatimes.com/tech/ites/offshoring-us-europe-opening-opportunities-for-indian-entrepreneurs-and-start-ups/articleshow/11100593.cms

IT-Outsourcing has become one of the most significant growth enhancer for not only the Indian economy but also for various socio-economic parameters such as employment, standard of living and diversity among others. IT-BPO sector in India, alone has aggregated revenues of $88.1 billion in FY2011, generating direct employment to more than 2.5 million people. The industry has played a significant role in transforming India’s image from a slow moving bureaucratic economy to a land of world class technology solutions and business services.

The upbeat domestic IT-BPO spending trend will continue in FY2012 as the industry is expected to grow at 16 per cent to reach $20 billion. IT spending expected to significantly increase in verticals like automotives and healthcare while the government, with its focus on e-governance, will continue to be a major spender. Including the contribution towards India’s growth, IT-outsourcing is illustrating many trends and insights.

1. Knowledge Professionals

Out of 4 millions pass outs every year in India, 3.3 millions are from non-technical backgrounds including arts, commerce and science. This has given birth to an employability gap, where significant amount of money is spent to enhance employability with in-house training and academia partnership, creating talent pool of process and vertical specialists, which is equivalent to an employee’s 3-4 per cent of their salary bill. During the FY2011, there was a much greater focus on ongoing development of specialized skills and capabilities as Indian professionals has to be transformed from knowledge based talents to skilled manpower. Analysis indicates that the training spent per employee in the IT-BPO industry is among the highest in the organized services sector.

2. Global In-House Centers

Global In-House centers (GIC) established ‘proof of concept’ and branded India as a global sourcing destination. Their impact on India extends beyond revenues and employment – playing a leading role in developing an R&D and product culture, spearheading initiatives to develop affordable products for emerging markets and creating entrepreneurship opportunities. GIC contribute to 22 percent of IT-BPO export revenues and 21 percent of employees. North America and Europe happen to be the largest investors in the captive space; together they contribute to more than 90 percent of the captives in India. The industry has significantly grown over the last 5 years and currently has representation from most of the verticals like Aerospace & Defense, Automotive, BFSI, Bio-Technology, Chemicals, Computer Hardware, Education, Electronic/Electrical Equipment, Energy, Healthcare, Industrial, Semiconductors, Software/Internet, and Telecommunications.

3. Total Contract Value

After a devastating Q2 of 2011, the IT services contract signing activity picked up slightly in the Q3. In this third quarter the total contract value was $27.3 million, which is 43 percent up from Q2 2011, but is 21 percent down on the third quarter of 2010. India made 416 deals in this third quarter of 2011, which is again 12 percent down from the same quarter of 2010. North America, after a terrible start in the beginning of the year, now has reached a total contract value of $3.1 billion, grabbed from the private sector, which is higher than the total generated in the first six months of the year. Europe too has hit total contract volume of $3 billion from the private sectors, with more than one-third of the total derived from the UK. These are the utmost important reasons why India has lost some of its TCVs.

4. Software Products

There’s a noticeable shift in the Indian Software product business ecosystem which has helped create an enabling environment for the growth of Indian Software Products. There are many catalysts in the development of the domestic market for software products, such as, improvements in the talent and support ecosystem, innovations is software product technology, delivery/business models, and changes in the Indian economy. Increased growth of IT by enterprises, especially among SMBs, and home-users has driven growth in this segment.

5. Indian IT to Grow by 16-18 Percent

Software lobby Nasscom has projected that Indian IT-BPO will attain a growth of 16-18 percent by FY 2012, and despite having so many tilting drawbacks it is quite confident about its survey. “There is no reason for us to be worried. We have spoken to customers, and they are looking at expanding into geographies and bringing newer solutions to the market”, Nasscom President said on the sidelines of the Nasscom BPO Strategy Summit 2011. The growth in software and services export is expected to be 16-18 percent and the sector is slated to bring in revenues of $68-70 billion. The growth in the domestic market is estimated to be 15-17 percent, with revenues of about $19-20 billion.

Source:http://www.siliconindia.com/shownews/Indian_ITOutsourcing_sees_Mixed_Trends-nid-99763-cid-3.html

Given the way how rupee has depreciated, looking at the way how US companies outsourcing more, is IT more like no-brainer buy?

IT is defensive within this whirlpool that we seem to be in. Most companies are sying that they are seeing growth in Europe when clearly growth is slowing down dramatically. In US as well we find that companies are finding that demand is still fairly strong.

It is important to remember that in a bear market we are in, there is ultimately no safe bastion. The difference is in terms of the timing and the magnitude. So you may want to nibble at IT stocks. IT stocks which have not corrected. will see some correction as well. So there again I do not think there is any ways to actually chase stocks.

Be a little careful about some of the midtier companies. If you look at what is happening in the US, the fortune 1000 companies are doing very well. But, the small and medium enterprises and mid tier IT companies have a problem.

In the same way that we seem to have two different bull and a bear market continuing in India even though there is a correction in the bull market in the defensives. In the US also something similar is happening.

Broadly, US economy is clearly going down but large US corporates are doing well. Stay in the larger ones and do not chase them, look for corrections to buy.

Source:http://economictimes.indiatimes.com/markets/stocks/views/recommendations/wait-and-watch-it-sector-sandeep-j-shah/articleshow/10853865.cms

Indian IT services exporters are on track to increase Europe’s share in their revenue and see only a short-term impact of the paralyzing debt crisis, top executives said at the Reuters India Investment Summit.

The debt crisis is sweeping closer to the heart of euro zone, with fears that the contagion may now spread from Greece and Italy to Spain and France.

India’s showpiece IT sector feeds off increased outsourcing by companies trying to cut costs. As the crisis in Europe — the sector’s second-largest market — deepens, clients will likely outsource more, executives said.

“We are seeing clients — who in the past have been hesitant to outsource ongoing application management work — are now looking at outsourcing those type of services,” Cognizant Technology Solutions (CTSH.O) Chief Financial Officer Gordon Coburn said on Tuesday.

A slowing U.S. market, which accounts for more than two-thirds of the Indian IT industry’s exports, has forced companies such as Infosys (INFY.NS), TCS (TCS.NS) and Cognizant to expand their business in Europe and Asia.

“The short-term challenges will impact business, but in the long term, we see opportunities even in Europe,” S.D. Shibulal, Chief Executive Officer of Infosys, said on Wednesday.

Infosys plans to double its revenue share from Europe to 40 percent by the end of its 2014 financial year, while Cognizant expects “significant revenue” coming from the region in the next 4-5 years.

Infosys and Cognizant are also looking to scale up in continental Europe through acquisitions.

“We are now making heavy investments in building up our capabilities in France and Germany,” Coburn said on Tuesday.

It’s not just the IT sector that is expecting gains from the crisis. Kiran Mazumdar-Shaw, head of India’s largest listed biotechnology company Biocon Ltd (BION.NS), said diminishing returns on R&D spending is forcing European and U.S. companies to outsource their research work to India and China.

SHORT-TERM CONCERNS

Both the companies are, however, cautious about the short-term impact from the Europe crisis.

“Europe in 2012 is tough to determine,” Cognizant’s Coburn said.

Analysts echoed the sentiment.

“Nobody is quite sure what the impact of the sovereign debt crisis will be on demand for capital goods,” analyst Mark Wilson at Collins Stewart Europe said.

Source:http://www.reuters.com/article/2011/11/23/us-india-summit-indianitservices-idUSTRE7AM10520111123

A flurry of news on the information technology and IT-enabled services industry over the past weeks has put the spotlight back on India’s hottest sector and the indication seems to be that a good part of the challenges it faced over the past couple of years may be over.
First,
Tata Consultancy Services (TCS), the country’s top software service exporter, announced its second biggest outsourcing contract worth $2.2 billion (Rs 11,076 crore) from UK-based pension firm Friends Life.
Now, India’s IT and business process outsourcing (BPO) industry has always faced a paradox of sorts. On the one hand, a downturn in Western markets can be viewed as an opportunity for India because cost-cutting during such times increases the chances of work being farmed out to competitive offshore locations. On the other hand, the overall IT spending does ease up in difficult times. On top of that, fears of job losses in the West creates an uneasy atmosphere for outsourcing contracts to be given. In such a backdrop, the TCS win in the UK — where carping against Indian IT/BPO is higher than in the US — is a positive signal.

Days after TCS, mid-sized Hexaware Technologies, announced a UK deal for five years worth $250 million with an unnamed but significant client in its single largest deal yet. Considering that Hexaware’s revenues this fiscal year is estimated to be $306 milllion, the deal is a quantum jump.

Between these two pieces of news came a big surprise: billionaire Warren Buffett, who has for decades shunned investing in technology firms because he does not quite understand it, changed his stance by revealing that his Berkshire Hathaway fund had acquired a 5.4% stake in IBM at a cost of $10.7 billion. Significantly, the vote of confidence came on account of IBM’s services business, which is substantially based in India.

All that should be good news for TCS, Infosys and Wipro and other IT service companies of India because they pretty much do what IBM does in the services space with comparable business practices.

Last, but not the least, the US dollar strengthened to touch R 51 to the rupee last week. Given the shaky atmosphere that started after the Wall Street meltdown in 2008 and the subsequent financial crisis in Europe, the developments in November signal the resilience of the Indian IT industry.

Source:http://www.hindustantimes.com/business-news/ColumnsBusiness/An-encouraging-Nov-for-Indian-IT/Article1-771780.aspx

India’s IT outsourcing firms that tout cost advantage as their main benefit are finding it harder to keep a foothold in the industry, business statistics show. That’s because buyers of these services are looking for metrics, innovation and measurable business process transformation to help them get the upper hand over competitors, says a company executive for Red-Consulting.

“Conventional cost-based thinking regarding outsourcing is dead,” states Raymond Watt, U.S. practice manager for Red-Consulting, an independent Oracle-certified tech support company. “The evidence is stacked against outsource frugality. Forbes recently published scary statistics about the rapid rise of Indian salaries. By 2015, India’s cost advantage over the United States will have disappeared. Then what? The recent launch of AlwaysOn, our North American counterpart, is the response to that question.”

Salaries in India have increased about 15 percent this year, according to an Oct. 12 article in Forbes. Although inexpensive IT services have made India king of the hill in the past, nearshore providers such as Mexico, Chile and Costa Rica and many offshore outsourcing companies threaten to eclipse India’s waning advantage soon, says Watt.

“China, the Philippines, Poland and Russia are coming on fast and will challenge India’s cost advantage. Frankly, I think India is sitting on its laurels. Back office database support can’t just offer a way to pinch pennies and expect to stay in business for long,” asserts Watt. “Nearshore providers offer proximity, political stability and a growing labor pool in many cases. AlwaysOn provides those things and more. Native English speakers, a streamlined help desk portal and proactive software app maintenance are just a few of the things that put AlwaysOn ahead of the game. Real-time access to an office load of Oracle experts doesn’t hurt either.”

Red-Consulting, which is headquartered in South Africa, is an international company that serves more than 100 blue chip firms, mid-sized businesses and global organizations using Oracle’s database management software. AlwaysOn is Red-Consulting’s response to the demand for high-caliber outsourcing in North America.

“AlwaysOn’s no-nonsense approach to technology outsourcing marks a drastic departure from the overindulged Indian outsourcing model that America has come to begrudgingly accept,” says Watt. In fact, AlwaysOn believes its brain trust far outweighs the anemic body-shopping advantages India still exalts. Why? Technology and innovation – pure and simple!”

Statistics from a recent, offshore outsourcing survey by Duke University’s Center for International
Business Education and Research showed that India suffered the sharpest drop in growth of any of the 620 service providers polled. While all showed a reduction in profit margins, India saw a 60 percent fall in the growth rate of new commercial deals between 2010 and 2011.

Erosion of cost advantage, cultural differences and geography are among the contributing factors, claim numerous business bloggers, but Watt maintains that many outsourcing companies are experiencing a market slide because their services lack pro-active maintenance, real problem-solving capabilities and transparency.

“It’s not just a time zone thing or just about cost,” says Watt. “While those are valid concerns, cloud-based services and supporting technologies are the differentiating factors. If you don’t change with the times and offer this kind of value, you’ll find your company wiped off any meaningful pie charts.”

Red-Consulting’s entire support process is automated and in constant communication with customers. Reports are generated as tasks are executed, giving business leaders immediate access to metrics needed to make informed decisions. It lets management understand what’s happening in their companies in real time.

“This transparency nurtures trust and spurs bold business moves, and Red-Consulting’s AlwaysOn cloud application makes it possible,” concludes Watt. “Even scheduled tasks can be viewed up to a year in advance, giving CFOs market advantage over their competitors. We’re more than just a support desk. We manage, detect, communicate and optimize. That takes good high-caliber technology.”

Source:http://www.digitaljournal.com/pr/496881

Offshore outsourcing, where U.S. companies farm out tech work to low-cost countries like India, will wane as routine data center functions become automated and businesses start to employ IT for more strategic purposes–like building new sales channels–and seek service providers that can help them along that path, according to a senior industry exec.

“You can look at the early signs that the Indian IT model is over,” said Krishnan Chatterjee, head of global strategy and marketing at HCL Technologies, during an interview last week. “The question that customers are now asking is, ‘Are you willing to blend multiple services into an integrated offering, so we can talk as business partners, rather than you giving me 10 bodies who will churn out x lines of code at the cheapest rate.”

What’s driving the change is that new technologies like virtualization, cloud computing, and smart analytics are automating many routine IT tasks–such as network provisioning and monitoring–that have often been offshored. That means companies can use more of their technology budgets for strategic projects that can drive growth through new products and services. They need IT service providers who can keep up.

A deal that HCL announced last week illustrates the type of higher level engagements the company is seeking. U.S.-based healthcare payer United Health Group said it would use proprietary software tools developed by HCL to support its adoption of new disease classification codes, known as ICD-10, which go into effect in 2013.
“Customers are asking, ‘Do you have the competence to leverage technology on behalf of my business, as opposed to just recruitment and workforce management,” said Chatterjee.

Many of these engagements–such as building a digital supply chain to support an e-commerce initiative–require onsite specialists with skills in project management and architectural design. “The more we move up the value chain, the more of our traditional services business we start killing. But that’s okay because we’re going to add value in new ways,” said Chatterjee.

To meet demand for onshore services, HCL is building out its presence in the U.S. Company officials said about 8,000 of the their 83,000 employees are now in the United States, and that number will grow.

Ultimately, it wants more than 12% of its employees to be based in the U.S. or Europe by 2015. About 40% of HCL’s current U.S.-based workers are Americans or green card holders; the rest are on H-1B and other temporary visas. Officials say they also want a larger percentage of their U.S.-based workers to be citizens or permanent residents.

In September, HCL announced the opening of a development center in Redmond, Wash., where it plans to hire about 400 local workers over the next two years. HCL’s Collaborative Engineering Hub will provide development services for Microsoft. The company has also built out development centers for anchor customers in Rochester, N.Y. and in Raleigh, N.C.

While higher labor costs will mean that HCL will ultimately have to charge more for services provided in the U.S., Chatterjee said customers will be willing to pay more if those services aren’t just about “keeping the lights on,” but help deliver an advantage over competitors. “When differentiation comes into play, the conversation is no longer about who is cheapest and who has the most bodies,” he said.

HCL’s strategy isn’t without risk. It’s possible that many U.S.-based customers will turn to American services providers like IBM or Accenture to perform onsite work. A significant advantage held by the domestic players is that they already have large teams of experts in place in key areas like cloud and mobility.

Chatterjee conceded that it could be tough for HCL to find individuals with the skills it needs. “Finding talent can be very difficult,” he said, “but we are actively working with universities so that we get people that have the necessary skills and capabilities.”

The institutions HCL is working with include Virginia Tech, Seattle University, Oregon State University, and University of California, Irvine.

HCL’s strategy of focusing on higher value work more than some of its Indian peers appears to be paying off. In its most recent quarter, net income spiked 49% year over year, while quarterly revenues surpassed the $1 billion mark for the first time. To continue that growth, it will need to convince customers that require onshore services that it’s coming to America to stay.

Source:http://informationweek.com/news/services/outsourcing/231902873

Notwithstanding competition from countries like Philippines and Vietnam, India remains an attractive destination for outsourcing services on account of its talented workforce, according to BPO major Convergys.

“The world has moved away from looking at outsourcing to places like India just as a cost arbitrage. The focus is now on transformational work, helping clients not just save costs but also increasing efficiency,” Convergys Senior Vice President (Customer Management) Nancy Pryor told PTI.

She added that while there is competition from other nations like Philippines and Vietnam, India still has a lot of factors working in its favour.

“India has a large pool of talented workforce who also have a good understanding of technology as well. They can easily deal with the requirements from clients across the US, Europe and Australia, which also happens in case of other locations, but India still has an edge,” Pryor said.

With increasing labour costs, there have been fears that India might lose its numero uno position when it comes to outsourcing.

However, a lot of BPO players are now expanding to small Indian towns and hiring less expensive workers, while adding centres in other countries as well to make most of the opportunity.

With its global headquarters in Cincinnati, US, Convergys has about 70,000 employees in 67 customer contact centers across the US, Canada, Latin America, Europe, the Middle East and Asia.

Of this, about 12,000 people are spread across six locations in India — Delhi-NCR (three facilities), Mumbai, Pune and Bangalore.

It has clients across verticals like financial services, communications, government, healthcare and retail.

Though the company does not have plans to enter the domestic market here in the near future, Pryor said the company is bullish on using India as a centre for excellence.

“India will be a growth driver in 2012. While we do not have plans to serve companies here (in India) as of now, we are always examining opportunities,” Pryor said.

Convergys added about 1,500 jobs last year and the plan is to hire about the same number this year, which shows the company’s commitment to the Indian market, she added.

Asked about the demand environment globally, Pryor said the economic uncertainties throw up opportunities.

“It is these times that companies look at partnering firms like us and want to not just reduce cost but also improve their performance. There are new opportunities that come up and we are well-positioned to cash in on the opportunities,” she said.

Source:http://timesofindia.indiatimes.com/tech/news/outsourcing/Convergys-bets-big-on-Indian-BPO-market/articleshow/10554481.cms

Notwithstanding competition from countries like Philippines and Vietnam, India remains an attractive destination for outsourcing services on account of its talented workforce, according to BPO major Convergys.

“The world has moved away from looking at outsourcing to places like India just as a cost arbitrage. The focus is now on transformational work, helping clients not just save costs but also increasing efficiency,” Convergys Senior Vice President (Customer Management) Nancy Pryor told PTI.

She added that while there is competition from other nations like Philippines and Vietnam, India still has a lot of factors working in its favour.

“India has a large pool of talented workforce who also have a good understanding of technology as well. They can easily deal with the requirements from clients across the US, Europe and Australia, which also happens in case of other locations, but India still has an edge,” Pryor said.

With increasing labour costs, there have been fears that India might lose its numero uno position when it comes to outsourcing.

However, a lot of BPO players are now expanding to small Indian towns and hiring less expensive workers, while adding centres in other countries as well to make most of the opportunity.

With its global headquarters in Cincinnati, US, Convergys has about 70,000 employees in 67 customer contact centers across the US, Canada, Latin America, Europe, the Middle East and Asia.

Of this, about 12,000 people are spread across six locations in India — Delhi-NCR (three facilities), Mumbai, Pune and Bangalore.

It has clients across verticals like financial services, communications, government, healthcare and retail.

Though the company does not have plans to enter the domestic market here in the near future, Pryor said the company is bullish on using India as a centre for excellence.

“India will be a growth driver in 2012. While we do not have plans to serve companies here (in India) as of now, we are always examining opportunities,” Pryor said.

Convergys added about 1,500 jobs last year and the plan is to hire about the same number this year, which shows the company’s commitment to the Indian market, she added.

Asked about the demand environment globally, Pryor said the economic uncertainties throw up opportunities.

“It is these times that companies look at partnering firms like us and want to not just reduce cost but also improve their performance. There are new opportunities that come up and we are well-positioned to cash in on the opportunities,” she said.

Source:http://timesofindia.indiatimes.com/tech/news/outsourcing/Convergys-bets-big-on-Indian-BPO-market/articleshow/10554481.cms

India’s countryside is undergoing a creeping transformation. You’ll find none of the fancy buildings, multi-cuisine food courts, night shifts, 24/7 operations, accent neutralisation training or company gyms that normally accompany the arrival of India’s high-tech industry – or any of the other trappings of the big city.

Yet, India’s smaller towns and rural areas are beginning to feel the impact of change wrought by the country’s IT sector.

Indian IT services and back-office processing companies have already transformed urban economies. Now, they’re looking outside the major conurbations and into the countryside, where they are altering the employment landscape and bringing about social change.

India’s rural business processing outsourcing (BPO) firms notched up $10m in revenues last year. That figure may seem insignificant in an outsourcing industry worth $60bn in revenues. But employment in rural BPO companies grew 1.6 times during the period between 2007 and 2009, according to India’s IT industry body, Nasscom. The 40 or so rural BPOs currently employ 5,000 workers. That number is set to jump 10 times in 2012.

“Rural and small-town BPOs are a few-billion-dollar business opportunity,” according to Sridhar Mitta, former CTO of Indian outsourcing firm Wipro. His company, NextWealth, helps entrepreneurs set up BPOs in India’s small towns.

The organisation locates its centres in small towns with abundant supplies of talent – as measured by the quality of educational institutions in the area – low costs, availability of bandwidth and energy infrastructure, and local entrepreneurs who are willing invest as partners.

NextWealth has four centres in three locations and employs 500 people. Mitta says employee numbers will rise to 10,000 in the next three years.

To customers, rural BPOs can provide sound economic benefits, such as a 50 per cent reduction in costs over similar operations in Bangalore. That makes some processes, such as NextWealth’s services for a German online photo book creator, economically viable.

In that case, the costs come out at less than $3 per photo book, compared with $6 for the equivalent work in Bangalore. The company is also handling the creation of online menus for Silicon Valley restaurants. Both these operations are run out of its BPO in Chittoor in the neighbouring Andhra Pradesh state.

The lures of small-town India are many. There are plenty of skills – found, for example, among local graduates, college drop-outs, housewives and educated women who are bound by societal norms to stay home.

Rural BPOs are cost-effective as labour, property and other operational expenses are low, says Murali Vullaganti, CEO of RuralShores, a leading rural BPO company. Attrition rates are very low compared with those experienced in cities such as Bangalore and Gurgaon.

BPOs are viewed as a boon to rural India. They lessen rural migration, reduce the stress on crowded megacities such as New Delhi and Mumbai, advance standards of living, promote gender equality and improve social and physical infrastructure.

Source:http://www.silicon.com/management/cio-insights/2011/10/28/photos-inside-a-rural-indian-call-centre-outsourcing-builds-a-new-life-in-the-country-39748145/

Standard & Poor’s on Monday said that top Indian information technology companies are likely to maintain their investment-grade ratings even if demand weakens. The report titled “Big Three Indian IT Companies Are Well Programmed To Handle Uncertain Demand.” The “Big Three” companies are Tata Consultancy Services Ltd. (TCS; BBB+/Stable/–), Infosys Ltd. (BBB+/Stable/–), and Wipro Ltd. (BBB/Positive/–).

“The largest Indian IT companies have strong margins, are cost-competitive, and have proven delivery models. These attributes will help them to weather uncertain and volatile demand,” said Standard & Poor’s credit analyst Abhishek Dangra.

The report suggests that the three leading Indian IT companies will be able to grow at a faster pace than the global industry, at least over the next few years. Standard & Poor’s expect these companies to maintain industry-leading EBITDA margins and grow in double digits in the next 12 months.

Bigger challenges for the Indian IT companies will occur in the longer term. We expect the cost advantages of these companies to diminish as foreign competitors increase their already-large employee bases in India. Moreover, business and reputation risk is rising due to increasing protectionism. But we expect the three largest Indian IT companies to adapt to the challenges, as they have in the past.

The report says that companies also face issues such as dependence on the slowing economies of the U.S. and Europe, visa issues, rising wages in India, and foreign exchange volatility. The sovereign budget cuts across the U.S. and Europe could hurt business sentiment and lower private-sector IT spending. Though deal cancellations are not as significant as they were in 2008-2009, the time it takes to close deals has lengthened.

“High unemployment rates, slowing growth, and political activism in many countries are generating opposition to outsourcing,” said Mr. Dangra. “Still, we expect focus on cutting costs in a slowing global economy to support demand for outsourcing to India. Such a practice results in significant cost savings.”

Source:http://economictimes.indiatimes.com/news/news-by-company/corporate-trends/indian-it-firms-like-tcs-infosys-wipro-can-withstand-uncertain-demand-sp/articleshow/10472176.cms

Shares of biggest IT outsourcing firms in India sank on Tuesday on concerns that rising global economic uncertainty in key markets will hit future growth of the country’s flagship sector.

Tata Consultancy Services, India’s largest software exporter closed down 7.71 percent to 1,033.50 rupees — the company’s sharpest single-day fall in a year a day after its latest quarterly growth data lagged estimates.

HCL Technologies slumped 8.5 percent to 401.15 rupees, despite a 50-percent jump in quarterly net profit reported on Tuesday.

India’s IT and software services sector derives over 90 percent of its revenues from providing technology services to foreign customers, particularly in the United States and Europe.

Analysts forecast that IT spending budgets from large global companies will shrink in coming months, as the eurozone debt crisis and concerns over the US economy persist.

Indian majors Infosys, TCS and HCL have all shown growth in quarterly profits, helped by a depreciating Indian rupee against the US dollar.

But bosses at all three companies have each warned that the state of the global economy will be challenging in the months ahead.

Infosys chief executive S.D. Shibulal told reporters that “we remain very cautious on worries arising out of the prevailing situation in Europe and the US”.

The National Association of Software and Services Companies (NASSCOM) has forecast the sector will grow by 16 to 18 percent this year, but some private sector analysts see expansion of as little as 2.0-4.0 percent.

A downturn in Western economies is a double-edged sword for Indian outsourcers.

Source:http://investmoneyinindia.com/3548/indian-outsource-hit-by-global-economic-crises

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As the rupee on Friday hit its lowest point since May 2009 – at 49.89 rupees to a dollar – one of the key beneficiaries of depreciation would seem to be India’s vaunted IT outsourcing sector.
But analysts told beyondbrics that while the weak rupee is a positive for the industry, the effect could be muted by the sheer instability of today’s global currency markets and the industry’s growing complexity. Still, IT companies could take some comfort this week – the sector’s shares outperformed most others in the general mayhem.
Currency volatility is something IT firms like Wipro, Infosys and Tata Consultancy Services have come to expect, said Shashi Bhusan, IT analyst at Prabhudas Lilladher. There’s no indication as to how long the Indian currency will continue its drop below the 50 rupees per dollar level. So companies tend not to base their strategy on short-term fx volatility – the rupee’s drop from 46 against the dollar to nearly 50 occurred in just 7 trading sessions.
“Currency movement is like [a] wildcard; it’s inevitable risk or reward for any of the outsources or exporters,” said Bhusan. “So most of the companies work on two to three quarters of hedging: everybody is nimble footed on this, it’s part of the business.”
Industry-wide exports totaled $59.4bn in the fiscal year ending in March 2011 – around 26 per cent of India’s total exports – up 15.7 per cent from $50.1bn in 2010, according to NASSCOM, an industry trade body.
As a result of increased profits, and lower US labour costs, Indian IT companies now spend a portion of the money they earn in dollars on pay for US-based staff.
“Offshore is still very much there but there is a lot of onshore recruiting that companies are doing,” said Pradeep Udhas, national head of the IT BPO sector at KPMG. “So to that extent it will not be positive or negative because a lot of the earnings will be in dollars and they’re also paying in dollars there.”
While a weak rupee, generally, is a good thing for exporters, the head of NASSOM told beyondbrics that because IT companies import much of their technology into India, the weak rupee can actually also have a negative impact.
“We’re looking at huge expenditure in the IT space, [and] we’re afraid the IT industry will become quite expensive here,” said Som Mittal, president of Nasscom.
“But we want a much more stable currency regime,” Mittal added. “So either the rupee depreciating or appreciating, we don’t want that impacting our day to day.”
The depreciation seems to have positively affected the industry this week, said Srishti Anand, IT analyst at Angel Broking. The Bombay Stock Exchange’s Teck index, which includes India’s biggest IT companies, was down 2.26 per cent this week, about half of the benchmark Sensex’s 4.56 per cent decrease.
“The global economy is the demand driver for Indian IT, [and so] probably Indian IT should underperform the Sensex in that sense,” Anand told beyondbrics. “But the downfall has been restricted by some amount of comfort seen through the rupee, and that’s why the downfall was not as steep as the Sensex for this week.”

Source:http://blogs.ft.com/beyond-brics/2011/09/23/indian-it-weak-rupee-a-mixed-blessing/#axzz1Z1aXskrY

Prospects of the Indian Information Technology (IT) industry are predominantly dependent upon the growth environment in the West. Protectionist measures such as ban on outsourcing activities in order to shield domestic markets have always been a cause of worry for the industry as a whole. Further, cuts in discretionary spending in light of the impending slowdown also seem to have impacted the growth momentum in the recent past.

Despite these headwinds the performance of the Indian IT industry has been remarkable over these years. Significant labor cost arbitrage and abundant talent have been the pillars of the growth as evidenced in the past. However, overdependence on West meant that geographical diversification was required if this growth was to be sustained. And there is no better fit than the emerging economies that can fill the current consumption void of the West.

The emerging economies have been growing at a brisk pace with strong demand emanating from newer verticals like health care and transportation. Indian IT firms need to exploit the opportunities present in these markets for the next leg of growth. Even the domestic market offers huge opportunities in sectors such as banking, telecom and insurance. E-governance plan is another area of growth that can be exploited.

Focusing on the emerging economies will not only diversify the geographical revenue stream but will also bring in some stability into the business.

While the current slowdown has impacted the Indian companies we do not foresee a significant threat over the longer term due to the twin benefits of cost arbitrage and talented manpower availability at India’s disposal. Protectionist policies can impact growth in the near term (measures that ban outsourcing) but it cannot eliminate the business case altogether for the Indian IT companies as there is no replacement for talent (abundant in India).

Thus, while the demand from West would continue to be a larger a pie of the overall revenue stream, focus on other emerging markets would not only expand the geographical coverage but also reduce the volatility in the business as a whole.

Source:http://www.equitymaster.com/tm/tm.asp?date=09/13/2011&title=IT-Industry-What-will-be-the-next-growth-driver

Indian IT firms need to look at emerging economies and newer verticals like health and transportation to continue its growth momentum, in the wake of slowdown in traditional markets like the US and Europe, a senior Nasscom official today said.

“The Indian IT (sector) has been doing phenomenally well and will continue to attract some attractive bunch of people. But we can’t rest on the laurels.

“Today, we have just 15-20 per cent of the global market and I think we can be a much bigger player,” Nasscom Chief Economist and Director-General, Policy Outreach, Anupam Khanna told PTI.

He said emerging areas include verticals like health and transportation.

“There is still a lot of room for growth today. There are uncertainties and pressure, but there is still a lot of hope. This is also a time when people look at how to do things better, so there are opportunities as well,” Khanna said.

He further said that in the long run, the growth dynamic of the world is such that the centre of economic gravity is shifting and emerging markets, especially Asia, are going to be big players. “So, certainly we should be looking at them harder,” he added

Asked if the economic slowdown in the West could trigger a knee-jerk reaction from political classes and lead to ban on outsourcing, he said, “I think the world has moved beyond that…offshoring and outsourcing is happening…what happens in crisis is that adjustment becomes a little more painful …if you see there has been no growth in protectionist measures.”

“I am not saying there are not pressures, but I am not sure if people at this stage would be heavily protectionist. There will be pressures and the industry needs to educate people,” he added.

Rising rates of unemployment in the US had sparked a debate on whether outsourcing should be banned to create more jobs in the US.

The fears of resurgence of global economic slowdown has compelled the USD 70 billion Indian IT industry to focus more on the domestic market and expand to newer geographies.

The domestic market is witnessing strong demand from sectors such as banking, telecommunications, insurance, government and utilities.

“Domestic market offers a huge opportunity. The government has huge plans for e-governance, which opens up more opportunities for firms,” Khanna said.

Source:http://economictimes.indiatimes.com/tech/ites/indian-it-firms-need-to-look-at-emerging-economies-for-growth-momentum/articleshow/9943135.cms

Two of India’s top software exporters Thursday warned that clients’ information technology budgets in 2012 may be tighter than this year due to lingering economic uncertainties in their main outsourcing markets.

S. Gopalakrishnan, executive co-chairman of Infosys Ltd. (500209.BY) — India’s second-largest software exporter by sales–said clients are unlikely to cut their technology budgets for 2011, though they may end up cutting them down for next year. He also warned clients may hold back spending budgets earmarked for this year.

U.S.-listed Cognizant Technology Solutions Corp. CTSH +2.99% also said it would be a “reasonable assumption” that the current economic environment may have some impact on clients’ information technology budgets in 2012.

“I would assume it is going to mean budgets are tighter next year than they would have been if we didn’t have the economic slowdown,” Gordon Coburn, chief financial officer and operating officer of Cognizant, said at a conference hosted by Citigroup in the U.S.

The warnings come at a time when investors are already wary of economic worries in the U.S. and Europe–the biggest markets for software exporters–dragging down the growth of India’s technology companies. India’s outsourcing firms earn more than 80% of their revenue from North America and Europe, while New Jersey-based Cognizant earns almost 95% of its revenue from these markets.

Cognizant, listed on the Nasdaq, with more than 75% of its workforce in India, competes with several Indian software companies for a share of the global outsourcing market. Last month the company displaced Wipro Ltd. as the third-largest software exporter by sales in India.

While Infosys reiterated it continues to face delays in decision-making by clients, Cognizant differed. “In terms of decision-making on our new customers, this August was the busiest August ever,” Coburn said. While there are specific customers who have delayed taking decisions on projects, there are some who have expedited, Coburn said.

“When you net it all out, I’m not sure there has really been any change in decision-making for us,” he added.

Coburn’s comments mirror India’s largest outsourcing company, Tata Consultancy Services Ltd., which earlier this week said none of its ongoing projects, which are not so urgent in nature, are being cut and it hasn’t seen specific delays in decision-making.

The slowdown may shift focus to critical maintenance work from discretionary projects, Coburn said, adding that he expects clients to ship more work to low-cost destinations, including discretionary contracts.

“We certainly have our antennae up to watch what is going on, but we’re not seeing any signs that are particularly alarming at this point,” he said.

Source:http://www.marketwatch.com/story/top-indian-it-firms-warn-of-tight-budgets-for-2012-2011-09-08

The business process outsourcing, or BPO, industry has been on a shopping spree in the last three to four months. Few deals match the $ 550-million purchase of US-based Headstrong by Genpact, India’s largest pure-play BPO company, for size. But Genpact’s whopper is just one of many big-ticket acquisitions.

BPO firms are building capability, so that in three years, when we compete with IT players, we are well positioned: Rohit Kapoor, CEO, EXL Services

Britain-based information technology (IT) and BPO firm Serco bought Mumbai-based Intelenet Global Services for $634 million. Vertex, also a UK-based IT and BPO firm, bought Delhi’s Shell Transource for an undisclosed amount. US-based EXL Service has made several tuck-in acquisitions over the past couple of years, the last being the $91 million purchase of Outsource Partners International, or OPI.

So what does all this frantic buying mean? BPO industry leaders are acutely aware that the game is no longer simply about headcount. “Most of the acquisitions aim to increase expertise in certain domains,” says Bill Hurber, Partner, Business Advisory Services at TPI, a global sourcing advisory firm. “Customers are looking for service providers who have global scale in certain verticals,” he adds.

Genpact, for instance, had been eyeing the capital markets and investment banking space for a while. About 45 per cent of the company’s revenues came from banking and financial services, so the capital market space seemed like a logical choice for expansion. However, this field requires an understanding of not only products such as derivatives, and services such as prime brokerage, but also the relevant technology. “One wrong transaction and you can lose billions of dollars,” says Genpact’s President and CEO N.V. Tyagarajan. He reckoned that his company could not build the capability on its own, so it looked for a company that already had it. The two-year search ended with the Headstrong purchase in April 2011.

Attrition rate shoots up to 55% in BPO sector

Scale up and flourish
The $17-billion BPO industry is at a cusp. It has stagnated after growing for a decade at a compound annual rate of 20 per cent. Most BPO firms are relatively small, with revenues below $300 million. Valuations have fallen from their peaks in 2008, before the financial meltdown. Many companies have been unable to scale up. But scaling up is key to success. Genpact’s purchase of Headstrong will augment not only Genpact’s $1.26-billion revenues, but also its intellectual property. Similarly, OPI has beefed up the finance and accounting strengths of EXL, whose revenues were $253 million in 2010. It has also brought in 50 technology business analysts, facilities in Bulgaria and Malaysia, a strong front-end sales team in America, and 80 new clients. Analytics-based services have incremental margins of 20-30 per cent over traditional services such as voice-based customer support.

Attrition rate shoots up to 55% in BPO sector

Click here to Enlarge
Peter Bendor-Samuel, CEO of the Everest Group, an outsourcing advisory firm, says that IT services have higher margins than back-office support operations, and that there is a “strong correlation” between the profitability and size of BPO firms. However, acquisition is not easy. BPO companies face tough competition, with IT players such as Tata Consultancy Services , HCL Technologies and Cognizant all on the prowl. TCS’s purchase of Citigroup Global Services strengthened its travel BPO business.

Chennai-based Cognizant bought UBS India’s BPO division to build its strength in financial services. India’s fourth-largest IT major, HCL Technologies, has been hunting for BPOs for more than two years. Ask CEO Vineet Nayar if acquisition is the only way to expand his BPO business, and he says: “No, not the only way, but it’s one of the best.” He says business process outsourcing will become HCL’s fastest growing division in the next six quarters.

Many shifts
As business models change, BPO customers are demanding so-called near-shore and on-shore delivery. As processes move from voice-based services to higher value back office services such as accounts payable, human resource management and end-to-end process automation, it is increasingly important for BPO firms to locate some part of their services closer to the client. “If you want huge contracts, you should have a little bit of on-shore, a little bit of near-shore and a little bit of offshore,” says John Willmott, CEO of Nelsonhall, an international BPO analyst firm. Rohit Kapoor, President and CEO of EXL Service, says that the opportunity is four times as big for the BPO business as it is for IT, and that competition will get tougher between the two. “BPO firms are acquiring, consolidating, and building up capability, so that three years later, when we compete with IT players, we are well positioned,” he says. Another change is that, as private equity, or PE, companies exit their initial investments in the BPO sector, others are stepping in.

Serco’s purchase of Intelenet, for instance, came at a time when US-based PE firm Blackstone was looking to exit. Happily, Blackstone made two and a half times what it originally invested in 2007, by selling its 66.25 per cent stake in Intelenet. For Serco, it was perfect timing. “Serco had a gap in BPO, middle and back office,” says Susir Kumar M., CEO and Managing Director of Intelenet. His company has a huge domestic presence, and 25 per cent of its revenues come from customers such as Aircel, Barclays’ India operations and Tata AIG. Thanks to the Serco deal, Intelenet has got an IT platform, a consulting practice, expansion in Europe and a strong front end. “It’s a one-stop shop now, and that’s what the market wants,” says Kumar. Today, for Serco, 35 per cent of revenues come from India.

Genpact CEO N.V. ‘Tiger’ Tyagarajan at the company’s Gurgaon office
This trend of others stepping into PE investors’ shoes is likely to rise. According to Paul Sweeny, CEO of Vertex, the PE industry will see much activity over the next couple of years. Vertex bought Shell Transource to get a foothold in the Indian market. Sweeny says India will be on a highgrowth curve in outsourcing, as the US may have plateaued. “Indian companies are outsourcing five-year contracts, something unheard of in the BPO industry,” he adds.

Valuation hurdle
Timing is one thing, but high valuations have led to deals getting delayed. For example, WNS, which has been on the block for a while, is overpriced, according to analysts, some of who predict a deal by the year-end. “If there’s a PE firm with a controlling stake, you can be sure the sale will happen,” says Bendor-Samuel of Everest. PE firm Warburg Pincus has a 50 per cent stake in WNS.

Keshav Murugesh, CEO of WNS, is unflappable. He has plans for WNS to grow both geographically and in terms of domain expertise. In the past three years, the company has entered the Philippines, Romania and Costa Rica, and now has its sights set on China. Murugesh says he wants to make WNS so valuable and expensive that no one buys it. “Shareholders buying or selling a stake do not change our working style,” he says.

Vertex, too, did not leap into its purchase of Shell Transource. It formed a joint venture earlier this year, as a due diligence measure, so that if synergies matched, the acquisition would be completed.

With rising interest in the domestic market, BPO companies beefing up their domain expertise, and PE firms planning exits, the Indian BPO industry is hurtling towards its next phase, which will see bigger, fewer and more specialised providers, with expertise in two or three verticals for which they would provide end-to-end services.

Source:http://businesstoday.intoday.in/story/bpo-industry-hurtling-towards-next-phase-of-growth/1/18355.html