Posts Tagged ‘Offshoring’

Are Indian suppliers IBM Global Services’ biggest threat?

November 4th, 2014

India’s IT services industry has grown fast, but who would have thought that TCS is now IBM Global Services’ biggest threat.Outsourcing6

That’s what one management consultant told me last week. I was writing an article about talk of IBM reducing its workforce in India. IBM is one of the biggest IT services firms in India in terms of workforce and even if it is true that it will cut about 50,000 staff there, it will still be very big with about 100,000 people.

Read my article here. I have has quite a few emails from readers about this.

But the industry is changing and the provision of low cost full time equivalents is no longer the way to grow and profit for IT services firms. They want non-linear business models and they are doing this with less labour intensive services that harness cloud and automation technologies for example. At the same time customers want services using the latest technologies.

For example Scandinavian IT services firm Cygate has expanded its business without needing to recruit more staff by using automation software from IPSoft. In 2010, the company, which serves more than 1,000 customers including some of the biggest corporates in the Nordic region, was experiencing 20% growth in sales. This meant the company needed to add resources or risk service levels deteriorating. But just adding manpower would have reduced its margins.

So you would think the Indian suppliers who grew their businesses through offering highly skilled IT workers at a lower cost to Western corporates, would struggle the most. But it seems this is not the case. In fact it could be another phase of growth for these firms.

Mark Lewis, outsourcing lawyer at Berwin Leighton Paisner, says, “TCS, India’s biggest IT services supplier,  is achieving both linear and non-linear growth. It is still recruiting heavily in India and is building its global workforce at the same time,” said Lewis.

While IBM Global Services is always a default consideration businesses outsource IT it is not winning as many deals as it used to. Peter Schumacher, Value Leadership Group, said conversations with large corporates in Europe reveal that Indian suppliers are now  now IBM Global Services’s biggest competitor, and TCS is the biggest of these.

The Indian advantage of lower cost skills may have diminished overtime because western IT services firms have built huge offshore workforces of their own. At the same time wages in India have increased. But during the hay day of low cost IT services companies like TCS, Infosys, Wipro and HCL have build strong businesses and developed domain expertise, by moving beyond pure IT services to business services using IT.

The other interesting point is that western IT services forms have shot them in the
Have the western IT services firms let the foot by reducing the fear associated with offshoring. There was a time that offshoring IT was a brave and perhaps a risky strategy for a big business. But companies like IBM have used offshore staff and as a result made it the norm for outsourced service delivery.

Today service levels from offshore and western suppliers are little different and CIOs will make decisions based on the pure business value, rather than perceived risks.

“In Europe, TCS will add almost $1bn in new business in 2014, which underlines the enormous market momentum and customer confidence they now enjoy,” says Schumacher.


IT: Prefer Infosys, TCS, Wipro says Prabhudas Lilladher

October 17th, 2014

According to ISG forecast, broader market ACV lagged, but remains strong YTD . The weakness was in‐line with expectation, and they expect to see a recovery in Q4CY14 with continued strength in CY15. They expect 2014 ACV to exceed 2013 by double digits despite tepid quarter.Outsourcing28

ISG highlighted about the challenges faced by IMS players as cloud infrastructure providers are denting the existing businesses of IMS players. However, ADM+BPO proposition sees a renewed sign of life as Digitization adoption drives newer spends in the segments.

Continental Europe continues to see stronger adoption for Outsourcing/Offshoring from geographies like France, Italy, Spain etc. However, the current trend is very different from earlier wave of Anglo‐Saxons outsourcing wherein India became the focal point of outsourcing centres. Current drive of outsourcing from Continental Europe is pushing for global delivery models  with presence in newer locations like Poland, Brazil, Philippines, etc. But, we do not see any loss in competency for Indian Vendors as they swiftly adopt for GDM.

Among the verticals, Financial Services grew strongly in Americas as new scope contracts return. In APAC and EMEA, manufacturing has witnessed strong growth.

Among the mid‐caps in our coverage universe, NIIT Tech and KPIT Technologies got mentioned in “The Breakthrough 10 Sourcing Standouts” (companies with revenue less than $2bn) in Americas.

CY14 has panned out in‐line with the expectation in terms of deal closures. According to ISG, a build‐up of transaction is likely to yield one of the strongest year in the last one decade. We see Digitization drive as an encouraging trend for Infosys that is in‐sync with their current commentary. We prefer Infosys  , TCS  , and  Wipro  among tier‐1


4 Reasons Outsourcing Is No Longer a Dirty Word

October 3rd, 2014

What comes to mind when you hear the word “outsourcing?” Be honest.Outsourcing45

If you had asked me this question years ago, I probably would have said “Corporate America’s attempt to get cheaper labor at the customer’s detriment.”

Here’s the crazy thing: Over the last five years, I’ve built my entire consulting business via outsourcing. Funny how things change.

Related: 5 Guidelines to Maximize Freelance Employees

As technology levels the playing field for entrepreneurs, you have a decision to make. Either you can embrace outsourcing and grow your business, or you can let your competitors beat you.

Here are four surprising reasons why your perception about outsourcing might be flawed — and what to do about it to grow your bottom line.

1. Outsourcing is actually a less risky way to hire people.
Thanks to freelance marketplaces such as and, you can instantly access a free outsourcing portal. With just a few clicks, you’re able to browse profiles from talented individuals throughout the world. Skill sets range from administrative assistants to high-level marketing consultants. Sort and filter by feedback score, hourly rate, country and other criteria to find the perfect worker.

By outsourcing certain tasks to the virtual marketplace, you can reduce your risk and lower your overall operating expenses. Match talented consultants to your specific needs instead of hiring generalist full-time employees. To get started, identify low risk, high-reward functions to outsource. For example, hire a research specialist for a couple hours per week to build a prospect list in Google Docs. After he or she excels at that task, add more billable hours.

2. Outsourcing actually simplifies your accounting.
It’s no secret that hiring an employee in the United States can be challenging from an accounting standpoint — especially for small-business owners. You have to follow all of the IRS’s rules, pay the right employment taxes and offer paid time off and benefits.

Related: Should I Hire a Contractor or an Employee?

By outsourcing, you set the rules upfront. Each freelancer is a 1099 contractor, meaning that you can increase or decrease his or her hours as you see fit. In addition, contractors pay their own taxes and cover their own benefits. Paid time off isn’t something you’re responsible for either.

Lastly, consider the time and money you’ll save by avoiding the hassles of “traditional” recruiting. Skip the newspaper classifieds, LinkedIn ads and headhunter fees.

3. Access higher-quality talent at a lower cost.
Many entrepreneurs struggle to find highly qualified, budget-friendly team members. This can be particularly true if you do business in a major market, such as New York or Los Angeles. The cost of highly-skilled labor in these markets can be pricey.

Even if you’re not interested in offshoring, you can still outsource tasks to lower-cost parts of your own country. For example, many of my clients recruited me because my hourly rate is lower than comparable marketing consultants in their own cities. The cost of living in Indiana is lower than most major metropolitan areas so they’re able to get an MBA on a more attractive budget without sacrificing quality.

4. Emotion is now a thing of the past, thanks to outsourcing.
When you outsource through a virtual marketplace, staffing decisions seem much less emotional.

When I hire a consultant, I always stipulate that his or her contract is dependent upon how my company is doing. There’s an implied understanding that if cash flow tightens up, I may have to cut back hours. Conversely, if things pick up, I may need to increase hours. Most contractors inherently understand this, which allows you to get back to business instead of dealing with unhappy employees.

Outsourcing is now a reality for budgets both large and small. With thousands of qualified workers at your fingertips, the best fit for your job is out there waiting. Will you choose to capitalize on this opportunity?


India to become Capgemini’s default offshoring location soon

September 29th, 2014

Cap Gemini SA, the Paris-based consulting and software services firm, is trying to save costs by farming out more work to its centres in India and hiring freshers from colleges. Outsourcing30

Capgemini, which has software development centres in more than 10locations outside France, including smaller ones in Poland, Morocco and Vietnam, wants to make India the default offshore location, said Aruna Jayanthi, chief executive of Capgemini India Pvt. Ltd, in an interview last week.

Most of Capgemini’s key clients, who operate out of France, Germany, New Zealand and the Nordic regions, have begun offshoring more work to low-cost countries as technology budgets remain little changed and companies seek to cut costs, adding pressure on the French company to accelerate its plans to boost its operation in India.

Capgemini’s bigger rivals International Business Machines Corp. (IBM) and Accenture Plc. already have a massive presence in India. Capgemini has “a very low-margin business compared to its global peers like IBM and Accenture” which could be the reason for increasing its India offshoring, coupled with the fact that most of Capgemini’s clients are also going in for more offshoring today, said Sudin Apte, founder and research director with tech research firm, Offshore Insights.

In the last six-seven years, Capgemini’s offshore presence in India has grown from 10-12% to 45% today, and it has a very strong consulting practice, which is what will help it compete with peers such as Cognizant Technology Solutions Corp. and Infosys Ltd for the India business.

Capgemini, however, cannot be compared with IBM or Accenture, according to Apte. “Firstly, Accenture, which is considerably smaller than IBM, is still three times larger in terms of revenue compared to Capgemini. Secondly, both IBM and Accenture have 72-75% of their total resources in global delivery markets, while for Capgemini this number is about 54-55%.”

The 139,000 strong Capgemini had more than 50,000 employees in India. In comparison, IBM is estimated to employ about 150,000 people in India and Accenture, 100,000. Accenture entered India in 1987, IBM re-entered the country in 1992 while Capgemini started operations here in 2000.

By 2016, Capgemini, however, expects the number to account for half of its global workforce. Moreover, the company that has traditionally hired experienced professionals will also add freshers, said Jayanthi.

The company posted an 18% revenue growth in India on a total revenue of €5.1 billion in the June quarter, said Jayanthi.

About 85% of the work done out of India is divided between infrastructure management, application development and management, and consulting services while the remaining 15% comes from business process outsourcing (BPO).

“Our engineering services delivery that is being driven out of India will offer ‘digital engineering’ solutions to clients globally, with two-thirds of the business opportunity expected to come from the US in the next 12-18 months,” said Girish Wardadkar, global leader-engineering services, Capgemini.

Investing in the engineering space also allows Capgemini to offer a suite of services in addition to its traditional IT services, infrastructure managed services, BPO and consulting.

Capgemini, she added, with its six innovation labs in India will help drive 50% of the digital transformation required by clients out of India in areas like the Internet of Things, cloud, virtualization of the traditional application, development and management services.

Sanchit Vir Gogia, chief analyst and chief executive of Greyhound Research, acknowledged that Capgemini is building its capability in the engineering vertical but added that the company may face “tough competition from established Indian software services companies such as HCL Technologies Ltd, Infosys and Tech Mahindra Ltd, that already have a strong engineering practice”. “The company may also need to reduce its pricing by 25-30% to compete with Indian peers going forward,” said Gogia.


Offshoring, outsourcing and start-up salaries: The CIO’s hiring headaches revealed

September 9th, 2014

Tech chiefs on finding – and if needed making – staff with the right skills.outsourcing40
Even in an industry which is so apparently obsessed with feeds and speeds, getting the right staff with the right skills is still the key to success – and a tracking them down remains a big problem for IT.

Because the market for tech jobs is so varied it’s hard to generalise, but finding workers with the necessary abilities is a perennial problem, which might even be getting worse.

For example, in the UK tech salaries appear to be on the rise – and in the medium term the combination of an ageing workforce and a decline in the number of computer science graduates may mean that supply of staff continues to be constrained. Workers with in-demand skills around cloud, data science and web development are also able to command higher salaries.

And when asked ‘Are you able to find staff with the right types of IT skills needed for your organisation’ the majority of the CIO Jury members who responded said that hiring staff with the right skills was continues to be tough – even if the reasons they cite vary by industry and geography.

For some, the skills needed by IT staff have changed, making it harder to find the right balance. “Tech today is really about understanding/managing the interaction between people and technology,” said Jerry Justice, IT director at SS&G Financial Services. This means IT staff still need the aptitude for technology and people skills on top.

Similarly Chuck Elliott, CTO at Concord University said soft skills had to valued in addition to the hard ones: “Today’s IT staff must be capable of abstract reasoning, systems thinking, collaboration, relationship building, and experimentation.”

He added: “Skilled database administration and programming skills seem to be harder to find. As an older IT pro myself I would advise the more seasoned veterans to ensure they are keeping up with new and emerging technologies and that takes some serious effort.”

While the search for well-rounded individuals is common across many industries, some tech chiefs blamed the shortage of skills on some very IT specific issues, such as the rise of outsourcing.

For some time it has been argued that the tech industry trend to outsource and offshore IT jobs has made it much harder for college leavers to find new jobs (this then makes turns into a downward job spiral as companies can’t find local staff so have to outsource and offshore even more).

Derrick Wood, group CIO at Wood Group said the IT outsource model has not only limited and damaged career opportunities, it has also had a cultural impact on the positioning of IT with business leaders, “especially where IT reports in to CFO office and [is] perceived as an overhead cost which needs to be driven down to a commodity level.”

Wood said this means fewer school leaver or graduates will be attracted by a career in company IT, leading to a skills shortages not only in the technical areas, but in the softer skills around business systems analysis and project management.

Gavin Megnauth, group CIO at Impellam made a similar point: that even as demand for IT staff increases, since the financial downturn many organisations have halted their graduate and IT apprenticeship schemes and looked to lower cost offshore models to find skills.

But all this may have done is store up problems for the future. “The disruption of new emerging technologies over the past two years has left us with a skills shortage locally and the cost creep of offshoring over the past few years does now present us with issues,” he said.

Some tech chiefs point to the lure of tech start-ups: Brian Wells, associate CIO at Penn Medicine said “Finding software developers willing to work in the non-startup healthcare industry is a definite challenge.”

Similarly, John Gracyalny, VP of IT at SafeAmerica Credit Union said “Everybody here, even the dogs and cats, speak code. But I am fighting against Valley and San Francisco salaries – I’ve heard the average salary at Google is in the $120K range, and HR is convinced that I can get a senior java programmer for $60-70K. Not bloody likely.”

Others, like Florentin Albu, CIO at the Food and Agriculture Organisation of the United Nations point to a particular set of skills that are in demand. He said some types of skills can be found relatively easily – for example operations and infrastructure, application and app development on mainstream platforms and project management.

But he added: “I see a shortage of skills in areas that can at this moment bring strategic value to the business. I would consider in very much demand at present big data specialists, GIS experts, versed information managers and high end information security professionals, to name but a few.”

And when skills are hard to find, CIOs advocate a do-it-yourself approach – to train staff up. ” We are truly in a time of “Do more with the same”. The way we are addressing this is re-purposing (or retraining) existing folks to the new environment,” said Rocky Goforth, director of IT operations and infrastructure at Thoratec.

Tim Stiles, CIO at the Bremerton Housing Authority said: “We now recruit aptitude and attitude then train, train, train. Usually the outcome is perfect cultural fit and long term loyalty.”


IT Outsourcing Provider Infosys Gets Facelift With New CEO

June 24th, 2014

Last week’s announcement that SAP executive Vishal Sikka would be taking the top spot at Infosys may be an indication that the Indian outsourcing provider is capable of making fundamental changes in an attempt to regain its prominence in the offshore IT services industry. After all, Sikka will be the first non-founding CEO in the company’s history.Outsourcing_9a

“Something needed to change — and fast,” says Phil Fersht, CEO of outsourcing analyst firm HfS Research. “He is new blood. He has youth on his side. He gives them the immediate facelift they were craving.”(Disclosure: SAP is a client of Stephanie Overby.)

In recent days, the Bangalore-based company also announced a dozen new executive appointments.

But it will take more than a few new faces to transform Infosys. While these executive appointments are important, says Thomas Reuner, principal analyst within Ovum’s IT services practice, what’s required is a complex orchestration of changes in a very competitive environment.

IT outsourcing, IT outsourcing, IT offshoring, Indian outsourcing, Infosys

Founded in 1981, Infosys became the face of India’s booming post-Y2K IT outsourcing industry. New York Times columnist Thomas L. Friedman credited Infosys co-founder and former CEO Nandan Nilekani with inspiring his 2005 business best seller, The World is Flat.

But in recent years, Infosys has struggled to keep pace with its Indian and western rivals. “Despite a pretty decent financial performance in the market over the last 18 months — though lagging its major Indian counterparts — it was still abundantly clear that Infosys was struggling to break from its legacy past and make the changes necessary to rebuild company morale, reinforce strategic direction, and reinvigorate the whole company culture,” says Phil Fersht, CEO of outsourcing analyst firm HfS Research.

“The firm was getting squeezed and executives continued to leave the firm at a frequent clip — some voluntarily, but most forced out,” Fersht says. Infosys had come to be considered an old school offshore outsourcing provider by some.

New Infosys CEO, Vishal Sikka, Has His Work Cut Out For Him

Sikka is well-connected and well-liked by CIOs, say observers. But he will have his work cut out for him, most immediately in improving the deal pipeline at Infosys. “His first task is to fix the sales engine,” says Reuner.

Infosys has been overly dependent on smaller projects rather than large outsourcing relationships. “If you depend on discretionary spending, you’re in trouble when you encounter economic headwinds,” Reuner says. “They need a healthy percentage of their income to be predictable. We haven’t seen them win many large deals of late.”

Infosys also needs to further strengthen its platforms strategy, according to observers. “You only need to look at the acquisitions made by the likes of Accenture and IBM over the last couple of years to realize that cloud-based platforms that underpin analytical, consultative value-add services are the long-term future of services.” Infosys’ recent investment in its end-to-end Edge platforms were a step in the right direction. But “they’ve been struggling to execute on that,” says Reuner. Sikka’s technology product background could help.

Software executives, however, can struggle to make the transition to services. Consider Leo Apotheker’s short stint at hardware and services firm HP. “While we laud the bold approach Infosys is making by putting a technology products innovator at the helm, the firm is still primarily a services business with a services culture,” says Fersht.

“However which way we look at this, services is about people first. The CEO needs to understand what make millennials tick, how to develop training programs, how to keep wages low and morale high, how to develop succession plans and ‘up and out’ models that work, how to inject analytical and creative thinking into its staff.” Sikka must make the company’s front-line employees happier and stabilize the organization, agrees Reuner.

At the same time, Infosys needs to embrace increased automation. “This is more of a threat to current IT services and BPO delivery models, where advances in robotic automation software are enabling clients to reduce their already offshored services by a further 20 to 30 percent by replicating manually operated processes in robotic software solutions,” says Fersht.

“As robotics become more mainstream, because of client requirements, those providers with strong ability to replace labor with robotic process automation are going to be at an advantage.” Last year, Infosys struck a revenue-sharing partnership with robotic automation provider IPSoft, an indication that it recognizes that need to accelerate its automation option, says Reuner.

Time Will Tell if New CEO Will be Capable of Transformational Change

Sikka doesn’t take over until August. So it’s too soon to say whether the new CEO will be capable of making such transformational change. “Stabilizing the company is one thing,” says Reuner. “Catching up with peers who put in stellar results quarter after quarter is another. Even if you fix the internal problems, you still have the competitive pressure.”

While co-founder N R Narayana Murthy has officially stepped down, he could remain involved in decisions behind the scenes, which could thwart turnaround efforts, adds Renuer. “I don’t see him just playing golf.”

“Sikka needs to balance the realities of the present world with the one we’re moving into. Infosys isn’t IBM; isn’t at the sheer size and scale that it can throw all its eggs into the cloud basket and take its eye off the ball with its existing business. Infosys needs to keep one foot firmly planted in the reality of today’s business, while also developing for the future,” says Fersht.

“Vishal needs to take a pragmatic view of the pace at which Infosys can really change and evolve,” says Fersht. “Coming up with the big vision is one thing. Executing on it is another.”


Why ‘Nearshoring’ Is Replacing ‘Outsourcing’

June 5th, 2014

I do think that manufacturing has a chance to stage a comeback in the U.S.. The cost discrepancies that made the economics of outsourcing manufacturing to far-flung places have changed dramatically. In the case of China, for instance, rising inflation and wage expectations have decreased the cost advantages the country’s manufacturers enjoyed over U.S. firms and some estimate that by as soon as 2015, the U.S. could be in a cost parity situation with Chinese manufacturers.Outsourcing18

As U.S. firms are becoming increasingly concerned about protecting their intellectual property, “nearshoring”—or bringing production closer to the point of use—becomes attractive as the risk of having important intellectual capital stolen is decreased. Having the capability to manufacture close to where customers are located can also increase customer responsiveness and decrease turnaround times, making the supply chain more predictable.

Being physically close to customers is also very positive for innovation. We’re also seeing a rethink of some of the taken for granted assumptions that led to so much manufacturing outsourcing, for instance, the assumption that a leaner supply chain is always a better one.

Natural disasters such as the Tsunami in Japan can knock out a supply chain that is insufficiently diversified, making redundancy in the system and the capability to manufacture in a number of places more attractive. And as we see advances in automation and digitization, personnel cost as a fraction of total value created can be decreased, again making the economics of offshoring less compelling.

Of course, challenges remain. Companies would have to rebuild their supply chains and identify people with the right skills to handle increasingly sophisticated automated operations. U. S. Tax policy makes firm reluctant to repatriate profits earned elsewhere, making it more difficult to find the resources to invest in manufacturing operations.


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