Outsourcing opportunities during recession

As written by Matthew Deayton, General Manager, Business Development

Outsourcing has become a key business tool for small and large companies across market sectors. But with the current economic downturn, have companies put a stop to outsourcing?
Based on our experience, the answer is a definite no. We are still grabbing business opportunities from the financial and professional services sector.

I recently attended a KPMG conference on outsourcing trend, and the advisory firm confirmed that the recession is opening new opportunities and focus on outsourcing, with companies seeking newer destinations to lower costs and get added benefits.

According to KPMG, the economic downturn’s impact on outsourcing varies by market. But it has emerged that demand for outsourcing from Asia Pacific is on the rise, creating large opportunity for local suppliers to develop their capabilities.

The focus of companies looking to outsource has also changed as economic outlook still looks gloomy. The World Bank expects the world economy to contract by 1.7% and global trade by 6.1% in 2009. While companies previously were willing to invest in outsourcing relationship more than longer term benefits, the recession has put the priorities on cost optimisation and sustainable innovation. In short, outsourcing has risen above just a mere cost cutting tool, to become more strategic to the overall business strategy.

In terms of outsourcing destinations, India is still popular but China is aggressively catching up, and other markets like the Philippines may get a second look.

The KPMG report said in aggregate, the majority of companies in Asia outsource to India at 55%, with China as the second most popular destination at 36%, Singapore at 20%, Hong Kong 16%, and the Philippines 7%.
KPMG said English is the main outsourcing language in India, but with its rapidly rising labour costs, English-speaking companies might give the Philippines, another English-speaking outsourcing destination, a second look.

The conference highlighted some of the key factors that make a location attractive to outsourcing, which included:

• Demographics – a large pool of well educated people available at a highly competitive cost
• Infrastructure – stable environment in which to operate, power, internet connectivity, access to the work place.
• Political Stability – giving confidence to potential clients that the operation is not going to be shut down due to political unrest.

There are other factors like rule of law, protection of intellectual property right, and track record. But the three factors stated above in bullet points were significant barriers for us to attract clients in Indonesia or the Philippines had we entered these markets several years back. Things have changed. Less of the well educated population are no longer attracted to go overseas as more opportunities open locally, the infrastructure has improved significantly, and the political stability is much more evident.

We are positioned in a perfect situation to be a key outsourcer of business processing, and we already have a core of well-experienced team in our specialised field of financial services. As China attracts more outsourcing to this side of Asia, all the region’s countries will benefit. In addition, having representative offices in Hong Kong and Manila positions us well to capture part of the market migrating south.

The Precision Group is a global business process outsourcing company with offices in Hong Kong, Isle of Man, Jakarta, London and Manila. It provides integrated middle and back-office support solutions, as well as creative and web services for the financial and professional services sector.
For more information, please visit our website at www.precision-group.biz

How the financial crisis will affect the outsourcing industry

Oct 9th 2008
From The Economist print edition

IN ONE respect it has been a record couple of weeks for “outsourcing”. Around the world, governments and taxpayers have agreed to help ailing financial firms offload their toxic loans and resolve their liquidity worries. Banks are not the only ones hoping that this will help keep them afloat. The multi-billion-dollar outsourcing industry that runs computer systems and other things on companies’ behalf is keeping its fingers crossed, too. After all, financial giants have helped drive the industry’s stellar growth in the past few years. Now they threaten to undermine it.

Huge outsourcing deals involving banks are still being done—on October 8th Tata Consultancy Services (TCS), a big Indian firm, announced a $2.5 billion, nine-year deal with America’s Citigroup—but they are getting rarer. TPI, a consultancy which tracks outsourcing deals worth over $25m, says that in the first nine months of 2007 financial-services firms signed 132 such deals, worth a total of $17.9 billion; in the first nine months of 2008 there were only 101, worth a total of $10.8 billion.

Some outsourcing folk claim that the financial crisis could ultimately help their business, even though it threatens to harm it in the short term. For one thing, they say, banking survivors that already use outside contractors will give them more to do as they cut costs. For another, banks that have hitherto shunned outsourcing will have to embrace it to protect their margins. And those with their own offshore activities will be more likely to turn them over to specialists. As part of this week’s deal, Citi is selling its Indian back-office operation to TCS for $505m. “This deal sets the stage for a lot of future revenue,” says Subramanian Ramadorai, TCS’s chief executive.

Other industry bosses are more cautious about forecasting the impact of the banking debacle. “It’s like driving blind at the moment,” says Girish Paranjpe, co-chief executive of Wipro, another leading Indian outsourcing firm. As they struggle for survival, many banks have put discussions about outsourcing contracts on hold or just cancelled them altogether. Once the dust settles there will be far fewer financial institutions around, so competition for the remaining contracts will be stiffer.

American outsourcing giants such as Accenture and IBM will suffer from all this too, but India’s behemoths are particularly exposed. Unlike their American rivals they do not have other activities, such as consulting, to fall back on. NASSCOM, a body that represents India’s outsourcing firms, reckons that financial-services work accounts for 30-40% of the industry’s activity. To make matters worse, other areas such as back-office operations for airlines and retailers are also slowing. Hence predictions that contract prices charged by Indian firms are likely to drop. CLSA, a brokerage firm, predicts they will fall by 3-5% in the next fiscal year, starting in April 2009.

Faced with tougher times, more outsourcing firms sitting on piles of cash will turn to acquisitions as a way to boost revenues. Infosys and HCL Technologies, two other big Indian companies, are already locked in a battle for control of Axon, a British firm that provides outsourced computer services. On September 26th HCL bid £441m ($813m) for Axon, trumping an earlier offer of £407m from Infosys.

As they chase new revenues, outsourcing companies will also need to clamp down on costs. These have been soaring, especially in India, where a ferocious war for talent has driven up wages and led to very high staff-turnover rates. But now companies are hiring new staff only once deals are in the bag, and turnover rates are falling, says Mr Paranjpe. That is good news, but it signals trouble ahead.

Source: http://www.economist.com/business/displaystory.cfm?story_id=12376813

Philippines answers the call to prosperity

Canadian companies see opportunity in country’s rise in offshore services

Sarah Efron, Financial Post Published: Friday, September 05, 2008

Filipino agents work at Advance Contact Solutions Inc.’s call centre in Manila.

MANILA — In a row of cubicles, young women with headsets are talking with customers across the ocean in North America, answering their questions about products they’ve purchased at a U.S. department store. It’s midday and the call centre is mostly empty, but by 2 a.m., the newly renovated room will be packed. And by October, two more floors will be transformed into call centres.

No, this isn’t Bangalore. This shiny call centre, operated by global outsourcing company SITEL, is located in the Philippines, now the No. 2 country in the world for offshore services. Following India’s model, the Philippines has realized that offshoring — bringing part of a company’s operations to a foreign country — could be the key to dragging the country out of poverty.

Total offshore and outsourcing revenues in the Philippines grew to US$5-billion in 2007 from US$1.5-billion in 2004. The sector now directly employs 340,000 people and contributes more than 3% of the country’s GDP. And the industry trade organization is trying to keep the boom going: Business Processing Association of the Philippines (BPAP) has an ambitious goal of increasing the country’s share of the global market from to 10% from 5%, and aims to hit revenues of US$13-billion by the end of 2010. The Philippines is just one of many countries, such as China, Hungary, Poland, Brazil and Mexico, that is trying to tap into the rapidly-growing offshore market.

This SITEL office in Manila is just one of six call centres the company has in the country. The company established 200 call centre seats in the Philippines in the year 2000, and now has 7,500 seats manned by 9,000 employees. SITEL, which is controlled by Onex Corp., Gerry Schwartz’s Toronto-based private equity firm, operates call centres in more than 20 countries. Like an increasing number of outsourcing companies, they’re looking to spread their business operations across various countries in order to mitigate risk factors in any particular region.

“There’s a trend away from putting all the eggs in the India basket,” says Paul Schmidt, partner and managing director at TPI, a global outsourcing advisory firm based in Texas. “For our clients, it’s not India or some other location. It’s India and some other location. They’re looking to have a number of global locations, kind of a diversified portfolio, if you will.”

The Philippines’ widespread use of English and its historical ties with the West — it was a U.S. colony for almost 50 years — is helping in the global outsourcing market. “In call-centre work, the Philippines is a strong No. 2 and is very competitive with India,” says Mr. Schmidt. “The quality of their voice services is considered very high because of their English proficiency and cultural affinity, particularly for North America, which they have leveraged into supporting the back-end processes as well.”

Like India, the Philippines is also buoyed by a strong telecommunications infrastructure, tax breaks and low wages: Total labour costs for an employee are around US$5,000 to $6,000 a year, compared with US$25,000 to $30,000 in North America. The Philippines also has one distinct advantage over India: the local accent is seen as more palatable by some Western customers.

“We decided to start our operations in the Philippines rather than India, because the dialect here is softer,” says John Langford, executive vice-president of ICT Group, a Pennsylvania-based global outsourcing company. He is sitting in the boardroom of the company’s call centre in Manila’s Makati City. “A lot of our clients in the U.S., and also the U.K. and Australia, find the Indian accent very harsh. The Filipino accent is more neutral. A lot of the time, our agents are mistaken for Hispanic.”

Out of ICT’s 5,000 call centre seats in the Philippines, 200 serve Canadian clients. Most are contracted by Canadian financial institutions to respond to incoming service calls or to make outgoing sales calls. Other Canadian companies with offshore operations in the Philippines include Telus Corp., which has 6,500 employees servicing their own clients and clients of other companies, and Thompson Reuters Corp., which has more than 1,000 employees doing back-office work.

However, there are some red flags for Western companies considering setting up shop in the Philippines. The country is seen as politically unstable, and some foreign companies fear a sudden regime change could alter the business climate. The quality of education is also seen as a limiting factor for the industry’s labour pool. “At the moment, we are churning about 800,000 new people into the workforce every year, yet very few of them can qualify for an outsourcing job,” says Winston Padojinog, senior economist at Manila’s University of Asia and the Pacific. “The acceptance rate for workers in the industry is only about 5%. There’s a mismatch of skills, and some of those skills are very basic: English skills and analytical skills.”

While achieving 10% of the world’s offshore market in the next two years may be a difficult target for the Philippines to reach, the sector is certainly on track for substantial growth. The Philippines’ offshore industry is already making moves to expand beyond Manila to other regional centres to keep labour costs down, and call centre managers are working with educational leaders to align graduates’ skills with industry needs.

And taking another page from Bangalore’s playbook, BPAP is encouraging the industry to move beyond call centres, which currently make up about two-thirds of the country’s operations, and move into higher-value outsourcing such as legal services, back-office accounting, architecture and video game design.

Meanwhile, the impacts of the offshore industry are having ripples through the Philippines’ economy. Near the call centres, 24-hour shops and restaurants have popped up to cater to the young, well-paid workers. Plus, the industry is having a side effect of retaining some workers in the country, which is well known for sending its people abroad to be homecare workers, nannies, nurses and seafarers.

“One of my goals is to give Filipinos job opportunities here in our own country,” says Danilo Reyes, president of SITEL’s operations in the Philippines. “Because of the offshoring industry, a lot of would-be migrants have stayed behind because they have a stable, good paying job here that they can be proud of.”

Financial Post

sefron@financialpostbusiness.com

WNS enters the BPO big-time

So the long debated and much anticipated saga of the Aviva BOT (Build-Operate-Transfer) has finally been resolved, with WNS Global Services taking on a $1 billion contract to become the British insurance giant’s BPO provider of choice for the next 8 years.  WNS will be assuming all of the current 24/7 Customer contact center work and some of EXL Service’s F&A work, with the latter’s contract remaining until 2012.  This contract follows a storming 2007 for WNS, where the Mumbai-headquartered firm has made significant inroads into both financial services and retail sectors, in addition to its already dominant position in the airline sector.

Some key points

• This deal will likely propel WNS close to a 10% marketshare for F&A BPO
• WNS’s recent acquisition of BizAps gives the firm much-needed ERP enablement skills at a time the firm is making aggressive strides to compete for enterprise BPO deals – a key requirement
• Not a vote of confidence for the much-vaunted BOT model for business processes – and Wall St. also seems to be going cold on BOT. It’s interesting that Aviva is electing to move to a straight BPO model at the same time it is expanding aggressively into the US domestic insurance market
• WNS’s revenue has rocketed to $460m for fiscal 08 – a 32% hike over 2007, ever since our popular guest columnist Deborah Kops took over their marketing.

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‘$1 Billion Dollars….

Source: http://fersht.typepad.com/the_outsourcing_bloghorse/2008/07/wns-enter-the-bpo-big-time.html

Outsourcing the Offshore Operations

Western companies are increasingly getting away from running their own offshoring operations, handing the jobs over to Indian tech-services specialists

by Steve Hamm

A monumental shift in how Western corporations tap into Indian talent is taking place. Companies are moving away from running their own offshoring operations and handing at least some of those jobs to Indian tech-services specialists.

The most recent sign of the sea change came July 10, when British insurance giant Aviva (AV) said it sold a 5,000-strong South Asian outsourcing operation to WNS Global Services (WNS) of Mumbai. WNS paid $228 million for these so-called captive operations in Bangalore, Pune, Chennai, and Colombo, Sri Lanka. In return, Aviva agreed to pay up to $1 billion to WNS over more than eight years for handling customer service, account setup, accounting, and claims processing.

There has been a steady drumbeat of similar large deals in recent years, but industry executives and analysts say the pace is quickening—driven by currency swings, the increased costs of doing business in India, and the need for some Western financial services to raise cash to handle shortfalls elsewhere. “The writing is on the wall,” says Sudin Apte, an analyst at market researcher Forrester Research (FORR). “This is not working anymore.”

Labor Savings Aren’t Enough

Apte estimates more than 150 companies have shifted in the past few years from running captive operations to using a mix of internally run and outsourced operations. He expects another 80 to 100 companies will make the move in the next year or so. In an April report, his survey of 59 corporate information technology executives showed 22% of them plan to stick with captive operations while 66% will use outsourcing companies in whole or part. That’s a huge shift from the results of a survey at the end of 2005, when 55% of respondents said they’d run their own offshore operations.

A lot has changed since 2005. For one, many of the captive operations have swelled in size and have staffs numbering 3,000 to 6,000. Apte and other analysts believe offshoring outfits that large are hard for parent companies to operate efficiently. In many cases, it’s better to hand the business to outsourcing firms that have even larger-scale operations and can move employees from one project to another as the needs of a large customer base shift. The other major change is that the rising costs of doing business in India mean it no longer makes sense to move work there just for the labor-cost reductions. To pay off big-time, these shifts must include gains in productivity through process improvements and innovation that the top Indian outsourcing companies have mastered.

Other notable handoffs include the 2007 Infosys acquisition of Philips Electronics’ business process outsourcing (BPO) operations in India, Thailand, and Poland; and the 2006 joint venture formed between Tata Consulting Services (TCS.BO) and Britain insurer Pearl Group. General Electric (GE) gave the trend a lot of momentum in 2005 by spinning out its Indian back-shop operations as Genpact in 2005. WNS itself was formed six years ago as a spinout from British Airways (BAY.L).

Economies of Scale

The Aviva deal gives WNS a chance to get bigger fast. The BPO specialist now has 22,000 employees. WNS bested a handful of other bidders. “This is a very sizable piece of business that makes us a company of a different scale,” says WNS chairman Ramesh Shah. “We understood the business, and we wanted to have a long-term relationship with them.”

Aviva had pioneered the strategy of hiring Indian outsourcing specialists to set up and temporarily run operations and then pass them off to Aviva. It was new to the market and figured it could benefit from the expertise of local players. WNS was one of its partners. But last year it reviewed its options and decided to reverse the way it does things. In a time of volatile currency and salary shifts, Aviva sought more predictable costs. Also, it believes WNS can wring more costs from its operations. “These companies have been better than corporations at driving efficiencies because they’re specialists in the area,” says Cathryn Riley, chairman of Aviva Global Services. She says the company is as committed as ever to having much of its work done in India, in spite of rising costs.

One of the advantages the Indian firms bring is their sheer size. Infosys, for instance, now has nearly 100,000 employees and plans to hire another 10,000 this quarter alone. These companies have hundreds of customers they can serve from their large delivery centers, using standard technologies and business practices.

A wild card in the shift from captive offshoring operations is the problems of big Western banks. Hard up for funds as a result of their mismanagement of real estate finances, they need cash. But analysts and executives caution that these firms may not be able to get the kind of money they’re looking for by selling Indian operations, mainly because the Indians typically drive a hard bargain. “Sometimes the price is too high for us,” says Kris Gopalakrishnan, chief executive at Infosys, which is now looking at two potential banking deals.

But Forrester’s Apte believes the banks may eventually be forced to sell out even if it means settling for less. “Their desperation is going to grow,” he says.

Hamm is a senior writer for BusinessWeek in New York and author of the Globespotting blog.

Process Optimization is the key to successful Procurement BPO

I was recently engaged in an excellent conversation witn Gianni Giacommelli, who leads marketing strategy for SAP’s BPO division, on the way forward for the Procurement BPO market. One of the aspects about SAP that has impressed me, is their strong view of BPO as a opportunity, as opposed to a threat, to their business. Gianni’s boss, Christain Baader, has performed an excellent job driving this strategy in recent years, and made his case-in-point last year where he discussed why technology is an important key to BPO-sustainaility. BPO is all about driving common strandards that can help service providers leverage their service staff and technology applications across multiple clients in a utility model. So what better opportunity is there to encourage enterprises to standardize on a common ERP archtecture than when they evaluate BPO opportunities for their business? And it’s not solely about BPO, it’s also about globalization: the more global enterprises can encourage their country-level businesses to operate within a global process template for functions such as finance, HR, sales and procurement, the quicker they can access critical data to make global business decisions. Without digressing further, I asked Gianni to summarize our conversation regarding the development of procurement BPO solutions, where many of the leverage points for cost savings are driven through process and platform optimization, and not solely labor arbitrage. Over to you Gianni:

Procurement outsourcing burst onto the business process outsourcing scene with great promise, but it has changed of face in the last two years. While early deals delivered tactical benefits such as procurement operations cost savings, many companies are still not realizing the more substantial advantages that can be gained. In early procurement outsourcing deals, service providers did not consistently manage to deliver more substantial spend-related savings. With the cooperation of clients, they need to complete designing and deploy integrated, end-to-end, sourcing-to-settlement procurement processes – and be allowed to contribute experience and best practices. At the very least, the provider should be able to bring in an infrastructure (i.e. a pre-configured best practices platform, ideally with some procurement-specific services on top e.g. level-1 support and supplier onboarding) that would allow the client to focus on executing seamlessly. Technology utilization has a key role here and, while theoretically understood, is often a contentious ground – and in our experience requires more than a “business as usual” treatment.

Realizing the Full Value of Procurement Outsourcing

Basics first – and a home truth: procurement outsourcing success requires the CPO, COO and CFO to do their part – collegially. The only way theoretical savings negotiated at the sourcing level (which is where often CPOs incentives are confined) can be turned into actual savings is 1) ensuring compliance within the client company and 2) ensuring the results can loop back into strategic sourcing where the observation of the actual company behavior (what is bought, when, where, in what sizes) can provide additional levers to the category managers. Most of the remaining savings come from controlling one-off purchasing and vendor payments and from cost avoidance as a result of demand management and reduced costs of enterprise procurement activities (this is where the CFO and COO typically have a say).

While companies can realize procurement outsourcing value by leveraging the provider’s economies of scale and labor arbitrage, process optimization (defined as processes and knowledge including securing category-specific knowledge and related usage) is the single most important lever. To maximize the impact of this lever a unified technology platform must support and consolidate sourcing and purchasing processes. A key aspect in securing procurement savings, compliance is ensured in the purchasing and ordering process. This can be accomplished by leveraging the use of procurement cards, approval and other workflows, as well as data analysis and reporting based on standard procurement reports within the business intelligence component. Strategic sourcing savings are obtained by enforcing stronger compliance, as the customer converts results from sourcing events into contracts and catalog items from which requisitioners can choose. Poor performance in activities such as one-off purchasing and problems like high costs of demand management and enterprise procurement activities (such as the cost of the procurement organization) can be addressed with internally hosted catalogs that contain only approved purchasing items (both goods and services) and respective vendor contracts.

Four years of experience in procurement outsourcing, two simple views

1) Providers that are striving to deliver optimum procurement outsourcing solutions typically offer processes based on best industry practices and – in order to achieve that – have realized the importance of strong relationships with the software suppliers underlying their offerings to ensure effective design and execution of service delivery. BPO-specific implementations are different from typical system-integration jobs (due to the search for replicability leading to heavier templatization and multi-client architectural choices). For this reason such collaboration must go beyond a simple joint go-to-market effort, and must encompass service delivery design – so that the solutions are deployed in a way that they address the business problem and they are cheaper to implement and run. As an example, SAP has signed such partnership agreements with Accenture, Hubwoo, IBM, Infosys and Quadrem and spends a significant amount of resources in those activities.

2) Customers that have achieved long-term benefits from procurement outsourcing are shown to be consistently open to using their providers’ standard processes and platforms. By doing so, providers can achieve the economic model they need to deliver innovation. Again as an example SAP has a few dozen customers operating on the basis of the BPO program and we continuously collect learnings from such experiences. The learnings are exceedingly interesting, and the sad truth is that – in the absence of such program – those experiences would be lost between (and within) BPO provider and software vendor.

Gianni Giacomelli is Director of global strategy and marketing for SAP’s BPO business unit. He previously worked as an outsourcing sourcing advisor for Everest Group in Europe..

Source: http://fersht.typepad.com/the_outsourcing_bloghorse/2008/07/procurement-outsourcing-burst-onto-the-business-process-outsourcing-scene-with-great-promise-but-it-has-changed-of-face-in-t.html

Infosys Technologies opens new BPO campus in Rajasthan

Infosys BPO, the business process outsourcing (BPO) arm of Infosys Technologies (Infosys), today announced the inauguration of its second BPO campus at Mahindra world city, the Special Economic Zone (SEZ) in Jaipur, Rajasthan.

Speaking on the occasion, Kris Gopalakrishnan, CEO and MD, said, “Jaipur is becoming an exciting destination for the IT-ITES industry. The chief minister, Vasundhara Raje has proactively put in place progressive policies and has invested in infrastructure to ensure rapid growth. Our investment in the second campus firmly establishes Jaipur as a significant center for Infosys. We are extremely happy to be in Jaipur and acknowledge the support and encouragement of the state government.“

The new campus at the SEZ at Mahindra World City, Jaipur, will be spread over 42 acres with a total investment of Rs 5.31 billion to be made in phases. In phase 1 of its construction, the company has made an investment of Rs 1.71 billion , creating a built-up area of 3,69,100 sq. ft and a seating capacity of 3,200.

The Jaipur campus has been built on the best global environment standards to ensure efficient consumption of energy per square foot and the least carbon footprint. The campus is designed as a green building to meet the gold/platinum rating standard of LEEDS. As a part of Infosys drive to become carbon neutral, this campus will have 49% of the total area as the green belt. Green sourcing practices, integrated water management, and adoption of environment friendly refrigerant are among the many initiatives that Infosys has undertaken to help control global warming and ozone depletion, the company said in a release.

The first Infosys BPO campus at Sitapur has been operational since August 2006. This center has seen an investment of Rs 227.7 million, a built-up area of 78,000 sq. ft and has a seating capacity of 890.

Shares of the company gained Rs 48.6, or 2.86%, to settle at Rs 1,748.5. The total volume of shares traded was 192,374 at the BSE (Friday).

Source: http://www.myiris.com/rss_index.php?fileR=2008/08/29/20080829184510196