IT Outsourcing India

While the maximum demand for outsourcing contracts typically comes from the North American and European markets, the Asian market is also fast catching up in terms of demand for IT services.

The only possible downside about the Asian market, however, is that it is a “lumpy market” meaning that outsourcing opportunities are not predictable.

Surprisingly enough, barring the usual outsourcing suspects in Asia Pacific-Japan and Australia, there is a significant uptick in demand from India. According to technology sourcing advisory firm, TPI, in 2006 alone the country saw closed transactions worth $2.6 billion. The Middle Kingdom paled in comparison at a mere $0.469 billion in the same period.

Growth of demand in Asia Pacific is driven by Australia (32%), Japan (27%) and India (25%). “India is a significant market to watch. There is larger demand in India-around four times more-than China. Future growth for service providers in Asia would be from Australia and India,” said Siddharth Pai, partner and managing director, TPI Advisory Services India.

Some of the major transactions in India last year included Ericsson-Bharti Airtel, Bank of HP-Baroda, Wipro-Dena Bank and Yes Bank, TCS-Tata Teleservices, TCS-Tata Steel.

Most of these deals were in the BFSI, manufacturing and telecom verticals.

If market research agency IDC India is to be believed, there could be more such deals for the taking in 2007. It has predicted that India’s domestic IT market spend would grow at 21.5 percent this year at Rs 75,891 crore (around $17 billion). Of this, it estimates the investment in system integration services in 2007 to be around $8.7 billion. Global IT services companies like IBM, HP and domestic players like TCS and Wipro Infotech are some of the leading players who are tapping this booming market.

Given these numbers, it is time export-oriented Indian IT players took a closer look at the home opportunity.

Towards annualized contracts

Pai also described some broader trends in the global market. One important trend that could be a harbinger of the changing market is that mega deals are giving way to mega-relationships. Explaining this, he said that large billion-dollar, multi-year transactions are being divided up among many vendors and also that customers are preferring to sign up service providers in limited two-three year relationships. “The market is moving from total contract value (TCV) to annualized billing.”

Customers are opting for these deals since it offers them flexibility, gives them a portfolio of vendors and increases the competitive level among the suppliers. “Competitiveness helps the clients since they can get the best value and discounts. Not just that they get to choose best of breed service providers for various areas and for future deals, they could negotiate on the deal valuation based on the competitiveness of the various suppliers.”

A few of the recent deals won by Indian players are cases in point. Qantas split its $142 million, multi-year contract between TCS and Satyam.

Besides annualized contracts, Pai said that TPI is now being roped in to advise on deals that are not based on a written transaction, SLA or deliverables that occur as a result of spillover from existing projects. “We are being called to rationalize contracts that are based on staff augmentation or in other words based on the provision of people deployed on the projects.”

Source : www.offshoringtimes.com

Outsourcing customer service operations — or call center operations — is a practice that is in high demand. Companies have recognized the benefits that outsourcing can provide and the strong organizations in the field that can offer the right solutions.

Once such organization is Stream, a provider of technical support and customer service. The company was recognized last week as one of the 2007 Global Services 100 (GS100) list, which honors the world’s most innovative providers of business and technology services. This marks the second consecutive year Stream has made the list.

Compiled by Global Services magazine, the GS100 identifies leaders in 11 service-delivery areas spanning business process outsourcing, IT outsourcing, engineering and customer care. Stream was ranked in the top 10 of the GS100’s global call center listing for 2007. The company ranked first on this list last year.

“While it’s always exciting for our company to be recognized so publicly, our inclusion on the GS100 list — for the second year in a row — is a special honor,” said CEO Toni Portmann, in a Tuesday statement. “This recognition is a real affirmation of Stream’s global strategies, especially Smart Shore(SM), which continues to be a key differentiator for our company.”

Stream has made its name in the high-tech vertical markets of software, hardware, consumer electronics and Internet service providers. While still focusing on these areas today, Stream ensures its offerings are based on the company mission — to deliver an exceptional customer experience.

Smart Shore(SM) is described by Portmann as a consultative approach to site selection based on a given client’s unique support needs. The company’s global infrastructure and locations enable Stream to determine the best mix of onshore, nearshore and offshore locations that will meet the support needs of a client. The company also evaluates need based on the product line, the customer set, the contact channels and the type of support required.

The GS100 supports Portmann’s emphasis on global sourcing methodologies. The report noted that a “critical differentiator among call centers is to have a network of global deliver centers.” The report also acknowledged that global service deliver options enable advanced call routing, time zone coverage and lowered risk through sound business continuity solutions.

Portmann added, “As a global company — and especially in our industry — global reach is about a lot more than dots on a map. Global reach is about flexibility, real choices, and tangible business value. These things are all necessary to get the right fit for the client’s needs, and most importantly, to deliver an exceptional customer experience.”

While we tend to look at customer service and call center options as one type of customer support, it actually encompasses many different types of provisions, none of which should be standardized for any industry or company as all needs are different, from the product to the customer.

Stream appears to understand that many options must be available to the customer in order to meet a specific need at a specific time, with the understanding that this need could change instantly. As long as Stream continues to offer flexible options to meet changing needs, the company will continue to thrive and be recognized for its efforts.

Source : www.offshoringtimes.com

Even as they agree about the positive role played by service providers, a large number of outsourcers are not able to quantify the actual benefits derived out of contracting deals says a KPMG International survey. The organisation surveyed 659 companies across the world. Nearly half of all respondents had an annual turnover of more than $1 billion. Over 80 per cent of the sourcing contracts covered by the survey refer to information technology outsourcing (ITO), 17 per cent to business processes outsourcing (BPO) and two per cent to knowledge processes outsourcing (KPO).

According to the survey, companies are now increasingly looking towards sourcing to provide tangible business benefits. The evolution of sourcing has created immense advantages for businesses that deploy and manage them effectively.

Commenting on the survey, Egidio Zarrella, global partner in charge, IT Advisory, KPMG, said, “Personally, I’m glad to hear that businesses feel that their sourcing arrangements are working as it was all too easy in outsourcing’s formative years to dismiss it as something which was never properly delivered. However, businesses have to be able to substantiate the benefits which outsourcing delivers. Simply going on a gut feel or anecdotal evidence is not enough.”

He added, “Significant opportunities do exist for organisations to capitalise on the strategic value of outsourcing. This potential can be unlocked by a more consistent measurement of contract provisions and other metrics about the relationship with the service provider.”

Despite the fact that outsourcing is now a widely accepted business practice, KPMG survey brings to light some problems, which companies claim to be suffering from regarding their outsourcing arrangements.A formal strategic measurement framework does not support 42 per cent of outsourcing arrangements. Almost two third’s of the respondents interviewed either tracked benefits at an elementary level or did not track benefits at all. 72 per cent of the customers reported that they do not have the benchmark for measuring the success or failure of their sourcing arrangements.

Speaking on the occasion of the survey release in India, Pradeep Udhas, global partner in charge, Sourcing Advisory, KPMG said “Sourcing is as important as selling for organisations, as it not only impacts profitability, but also makes it much more nimble in today’s dynamic environment”.

Key Findings:

42 per cent of organisations believe their sourcing contract has definitely improved financial performance 27 per cent said it has definitely improved their competitiveness.72 per cent of customers reported that they do not have, or share with their service providers, criteria for measuring the success or failure of their sourcing arrangement.

As many as 59 per cent of organisations interviewed either tracked benefits for IT projects at an elementary level, or did not track benefits at all

79 per cent of respondents did not accurately know the costs of selecting a service provider

14 per cent of respondents said they had a significant misalignment of financial and commercial expectations with their service provider

Source : www.domainb.com

The outsourcing history of India is one of phenomenal growth in a very short span of time.

The idea of outsourcing has its roots in the ‘competitive advantage’ theory propagated by Adam Smith in his book ‘The Wealth of Nations’ which was published in 1776. Over the years, the meaning of the term ‘outsourcing’ has undergone a sea-change. What started off as the shifting of manufacturing to countries providing cheap labour during the Industrial Revolution, has taken on a new connotation in today’s scenario. In a world where IT has become the backbone of businesses worldwide, ‘outsourcing’ is the process through which one company hands over part of its work to another company, making it responsible for the design and implementation of the business process under strict guidelines regarding requirements and specifications from the outsourcing company. This process is beneficial to both the outsourcing company and the service provider, as enables the outsourcer to reduce costs and increase quality in non core areas of business and utilize his expertise and competencies to the maximum. And now we can see the benefit to the service companies in India as they mature, prosper and build core capabilities beyond what would generally be possible by the outsourcing company.

Since the onset of globalization in India during the early 1990s, successive Indian governments have pursued programs of economic reform committed to liberalization and privatization. Till 1994, the Indian telecom sector was under direct governmental control and the state owned units enjoyed a monopoly in the market. In 1994, the government announced a policy under which the sector was liberalized and private participation was encouraged. The New Telecom Policy of 1999 brought in further changes with the introduction of IP telephony and ended the state monopoly on international calling facilities. This brought about a drastic reduction and this heralded the golden era for the ITES/BPO industry and ushered in a slew of inbound/outbound call centres and data processing centres. Although the IT industry in India has existed since the early 1980s, it was the early and mid 1990s that saw the emergence of outsourcing. One of the first outsourced services was medical transcription, but outsourcing of business processes like data processing, billing, and customer support began towards the end of the 1990s when MNCs established wholly owned subsidiaries which catered to the process off-shoring requirements of their parent companies. Some of the earliest players in the Indian market were American Express, GE Capital and British Airways.

The ITES or BPO industry is a young and nascent sector in India and has been in existence for a little more than five years. Despite its recent arrival on the Indian scene, the industry has grown phenomenally and has now become a very important part of the export-oriented IT software and services environment. It initially began as an activity confined to multinational companies, but today it has developed into a broad based business platform backed by leading Indian IT software and services organizations and other third party service providers. The ITES/BPO market expanded its base with the entry of Indian IT companies and the ITES market of the present day is characterized by the existence of these IT giants who are able to leverage their broad skill-sets and global clientele to offer a wide spectrum of services. The spectrum of services offered by Indian companies has evolved substantially from its humble beginnings. Today, Indian companies are offering a variety of outsourced services ranging from customer care, transcription, billing services and database marketing, to Web sales/marketing, accounting, tax processing, transaction document management, telesales/telemarketing, HR hiring and biotech research.

Looking at the success of India’s IT/software industry, the central government identified ITES/BPO as a key contributor to economic growth prioritized the attraction of FDI in this segment by establishing ‘Software Technology Parks’ and ‘Export Enterprise Zones’. Benefits like tax-holidays generally enjoyed by the software industry were also made available to the ITES/BPO sector. The National Telecom Policy (NTP) introduced in 1999 and the deregulation of the telecom industry opened up national, long distance, and international connectivity to competition. The governments of various states also provide assistance to companies to overcome the recruitment, retention, and training challenges in order to attract investments to their region. The National Association of Software and Service Companies (NASSCOM) has created platforms for the dissemination of knowledge and research in the industry through its survey and conferences. NASSCOM acts as an ‘advisor, consultant and coordinating body’ for the ITES/BPO industry and liaisons between the central and state government committees and the industry. The ardent advocacy of the ITES/BPO industry has led to the inclusion of call centers in the ‘Business Auxiliary Services’ segment, thereby ensuring exemption from service tax under the Finance Bill of 2003.

These measures have led to a steady inflow of investments by large foreign companies such as Reuters, for establishing large captive ITES/BPO facilities across India. Moreover, the existing ITES/BPO operations of major multi-nationals are also being ramped up to cater to the ever increasing demand for better and speedier service. Almost all of India’s top ITES/BPO giants have announced some form of expansion and are in the process of hiring manpower to fill the additional seats. India’s competitive advantage lies in its ability to provide huge cost savings thereby enabling productivity gains and this has given India an edge in the global ITES/BPO marketplace. NASSCOM studies pinpoint the following factors as the major reasons behind India’s success in this industry (Source: www.nasscom.org):

• Abundant, skilled, English-speaking manpower, which is being harnessed even by ITES hubs such as Singapore and Ireland.
• Improving telecom and other infrastructure which is at par with global standards.
• Strong quality orientation among players and their focus on measuring and monitoring quality targets.
• Fast turnaround times and the ability to offer 24×7 services based on the country’s unique geographic location that allows for leveraging time zone differences.
• Proactive and positive policy environment which encourages ITES/BPO investments and simplifies rules and procedures.
• A friendly tax structure, which places the ITES/BPO industry on par with IT services companies.

Outsourcing to India offers significant improvements in quality and productivity for overseas companies on crucial parameters such as number of correct transactions/number of total transactions; total satisfaction factor; number of transactions/hour and average speed of answer. Surveys by NASSCOM also revealed that Indian companies are better focussed on maintaining quality and performance standards. Indian ITES/BPO companies are on an ascending curve as far as the quality standards are concerned. Organizations that have achieved ISO 9000 certification are migrating to the ISO 9000:2000 standards and companies on the CMM framework are realigning themselves to the CMMI model. Apart from investing in upgrading their CRM and ERP initiatives, many Indian ITES companies are beginning to acknowledge the COPC certifications for quality and are working towards achieving COPC licences.

Despite being a fledgling in the global ITES/BPO industry, the Indian ITES industry recorded a growth rate in excess of 50% in 2002-03. Industry experts consider this a positive indication of the times to come and a look at the ranking and the revenue and headcount statistics show the potential of the industry.The global ITES/BPO industry was valued at around US$ 773 billion during 2002 and according to estimates by the International Data Corporation worldwide, it is expected to grow at a Compounded Annual Growth Rate (CAGR) of 9% during the period 2002-2006. NASSCOM lists the major indicators of the high growth potential of the ITES/BPO industry in India as the following (Source www.nasscom.org

Surveys of the Indian ITES/BPO industry in 2004 expected it to follow the trends given below:

The availability of technically trained and skilled manpower in India is making companies across the world look at the country as a profitable base to shift their high-end support services. Companies like COLT Technology Services are considering outsourcing their technical back-office support work to India. Other areas are high-end network engineering/management support. Another field which is showing immense potential is that of digital content creation and animation. Animation studios like Walt Disney, MGM and Warner Brothers are already outsourcing low-end work like clean-ups, tweening and modelling to India. The availability of skilled and trained manpower and India’s ability to keep in step with the latest technological advances in the industry is prompting foreign studios to consider India as a base to shift other high-end animation work like storyboarding and developing original content for animated films ad TV series. Tele-radiology is the next segment that holds great promise, mainly due to the time zone differences and the availability of highly skilled radiologists and companies like Teleradiology Solutions have been offering their services to US and South-East Asian hospitals for the past two years. Engineering services like CAD/CAM 2D, 3D and CAE modelling and design automation are the latest additions to the ever increasing list of processes being outsourced to India.

Source : www.outsource2india.com