IT companies look at BPO to soften recession impact

August 28, 2009

BANGALORE: A potential sale of India-based back office firm WNS Holdings could trigger consolidation in the business process outsourcing sector BPO as IT services firms, knocked back by the global financial crisis, look to bolster their presence in the growing BPO market.

According to a media report last week, private equity firm Warburg Pincus was looking to sell its 50.12 percent stake in WNS, a move that would entail a change of control at the Mumbai, India based call-center operator.

IT services firms have thrived for years by winning contracts from international clients, helped by a large pool of English-speaking engineering workforce and cheaper wages.

But a downturn in the United States, which accounts for more than half of the sector’s export revenue, and turmoil in the global financial sector have halted the scorching pace of growth.

"Perhaps because the IT offshore business slowed down in the recession, IT services firms are looking at other areas where they can make some good progress," Brandon Dobell, an analyst with William Blair & Co, said.

While most of the top Indian IT services firms such as Infosys Technologies and Wipro have BPO arms, some of their U.S. based counterparts such as Cognizant Technology Solutions and Affiliated Computer Services Inc could be interested in the sector.

A Cognizant spokesman refused to comment. Even some of the world’s largest IT services firms such as IBM and Accenture have forayed into BPO services. In 2004, IBM acquired Daksh to create India’s largest BPO firm.

Pure-play BPO firms such as WNS and EXLService Holdings, which largely provide services such as insurance claims processing, payroll management and customer support, are seen by analysts as possible takeover targets.

Sykes Enterprises Inc, Genpact Ltd and ICT Group could also be on the takeover radar.

"Strategically, it makes some sense. There is a lot of offshoring growth opportunities available in BPO, and lot of budget dollars that could be captured by acquiring one of these BPO players," said Joseph Vafi of Jeffries & Co.

A recent Nasscom-McKenzie report had projected BPO to be a $340 billion-$360 billion market opportunity by 2020.

"So, I would look at it as an opportunistic move to expand platforms," said Vafi, adding that companies such as Cognizant and Patni Computer Systems, which do not have a strong BPO platform, could look at BPO firms such as WNS.

In an indication of what lies ahead, Philippines-based BPO firm eTelecare Global Solutions Inc and Boston-based Stream Global Services Inc merged late last week to broaden offerings and geographic footprint.

China’s leading IT outsourcing firm VanceInfo Technologies is also looking at fresh acquisitions to boost its presence in the backroom operations of the financial industry.

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MNCs new kings of outsourcing

July 29, 2008

The $50-billion IT services industry is in for tough days. And this time, it’s not just a slowdown in spending that’s worrying, but increasing competition from multinational service providers who have ramped up significantly.

With a robust low-cost delivery model in place, MNC IT services companies like IBM, Accenture, HP-EDS and CSC have bagged quite a few new offshoring contracts in recent times. New IT deals offshored to India and other low-cost destinations from firms like United Healthcare, Universal Music Group, Hartford Insurance, Bristol Myers Smith, ICAP, BHP Billiton, Bombardier, P&G , Ericsson and Banco Fondo Comun (a Venezuela bank) have gone to MNCs. Incidentally, in many of these contracts—multi-year $50-500-million deals—Indian IT and BPO companies were already providing services for the clients. And in most cases, MNCs bagged the new offshored work beating Indian service providers.

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UK outsourcing to private sector doubles

July 11, 2008

Outsourcing of public services to the private and voluntary sectors has almost doubled to close to £80bn in little more than a decade and makes up a far larger part of the economy than previously thought.

A government-sponsored study by DeAnne Julius, the economist, revealed on Thursday that those sectors supply a third of public services – everything from National Health Service treatments to bin emptying, IT, back-office functions and RAF pilot training

The market is worth £79bn, employs almost as many people as the NHS and accounts for 6 per cent of gross domestic product, making it a larger industrial sector than pharmaceuticals, automotive or electricity, gas and water. It also has considerable potential for further growth both at home and abroad, the study is expected to conclude.

John Hutton, the business secretary who commissioned the report, is set to lead a first public service industry trade mission to Washington next week to promote its export potential.

“UK companies and the services they deliver are of increasing global interest in this growth market,” said Mr Hutton. “As policymaker, procurer and provider, we… must do all we can to help UK companies prosper at home and in these new overseas markets.”

Previous estimates of the size of the public services industry suggested about a fifth of public services were delivered by the private and voluntary sectors.

The study, which has disaggregated government accounts to get to the answer, shows it to be far larger. In real terms, it has grown from revenues of £42bn in 1995-6 to £79bn last year.

Growth has slowed, however, running at 3 per cent a year real after 2003-04, against 7 per cent real in the preceding period. The prime minister has said the private sector role will grow “at an increasing pace” where it offers value for money.

Sourcve : http://www.ft.com/ 

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Indian outsourcing gaining momentum

June 21, 2008
Indias top outsourcers have increased their share of the global IT services market, as customers break down large multibillion orders into smaller orders that Indian outsourcers can handle, and also as customer confidence in Indian providers grow, according to research firm Gartner.Gartner said on Thursday that the top six Indian offshore service providers, including Satyam, Wipro, Infosys, Tata Consultancy Services, Cognizant and HCL Technologies, accounted for 2.4 percent of the total worldwide IT services market last year as compared to 1.9 percent of the total worldwide IT services market in 2006.

All the companies in Gartners list have their headquarters in India, with the exception of Cognizant, which is based in the U.S. but delivers services mainly from India.

Indias top outsourcers have delivered high quality at low cost, and put in place top quality human resources practices that enable them to hire and manage a large number of staff, said Arup Roy, senior research analyst at Gartner, on Thursday.

We expect the share of these companies to continue growing, Roy said.

Other analysts agree that Indias top outsourcers are increasing their share of the IT services market. The share of Indian outsourcers has been growing over the last few years, and most of the growth has come from their strength in application development and maintenance ADM, said Siddharth Pai, a partner at outsourcing consultancy firm Technology Partners International. Indian companies are now clinching larger orders for ADM, and have close to 40 percent of this market, he added.

There are, however, challenges ahead for the companies in the Gartner list. Large multinational services companies like IBM and Accenture have set up operations in India to take advantage of the countrys lower staff costs. The lower costs of Indian providers will not continue as a significant differentiator down the line, Roy said.

These outsourcing companies are also grappling with growing staff costs, staff attrition, the appreciation of the Indian rupee against the dollar, and their large dependence on the U.S. market which accounts for about 60 percent of their revenue.

Indias outsourcing business, which includes IT services and business process outsourcing, is likely to see its revenue growth rate fall to about 25 percent this year from an estimated 29 percent in the Indian fiscal year ended March 31, Som Mittal, president of the National Association of Software and Services Companies NASSCOM, told reporters last week in Bangalore. The main reasons: the economic slowdown in the U.S. and the rise in oil prices.

Indias top outsourcing companies are however expanding their operations in other countries to reduce their dependence on the U.S. market. These companies share of the total Western European IT services market, for example, moved up from 1.5 percent in 2006 to 1.9 percent last year, after their Western European revenue grew by 51 percent, according to Gartner. Attempts by the top Indian companies to diversify into new services like remote infrastructure services have also been successful, Roy said.

Source : http://www.offshoringtimes.com/

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