Offshore services to India- Australian are hesitant

India's biggest outsourcers finding it hard to convince Australian customers, as most of the large organisations feel that offshoring outsourcing is a risky business. Indian companies like Wipro, Satyam Computer Services, Tata Consultancy Services and Infosys who have setup their facilities in Australia have taken as long as two year to raise their sales pitches to match Australian needs.

India-based Gartner Research Vice-President Partha Iyengar said the subcontinent's biggest technology services players had stumbled in Australia because they had tried to apply strategies developed for the US market.

Also during this time, their price advantage has taken a beating, as they have to share their margins to keep with the high staff turnover and infrastructure costs, which are forcing them to hike rates.

What Indian firm overlooked is the lower value of the Australian dollar compared with the US, and the greater privacy and regulatory burdens Australian companies bear.

Outsourcing service try to use the same value propositions with Australian buyers, and unfortunately they are unable to develop their sales and market messaging to be specific to different markets.

The Australian organisations that have a problem with offshore outsourcing include the Commonwealth Bank, which are re-tendering millions of dollars worth of software maintenance and support work.

Qantas and Telstra have engaged major players, including Satyam and Infosys and have confirmed that they will be shipping some software development jobs to India as a cost saving measure.

A number of clients, however, are reporting that the cost gap between Australia and India is closing, and some say they have a problem with retaining the loyalty of staff members over in India.

Staff churn is also a major concern for Indian outsourcing, and many Indian firms are increasing the rates to increase the remuneration packages of their employees in a bid to keep them longer. That has the unforeseen effect of increasing the cost and reducing the benefit of them actually being offshore in the first place.

Indian firms have been pushing out into the subcontinent's second-tier cities in a bid to combat rising wage bills and rein in employee churn.

Some industry observers have argued that this is pushing up short-term capital costs for Indian companies. However, these costs, as well as rising salaries, are at least in part offset by sharp reductions in other expenses, such as telecommunications.

Source : www.offshoringtimes.com

Infrastructure management in need of trained hands

Infrastructure management services (IMS) is an area that is proving to be a major factor in IT space in recent times. And as business demand grows, companies dealing with IMS are rushing to ramp up their teams to meet this demand. While fresh talent is easily available, these firms are finding it hard to find experienced hands. Survey says that while there is no problem in recruiting people at the fresher level, there is a bit of an issue at the mid and senior levels.

"Companies have started feeling the demand for IMS talent in the country. The overall IMS industry in India will open 30,000-40,000 jobs in the next three years. Supply will be a major challenge. The challenge will be both on quantity as well on quality front".

Some examples how companies are cashing on this IMS talent, HCL is growing 100% year-on-year in employee numbers with headcount being 4,100 people. Wipro Infotech, which has over 8,000 employees & partner resources working on IMS-related projects, is continuously ramping up. Other system integrators like Infosys and IBM are also rapidly growing their teams.

Even the smaller companies in this space, such as Microland and Slash support, are adding to their teams. This has also pushed up attrition rates, which are currently at 40-45%. Sources say that while companies like Wipro and HCL have attrition levels in the 10-15% range, others, especially the smaller ones like Microland, have levels as high as 60-65%.

This is due to various reasons ---demand for people in this category is higher than supply, there are too many companies competing for the same people or even that people who have worked in the IMS space for some years want to move into development after a few years since they feel they will have more market value.

Says a Slash support spokesperson, "It is tough to get experienced people, specifically in the experienced level 3 personnel. The best way to engage them for longer periods is based on the company's ability to provide better roles and career progression."

Companies like Wipro Infotech and HCL are relying on their internal training programmes to meet requirements. Says Tapan Bhat, VP, HR Wipro Infotech, "Given that there are few large players in the market, companies do fight for the same talent pool. However, most of the talents are groomed internally. And this is done to ensure the team get wide exposure on wide variety of infrastructure platforms. To meet our internal requirements, we also ensure that there is a huge influx of fresh talent straight from campuses into our organisation."

Called 'the third wave of outsourcing' by industry pundits, the IMS market is pretty big --- at 12% to 20% of total IT spend currently and rapidly growing. Its size is estimated by various analysts to be anywhere between $80 billion and $140 billion (depending on how it is defined) on the total IT services market of $640 billion.

Source : www.offshoringtimes.com

ITES/BPO industry records amazing growth rate

Indian ITES/BPO industry is growing at a breathtaking near 40 per cent per year. The less than six-year-old industry's exports are now more than a third of the exports of the over 20-year-old software industry. It is possible to visualize a day when ITES-BPO will lead software in both total value and jobs and have a huge range of offerings stretching across the entire value chain.

However, the industry is perceived to be facing a mid-life crisis. In the last year and more, the industry has managed to get out of the voice and call center corner and is handling larger bits of processes instead of just individual transactions. This change is best demonstrated by the transformation in Wipro BPO from what it was in its Spectramind days. The industry continues to get fresh voice business in good volume but there is a growing wider play beyond it.

Volume growth for Indian BPO comes most from the captive business of MNCs, which is now creeping up from its earlier 60 per cent share of the total business. A day may well come when IBM will have the largest headcount among IT-ITES behemoths in India as Indian leaders focus more on acquiring a global presence. But this is not the entire picture. The leading Indian IT-ITES combines and the former captives like Genpact and WNS are both growing vigorously and going up the value chain.

The value game is being played particularly by the latter and also the standalone niche players who are peopling the KPO (knowledge process outsourcing) space. In this scenario, the one sector that has lost out is the plain vanilla third-party BPO. But even among them are quality players like 24/7, which continue to beat the captives of their clients in operational excellence. Undoubtedly, there aren't too many like 24/7 but Indian-owned volume play continues to be delivered with confidence by the broad spectrum Indian it leaders.

In real life, things happen first. Then players with insight articulate the change and eventually word smiths and slogan writers give distinguishing labels to the before and after stages for latter-day theorists to rationalize the whole process of change. Romi Malhotra, managing director of Dell International Services, performed this role of insightful player and slogan writer when he told Nasscom's BPO summit in Bangalore recently that the earlier slogan "Come to India for cost and stay for quality" can now be changed to "Come to India for quality and stay for innovation".

This is a significant change, which is true also of what is happening in IT and has a remarkable parallel with the transformation and rise of Japan in the post-war period. The transformation first occurs in transiting from cost advantage (wage arbitrage) to quality. Then comes the stage where quality is taken for granted, like hygiene, and clients start demanding innovation as a matter of course. Indian BPO as also IT are here right now and the ability of Indian players to innovate, in which they are still beginners, will determine their future.

Once the RFPs are out for innovation, the question arises should it be business and process innovation or technological innovation also? A very educative controversy developed on this at the recent Nasscom summit in Bangalore. John McCarthy, vice-president at Forrester Research, said, to keep going ahead you have to back your process delivery excellence in a particular industry by creating your own technology engine or platform. This will automate a lot of processes, offering clients continued cost savings. Additionally, being able to license the same solution to multiple customers will make you a winner.

There is no question that more and more processes are getting automated; software development time is being crashed and quality is being tested and ensured during development itself with the help of automated tools. These tools come from the likes of Mercury (testing) and Cadence (silicon designing). But another technology trend is also developing. Service-oriented architecture and web-based services are increasingly forcing solution providers to become platform agnostic. Your solution will have to work on top of any hardware and software the client already has. But McCarthy says you have to become like Hewitt Associates, which is able to sell its own platform to deliver top-class HR processes to multiple clients.

The jury is out on whether exclusive platforms are a must for top players but there is no question that to get ahead in ITES-BPO, as also in IT, you have to innovate be it in process or technology. A McKinsey study for Nasscom has identified a misunderstanding between ITES-BPO clients and their outsourced service providers. Two to three years into a relationship, vendors are still thinking of quality whereas the clients are asking what innovations you can now offer to further save costs. Innovation thus holds the key to the future of Indian ITES-BPO, in which it is not so good right now.

What can be delivered out of India is illustrated by Dell's captive BPO operations, developing process innovations, which are being adopted worldwide in the organisation. Similarly, Genpact, having innovative improved process while within GE, is continuing to do so outside it. There is little doubt that innovation will continue to take Indian ITES-BPO forward. Whether it will be done by Dell or Genpact, which is based in India but may eventually list in New York, becomes secondary in an industry which is the child of globalistion.

Source : www.offshoringtimes.com

EPO adds steam to keep Indian BPO running

Next in line to BPO and KPO is EPO (Engineering Process Outsourcing), which is expected to grow 10 times over the next seven years. The EPO is also likely to promote India as a major hub in this part of the world. Industry analysts believe that if EPO maintains to keep consistent pace it is likely to touch USD 30 million.

The Indian Governments Commerce Ministry came out with a report citing that over the last couple of years (2004-06), the demand for Engineering Process Outsourcing to India has grown at a rate of 30-35 percent and this is likely to add momentum in the coming years.

A study conducted by the state-run Engineering Export Promotion Council (EEPC) says, "The global EPO market, is expected to grow at a rate of USD 110-140 billion by 2015 taking Indias share to 20-27 percent". Taking into account Indias last year (2006-07) result that touched USD 26 billion the EEPC is expecting the industry to grow substantially.

Though the EEPC is optimistic on EPO front, but also have their concern, like the government decision to obliterate the duty entitlement passbook scheme, an export incentive programme. The Indian government on the other hand has assured them of positive stance, where they will work out an alternative that would substitute the current scheme.

The Indian government has asked the Engineering exports Process outsource firm to target market scheme to their advantage in promoting exports to the identified markets, especially to the Commonwealth of Independent States (CIS).

The government in order to help EPO to concentrate on developing the market has added 16 new destinations, including CIS this year in the focus market.

The government also cautioned the Indian export including engineering exports, about the likely situation where they could face increased non-tariff barriers, considering that average tariffs for industrial products in all countries is headed southwards.

This process has already begun for engineering products and is likely to gain greater impetus as India's share in the world exports increases in the coming years.

Source : www.offshoringtimes.com

Offshore Outsourcing beneficial to both sides

Offshore Outsourcing has definitely come a long way with more and more services being added to the outsourcing kitty every other day. What began as the movement of non-core processes -- such as human resources, IT, customer service and indirect procurement -- to third-party offshore locations where the jobs can be performed cheaper, is picking up steam in other business processes that directly impact manufacturing. As evidence, a 2005 study conducted by Boston-based AMR Research Inc. shows that 30% of 283 manufacturers surveyed are outsourcing a portion of their product-development process. In that same survey, 72% of respondents said they expected to increase the outsourcing of their R&D and engineering processes by 2008.

"We are seeing a trend toward people looking to globally source some activities that have been considered pretty crucial to their business, including this R&D and engineering area, and we're seeing it in not just indirect procurement but direct procurement, although that's a burgeoning market," says Dana Stiffler, an analyst with AMR Research.

But Stiffler emphasizes that most of the manufacturers cited in the AMR Research study are outsourcing only small portions of their overall engineering functions. And Cliff Waldman, an economist for the Manufacturers Alliance/MAPI, a public policy and business research organization in Arlington, Va., says much of the BPO talk has been overhyped. "There tends to be a lot of myths around this that we're sending all the R&D, the intellectual thinking, the capital overseas. That's way overdone." However, no one is arguing the fact that offshore outsourcing if it goes smooth is beneficial to everybody involved.

Nevertheless, more manufacturers are outsourcing critical processes, and the main motivating factor for this trend, like most outsourcing activities, is labor cost savings. Alcoa CSI is saving 15% to 20% in labor costs through its offshoring efforts and has improved throughput rates approximately 25%, estimates Timothy Carr, Alcoa CSI's senior vice president for global manufacturing and technology. But manufacturers also look for increased efficiency and manufacturing flexibility through BPO. In fact, not all BPO even takes place outside the United States. Companies such as Caterpillar Inc. and Eaton Corp. have been locally outsourcing their plant-floor equipment maintenance to Peoria, Ill.-based Advanced Technology Services Inc. (ATS). And Dow Chemical Co. has been outsourcing the digitization of sensitive R&D documents to Xerox Global Services, a division of Stamford, Conn.-based Xerox Corp.

For these companies, achieving lower labor costs isn't the issue. Instead, they're hoping someone else can do the job function better than they could. "Most of the outsourcing that's happening has been triggered by cost, and if you want to minimize cost, it's mainly going offshore," says Manoj Kumar, a director with supply-chain consultancy firm PRTM at its Mountain View, Calif., headquarters. "But now what is being looked at is the total cost of ownership, so it includes the transaction cost, but it also includes the service-level impact and the efficiency and productivity gains."

Waldman, of Manufacturers Alliance, agrees, saying, "It's not so much cost minimization as maximizing your efficiency. For example, let's take payroll. Payroll is not outsourced so much because it's cheaper to do it that way, but because payroll processes are an industry that have developed along its own lines and can always do it better than most companies can do internally."

Other companies are utilizing BPO as a way to expand globally without relocating workers. "If the work really is in China, why should you go and try to send somebody from the United States to China," asks Joseph Collard, CEO of Sumpraxis LLC, a BPO firm based in Delray Beach, Fla. Collard also notes that many graduate-level workers in India are willing to perform engineering work typically undertaken in the United States by workers with undergraduate degrees.

While, outsourcing major processes can be advantageous, manufacturers considering BPO should be prepared for some growing pains. Just ask Alcoa CSI's Carr. The company has been working with Tata for more than one year, but only recently has the company begun realizing the benefits. Company engineers spent the first six months training Tata's engineers, familiarizing them with Alcoa CSI's business and the critical aspects of the company's parts designs, Carr says. "At first, when you're doing that you're actually spending more money than you would when you're doing it for yourself because there's all this training," Carr relates. AMR Research's Stiffler says manufacturers shouldn't expect major savings from BPO partnerships for at least one year to 18 months.

Additionally, manufacturers will need to explain to their employees what impact BPO will have on job descriptions or job security. At Alcoa CSI that meant selling engineers on the idea that stripping these lower-level transactional functions from their job duties wouldn't reduce their roles in the company. "When you start talking about doing some outsourcing or offshoring people get very nervous that what you're actually going to do is eliminate jobs or put people out of work, so it was very important to us that we keep our workforce engaged," Carr explains.

In some cases BPO firms help smooth the transition process by hiring some of the employees who otherwise would have lost their jobs. For instance, Palo Alto, Calif.-based Hewlett-Packard Co., which provides offshore outsourcing services for a variety of processes including procurement, may hire a manufacturer's former staff to govern the outsourced process, says Terry Hendrix, HP's director of BPO for software publishing services.

Another challenge for manufacturers is selecting the right BPO firm. The best BPO firms usually are the most experienced ones, says Panos Kouvelis, professor of operations, manufacturing and management at the Olin School of Business at Washington University in St. Louis. "The worst kind of outsourcing providers are the ones that are trying to win the very first contract to get into the business because they tend to overpromise, and there's a huge risk of underdelivering," he says.

When manufacturers start outsourcing their core processes the potential for pitfalls increases, especially in the area of intellectual property. Some manufacturers, including Alcoa CSI, limit the types of product designs they outsource to protect proprietary information. Alcoa CSI also includes nondisclosure agreements in its contract with Tata, according to Carr.

Even so, the IP risk remains high. "There's a lot of transfer of knowledge that happens, and the contract might be for five years, but within five years that firm that was your supplier can become your competitor, and in many environments it's hard to protect IP," Kouvelis says.

Loss of control and collaboration is another concern for manufacturers. Unlike call center and IT functions, essential manufacturing processes may require greater oversight and involvement on the manufacturer's end to ensure quality. This becomes much more challenging when the engineering firm or R&D department is thousands of miles away. "It's much harder to assess the quality because quite a lot of the effort is unobservable," explains Kouvelis. Alcoa CSI has helped bridge this collaborative gap by keeping a Tata engineer, who analyzes the designs and modeling of the company's bottle caps, onsite at its Crawfordsville, Ind., plant.

Communication between BPO partners also fails when manufacturers cede control of a process without fully understanding it themselves. "If you do not understand the nitty-gritty of your process, it is very hard to partner with your third party or set up a captive operation five to 10,000 miles away and expect for that to run well, so of course you have to clean your own house," Kumar says.

Another common misconception by manufacturers is that once they hand over control of a process they can reduce focus in that area, Stiffler says. "You're not directly controlling the function anymore, but that doesn't mean you have to be any less vigilant, and you do have to invest in that resource, in that person or in that program-management team that you have managing for you."

For Alcoa CSI, BPO is simply a way to refocus its engineering objectives. With the partnership steadily progressing, Carr says the company is considering expanding Tata's role in product design. When asked whether that would mean staff cuts, Carr said: "I don't anticipate that now, but of course that could always happen, but it is not our plan to do so. What we would do is we would be able to do more projects for the same dollar. We always have a backlog of product-development projects to work on, and what this would allow us to do is just take on more of those projects."

Source : www.offshoringtimes.com