Industry news

The National Outsourcing Association and service provider DDC Outsourcing Solutions have announced a series of round table events, hosted specifically for charities, where representatives from the third sector will share outsourcing concerns and success stories.

Ramped-up regulations and cuts to government funding are two major challenges currently faced by charities operating in the UK – the subject matter of the events will detail how outsourcing can help charities handle these issues, and operate more effectively as a result.

Other topics on the agenda include:

Making every penny count. Cass Business School research has shown that the UK’s medium-sized charities could save £136m collectively by outsourcing back office services. What else can service providers do to help charities specifically save money and improve processes?

Data management & new regulations. Olive Cooke’s death in 2015 and other cases have caused concern for how charities use data, resulting in a call for new regulatory measures. How can service providers improve the way charities utilise data, help the third sector comply with a more regulated environment, and so assist charities in regaining the public’s trust and confidence in the work they do?

Operating in a 24-hour global environment. In the modern world of mass communication and social media, organisations are expected to be contactable 24 hours a day, 7 days a week. Can outsourcing help charities achieve this, increasing reliability while still accurately representing the charity’s brand?

Maintaining a favourable public image. Is outsourcing still perceived negatively by the UK public? As organisations reliant on voluntary contributions from the public, should this be a concern for charities?

Charity outsourcing case studies. Many charities are already putting outsource service providers to good use. How have they made their outsourcing successful, and what are some recent examples? (See the NOA’s National Trust’s IT Supplier Alliance case study.)

The first event is free to attend, will take place on 10th May 2016 and will be hosted by law firm Freeths.

Visit the event page.

Since having bought IGATE for $4 billion back in the Summer of 2015, Capgemini is now considering using the Indian-based company’s account management strategy for all its clients worldwide.

Paul Hermelin, Capgemini global CEO, said: “We have been investigating to try and capture [IGATE’s] different account management strategy… The financial services business, which already works a little like Igate, will take two quarters… the US will take a few quarters more…expansion into European side will take longer.”

“Capgemini SA is looking at using Igate’s account management strategy for all its clients,” he added.

In addition, Capgemini has inaugurated a new 50-acre campus in Mumbai – with capacity for 30,000 new employees – and a new Innovation Centre in the country, the ninth it has globally.

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Related: Capgemini bets on artificial intelligence to improve customer service

Let’s start with the basics: what does Estonia look like as an economic player? Since it won back its independence at the end of the Soviet Union in 1991, the answer is: pretty good. It’s easily one of the most economically successful of the EU's newer eastern European members, and figures just out this month show that in Q4 2015, its economy grew 0.7% more than in the same period a year earlier, according to a flash estimate by Statistics Estonia.

Meanwhile, January analysis from Euromoney showed that its debt ratings and capital-access scores are strong, that it’s benefiting from solid economic growth in its largest export market (Sweden), and is in its words “strong enough to ride out any buffeting from the global economy”. To all intents and purposes, Estonia is a Western country, especially in terms of business ethics and skills.

Part of what’s driving all that success is a very solid, tech-friendly national infrastructure. North of 80% of residents have broadband (in fact, the CIA Facebook sees it as one of the most connected areas of Europe), and as a general rule Estonians are considered early technology adopters, having just switched to e-voting, while only 3% of them don’t use the national smart ID cards for accessing online digital public services. Another metric of technology acceptance lies in the fact that for every 100 Estonians, you’ll find over 160 mobiles!

Indeed, the country has something of a proven track record when it comes to building world-class tech brands; Skype’s code was written here, as was TransferWise, while The Wall Street Journal has claimed that Estonia is producing “more startups per capita than any country in Europe”.

A very open business environment

The skills to do such things must accrue from its highly competitive educational system; over 50,000 students are part of its University system, and Estonia’s capital Talinn recently launched a Lifelong Learning Strategy to provide all citizens with learning opportunities tailored to their needs and capabilities throughout their whole lives.

All very promising, a nearshoring customer might say, but what about the services landscape? Again, the evidence is very positive. Most commentators see the outsourcing sector here as one of the most stable in the world, boosted by its compact geography, with excellent connections both East and West. The local market comprises 100+ companies, with over 2,800 IT professionals on their payrolls, and is valued at over $130m already. It also come very high (51) in Tholon’s 2013 Top 100 Outsourcing Destinations Rankings, and two years back got an even higher mark (22) in the closely-followed AT Kearney Global Services Location Index.

Why did Estonia do so well? The analyst group says it’s success is due to a powerful combination of people skills, financial attractiveness and a very open business environment - the country has a special ‘e-Residency’ service to give entrepreneurs from outside its borders easy access to government services, while local salaries are highly competitive from a UK perspective (recent figures suggest around €1,000 a month, even for the most highly qualified tech and service candidates).

Perhaps the best endorsement of all things Estonian tech comes from an unexpected source - Her Majesty’s Government. The London and Estonian governments are collaborating on an intriguing TechLink programme to share best practice and ideas around technology innovation, ultimately aiming to bring together entrepreneurs from the partners to build new solutions for the key markets of fintech (financial technology), cybersecurity, e-government and biotech. At the same time, the head of Whitehall’s Government Digital Service has gone on record to state that we could learn much from Estonia’s use of Open Source.

I mentioned that Skype was built in Estonia – what I didn’t say that it was done by an outsourced team… who so impressed the Scandinavian investors bankrolling the work, they decided to switch all development there. Even now, the majority of the team working on it are still there - even though it’s now owned by giant IT firm Microsoft.

If Estonia’s good enough for Microsoft… maybe it’s good enough for you?

According to the Financial Times, economists are split when it comes to the value of the new British National Living Wage (NLW).

The publication asked 70 economists whether they believed the recently established living wage will do “more harm than good” or “more good than harm”. 31 economists (less than half of the total) positioned themselves firmly in one camp or the other, whilst the majority remain on the fence over one of the most important economic policies of this government.

The arguments for the living wage centred around three far-reaching claims: the need for fairness in the British society; increased productivity brought on by the higher wage; and Britain’s ability to afford it.

Some economists criticise the country’s “pervasive inequality”, which has exponentially grown in the past decades in spite of a growing economy. They remark that most of the gains from the latter are indelibly passed on to the top 10 per cent.

The arguments for the new living wage, however, go far beyond a “more human face of capitalism”, as Professor de Grauwe from the LSE described them. According to Vicky Pryce from the Centre for Economics and Business Research, higher wages encourage greater productivity in the service sector (Britain’s biggest economic sector) with “no real evidence of negative effects on business overall”.

Those against the NLW predict that higher wages will inevitably lead to job losses, particularly in the north of the country, where productivity is lower in general, and employers do not have the profit margins necessary to boost employees’ wages without incurring in losses.

Others point to the poor record of living wages in tackling poverty, when compared to government benefits. Stephen Wright from Birkbeck University notes that, “A single living wage, built up from consumption needs, is not a logical construct: if it had any basis at all it should be a set of living wages, for different household types”.

Finally, those against the NLW emphasise its arbitrary amount, which has not been backed by any studies, and is far higher than that recommended by most experts. An oversight which, according to some, will inevitably lead to job losses.

Sourcingfocus previously reported on the issue of the NLW. The Local Government Association (LGA) has found that local authorities in England and Wales will have to find more than £1 billion by 2020 to pay for the new national living wage. On the other hand, big outsourcers such as Mitie, Serco and G4S have publicly welcomed the NLW, which will force all UK-based employers to pay over-25s at least £7.20 an hour.

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Related: Mitie joins Serco and G4S in embracing government’s national wage hike

Tata, the giant Indian conglomerate, has confirmed plans to sell its UK steel business, sparking panic within the UK government as ministers try to rectify the situation.

The Indian giant has spent the last few months looking for strategic alternatives to the current ownership of several plants – at Port Talbot, Corby, Shotton and Rotherham – in the UK.

However, Tata’s board – in Mumbai – finally opted for the divestment of its steel facilities in the UK. This move is a hammer blow to the remnants of Britain’s Steel industry, potentially affecting thousands of steel workers.

Labour leader Jeremy Corbyn said “it is vital that the government intervenes to maintain steel production... both for the workforce and the wider economy, if necessary by taking a public stake in the industry”. Another official said the government was looking at all viable options. However, a private sector sale is currently the preferred solution.

Tata’s decision reflects the troubles faced by British steelmakers. High production costs, weak domestic demand and low steel prices on the international markets has plunged the sector’s success, leading to thousands of job losses over the past year – especially in Port Talbot.

This is yet another huge blow to Britain’s dwindling manufacturing industry, which is still well behind the levels it operated at pre-recession.

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Related: Google follows Apple’s business strategy by outsourcing chunks of work to India

HMRC has formalised the premature termination of its £10bn mega “Aspire” contract with Capgemini and Fujitsu.

The deal was due to end in 2017 but HMRC chose to terminate the deal early, claiming it could make as much as £200m a year from 2020-21 onwards by scrapping the contract and entering a series of smaller, more flexible deals with new and existing suppliers.

Additionally, HMRC chief executive Lin Homer believes that the end of the megadeal with Capgemini and Fujitsu will improve the HMRC’s ability to take advantage of new digital technologies, with the ultimate goal of improving services to the British taxpayer. Outsourcing end-users are increasingly favouring shorter contracts with smaller, niche service providers to quicken the uptake of new trends and technologies.

As Ms Homer explains, “HMRC’s ambition is to be one of the most digitally-advanced tax authorities in the world, and the agreement we have reached to exit the Aspire contract brings that a huge step closer”.

The bidding for new IT suppliers will begin next month and HMRC plans to prioritise work with SMEs when possible. Some of the new contracts are expected to take off before the end of next year.

Bain, the specialist consultancy firm, is helping HRMC with its exit strategy in order to provide a smooth transition. The Aspire contract currently takes up 84 per cent of the HMRC IT budget. The deal had been under criticism for several failures attributed to the deal’s size and complexity, and particularly to the challenges of managing such a huge relationship.

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Related: HMRC will take on 250 Capgemini workers to ease Aspire contract transition

Monday 25 April, the National Outsourcing Association hosts its first Public Sector Conference offering civil servant insight into what the future of government outsourcing holds.

Some highly rewarding outsourcing deals may be on the horizon for Indian service providers now that Google is considering outsourcing more work to India, the Indian Economic Times has reported.

Google is becoming more open-minded in this regard and has started handing out more business to companies such as US-based Cognizant, which currently has most of its employees in India.

Google spends several hundreds of millions of dollars annually on IT – one of the highest in the Fortune 500 – analysts estimate. The new strategy includes the outsourcing of non-core parts of its business to IT service firms, such as software development, IT infrastructure management and maintenance.

A top US-based executive at a technology firm currently managing software projects for Google said: “Outsourcing is not something that’s new to Google, it has always give out small amounts of work to third-party service providers.”

Third-party specialists such as Infosys and Genpact have handled software maintenance and development projects for Google over the past decade. “What has happened though is that Google sees greater value in outsourcing non-core parts of business, as it is more cost effective”, he added.

Infosys and Wipro have been cited as the companies that stand to benefit the most from Google’s new outsourcing strategy.

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Related: Indian IT firms brace for massive contract renewal period

Indian IT companies are preparing for two years of massive outsourcing contract renewals worth more than $100bn in total.

2016-2017 will see several huge IT deals come up for renewal involving clients such as Deutsche Bank, UBS, Mitsubishi and Vodafone.

The period will be a true test to the Indian outsourcing sector which has come under increasing strain as large technology end-users such as AstraZeneca, Lowe's and JPMorgan Chase opt for in-house software projects over outsourcing. This recent trend has decreased the availability of the once-traditional billion-dollar contracts.

Another feature of the Indian market in the last few years has been the intense price competition between market players. As Dinesh Goel, partner and India head of ISG (the outsourcing advisory firm) explains, "The competitive intensity is going up in the industry and hence the pressure on pricing levels will continue. The scope and construct of the deals are also changing with infrastructure delivery models becoming hybrid (mix of cloud and on premise) quite frequently".

Infosys is widely expected to continue on its string of large deals - the company has surpassed profit expectations for three years in a row.

"Our deal wins have improved dramatically and we are approaching $800-900 million a quarter in large deals. That's more than double of what we used to do," Infosys chief executive officer Vishal Sikka said at an investor conference.

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Related: IBM continues fight to keep Vodafone India’s favour

A US IT company has been fined for $3.1m after it was found to have illegally outsourced work for a government contact to an offshore company in India.

Focused Technologies, the IT company in question, outsourced a New York State Industries for the Disabled (NYSID) and New York State Division of Criminal Justice Services (DCJS) contract for the digitalisation and indexation of nearly 22 million fingerprint cards to an Indian sub-contractor based in Mumbai back in 2008.

The cards included personal data such as social security numbers, dates of birth and basic physical characteristics for 22 million people. Focused shared the information illegally with the Indian sub-contractor since the latter did not have permission to access the confidential data.

The state of New York requires companies dealing with confidential information to carry out their work inside the state. The information must also be handled by workers who have passed a criminal background check.

US authorities have stressed that the Indian sub-contractor was unaware of the illegal status of the deal.

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Related: UK Court scraps public contract due to CCS framework breach for first time

Everest Group has published its 2015 Market Vista report, an annual study which looks back at the major developments in the global services industry. Despite recent claims that the decline of offshoring is imminent, the report has found that more offshore delivery centres were set up in 2015 than in 2014, suggesting that “the sky is not falling on offshoring” as some experts claim.

The report reveals that the number of new offshore/nearshore delivery centres (including both global in-house centres (GICs) and those set up by service providers) increased by 32 per cent last year. Everest points to strong investment in areas such as talent maturity and business environment improvement, as well as to the growing adoption of global services by European buyers, as the main causes of the increase.

Unsurprisingly, India has retained its position as the number one offshore and GIC destination, while Romania, the Republic of Ireland and Singapore have seen the greatest increases in delivery centre setups.

The report also identifies locations to look out for in 2016. The UK is featured on the list as an attractive nearshoring destination for its high-quality customer support at competitive rates. China is also present - the forecasted depreciation of the Yuan is likely to have a positive impact on Chinese IT-BPS businesses in the coming year. Other countries expected to fare well in the coming year are India, Brazil, Colombia, the US and the CEE.

According to Everest, the nature of the global services industry is shifting, as the increasing maturity of the global sourcing market impacts on the overall popularity of outsourcing. The number of new outsourcing deals signed between 2013 and 2015 was down 12 per cent when compared to recent years. On the other hand, the proportion of medium-sized and small buyers in the industry has grown by seven per cent in the same period, as smaller companies outside the US increasingly adopt outsourcing as a business model.

Advances in technologies such as service delivery automation have come to disrupt the global services market by decreasing costs of delivery, and increasing quality and compliance through the elimination of the human element, leading to the emergence of new service providers and outsourcing relationships. Disruptive technologies have also contributed to the increase in GICs - new GIC setups and expansions grew by 50 per cent between 2013 and 2015.

Access the full report.

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Related: India, the world’s most attractive outsourcing destination of 2016