Industry news

The Round-Up has just realised that during many months of pondering over outsourcing news and destinations there is one rather large region that has been inexplicably untouched. Well known for there vast exploits in new technology, tea and sushi, China and Japan seem to be emerging IT markets that have yet to be focused on.

Indian information technology services IT firms are increasing their focus on the Asia Pacific region, particularly China, in an effort to tap into the IT market and use it as a strategic base to enter the USD100 billion a year Japanese IT market. The industry lobby group, National Association of Software and Services Companies, Nasscom, estimates the Japanese IT services market at USD108 billion, and India’s share at USD11.5 billion. Around 8 to 10 percent of this work is offshored, with at least half of that going to China.

So sorry for missing you out China and Japan. There are just so many up and coming destinations for the Round-Up to keep up with!

So in true Round-Up fashion it is now time to look at what has been reported this week on sourcingfocus.com.

Satyam revealed its new brand identity, Mahindra Satyam. It came as a result of Tech Mahindra acquiring a 31 percent stake in Satyam.

Vineet Nayyar, Executive Vice Chairman of the Satyam Board, described, “This is a significant milestone towards the recovery of the company. We are optimistic that this new brand will re-energise the organisation and will be well received by all our stakeholders.”

It seems I am back onto all things Indian. So in that vein, this week saw more Indian related outsourcing news on sourcingfocus.com. IDEA Cellular, India’s third largest private telecom services provider, has signed a Rs.1,450 million outsourcing agreement with Firstsource Solutions, a global BPO services provider.

Firstsource Solutions will provide customer management interaction services including customer service, billing, and new product information. It will deliver services to IDEA from its centre in Coimbatore, Tamil Nadu India. Firstsource will be providing these services for IDEA’s Kerala and Tamil Nadu customers in English, Malayalam and Tamil.

Now I am sure the Round-Up is going to receive a plethora of comments remarking on the overwhelming amount of outsourcing destinations that I have not mentioned. Please, comment away, I am only human but will endeavor to examine as many destinations as is possible.

Until then, enjoy the sun – a sweltering 33 degrees in the UK (I am not

complaining…yet). And enjoy yet another week.

BT, and CERT-In, an organisation established under India’s Ministry of Communications & Information Technology, have signed the MOU in a bid to address the increasingly complex problems associated with computer security and computer-related crime in India.

The MOU was signed by Sudhir Narang, BT’s India Managing Director and CERT- In Director, Dr. Gulshan Rai.

Commenting on the significance of the MOU with CERT-In, Mr. Narang , said, “BT is committed to help organisations around the world and in India secure their information which is their most critical asset. The MOU is a significant step forward in this direction. Both BT and CERT-In recognise that along with the benefits of increased computer connectivity, there are a host of new risks with computer hackers exploiting the vulnerabilities in the software and computer system.”

As a part of the MOU, both BT and CERT-In have identified a common goal to work together to address these problems. The scope of the MOU includes technical co-operation and information exchange, knowledge sharing, emergency response and coordination, executive information exchange and training as well as customer education and outreach.

Commenting on the association, Mr. Rai of CERT-In said, “BT is a giant in the area of communication. This Memorandum of Understanding will help in capacity development, particularly training our manpower for implementing the best security practices and understanding techniques and technology for enhancing security of the networks.”

With this MOU, BT and CERT-In will work to combat security threats such as unauthorised access, event monitoring, log correlation, managed security services, phising and other cyber crimes. This unique association with CERT-In brings significant benefits to computer and Internet users all across India.

IDEA Cellular, India's third largest private telecom services provider, has signed a Rs.1,450 million outsourcing agreement with Firstsource Solutions, a global BPO services provider.

IDEA Cellular, an Aditya Birla Group Company has over 45 million subscribers across 17 service areas in India.

Firstsource Solutions will provide customer management interaction services including customer service, billing, and new product information. It will deliver services to IDEA from its centre in Coimbatore, Tamil Nadu India. Firstsource will be providing these services for IDEA’s Kerala and Tamil Nadu customers in English, Malayalam and Tamil.

Mr. Navanit Narayan, Chief Service Delivery Officer of IDEA Cellular, commented, “Firstsource brings a wealth of knowledge and expertise in running large customer support operations for global telecom service providers and has the ability to help us manage our rapid growth in the service areas of Kerala and Tamil Nadu. We believe our customers will benefit from their service capabilities”.

This week's landmark bankruptcy filing by General Motors is just the latest example of recession-driven retrenching across industries, a trend casting a shadow on outsourcing companies with large client bases in the hardest-hit industries. Depending on restructuring terms, outsourcing firms may be at risk to have large, long-term, ongoing revenue streams rejected in bankruptcy or terminated by an acquiring entity after a ‘fire sale’ purchase. You only have to look at the lists of the top 50 creditors for each of GM and Chrysler to see recognizable outsourcing service providers with a great deal at stake.

One can trace the beginning of the outsourcing sector’s current challenges to the financial meltdown last year, as bankruptcies and sell-offs of leading financial services institutions began to jeopardize outsourcing providers’ revenue from these customers. This was compounded by early termination of outsourcing agreements as the industry eliminated redundant service contracts in newly consolidated firms.

Wall Street's shake-up was followed in short order by crises in the auto manufacturing sector, typified by recent dramatic ownership changes and organizational revamps at Chrysler and GM. From information technology services, transaction processing and customer service to parts delivery and facility management, each of these hard-hit industries relies extensively on outsourced services.

Bankruptcies and reorganizations are having a profound effect on some outsourcing firms because these service providers typically invest in technology, facilities and other assets early in long-term outsourcing contracts, expecting to recover these costs in later years. The vulnerability in this strategy emerges when ongoing revenue streams are cut off in bankruptcy or other circumstances without allowing for a complete recovery of providers' early-term investments. This lost investment compounds the loss of expected revenue from having long-term agreements terminated early.

The net result is that we may begin to see a sort of "domino effect," given the interdependence of the IT and outsourcing sector on the industries it serves, such as financial services and auto manufacturing. Companies in the current environment would be well-advised to not only perform thorough due diligence on existing and potential suppliers and partners, but also to prepare contingency plans in the event access to key suppliers, distributors or business critical software and services is jeopardized. In our practice, colleagues and I advise managers pursuing outsourcing to meet commercial and financial objectives to bear in mind the risks associated with outsourcing – especially long term arrangements – and factor these risks into their decisions and plans. We also urge them to revise the thinking around certain contract terms that might be appropriate in light of the new economy.

While the larger and more well-diversified outsourcing providers should make it through this downturn, smaller and mid-tier providers that are focused on limited service offerings or a single vertical market could face difficulties, even bankruptcy themselves, if revenues decline to levels triggering loan covenants, for example, or simply fall too far below the operating costs of supporting customers.

The last six to twelve months have brought massive changes in the global economy, making it even more critical for organisations to pay careful attention to new risks confronting the outsourcing industry at the same time they evaluate its ability to transform their business. This does not mean that companies should forego an outsourcing if there are significant commercial benefits. However, it does shift the cost-benefit analysis for outsourcing and demand an increased level of diligence and planning. This advice applies equally beyond the sourcing context to any key supplier relationship.

AT&T, one of the largest communications holding companies, has extended Alcatel-Lucent’s contract for end-to-end multivendor network integration for AT&T U-verse.

The AT&T U-verse portfolio brings together U-verse TV, U-verse high speed internet and U-verse voice services all delivered over AT&T's Internet Protocol (IP) network using Alcatel-Lucent’s Triple Play Service Delivery Architecture (TPSDA).

Under the agreement, Alcatel-Lucent will continue to provide end-to-end multivendor network integration for AT&T U-verse, including Microsoft Mediaroom Internet Protocol television (“IPTV”) software platform.

The service agreement includes solution program management, third-party management, network engineering, solution testing/validation and deployment services.

National Grid has signed £207 million worth of deals with Cable & Wireless for a new data network.

Under a 15 year, £108 million contract, the supplier will create and run an optical fibre network, which handles data for core operations, for National Grid.

Another five year, £99 million contract, covers a managed service for the energy company’s telecoms network.

Cable & Wireless will provide the relevant telecoms services, as well as a dedicated network management centre on a National Grid site. It will also supply technical support and incident management, and new network and performance management tools.

CSC has selected Steria, the European IT services provider, to provide BPO services as part of a high-profile government contract with the UK Identity and Passport Service (IPS).

Steria will provide services to manage the front-end of passport application, including essential data verification and validation processes. The BPO service will complement the technology platform to be introduced by CSC and, in the future, may also be used in the National Identity Service, for the provisioning of identity cards.

Jim Vincent, head of Steria's central government practice, commented, "The IPS provides a valuable service to British citizens, so we are very pleased to work with CSC on this project".

The business services sector will suffer dearly from the recession; more than half of the jobs it gained during the last five years will be lost over the next five years. Among all of the subcategories, advertising is set to be the worst hit, according to a new report from the Centre for Cconomics and Business Research (CEBR)

Business services jobs increased by 616,000 from 2003 levels to 2008 levels. However, there will be 311,000 fewer business services jobs in 2013 compared to 2008. Those sectors that rely on the investment cycle, discretionary budgets and public sector spending will suffer the most.

The business services sector has been one of the strongest performing components of the UK economy during the recent expansion. Indeed, this sector alone contributed around one third of all new jobs created and five per cent per year GDP growth since New Labour came to power in 1997. But the credit crunch and current recession have brought a reversal to that trend.

The report anticipates that employment in the sector will be eight per cent lower in 2013 compared to the peak in 2008. Meanwhile, output in the sector will fall dramatically – by over five per cent in 2009 – before sluggishly recovering and not even reaching its 2008 peak by 2013.

According to the authors, the worst hit sector will be advertising. As noted by the Advertising Association, this sector was already losing revenues last year: revenues in 2008 were down by 3.9 per cent year on year compared with a 4.6 per cent increase in

And that trend is set to continue as both recruitment and display advertising are reeling from the effects of the recession. As a result, 15,000 advertising jobs will be cut over the period from 2008 to 2013.

The recent and continued deterioration of public finances is also going to have a significant effect on the business services sector. As one of the biggest sources of demand for business services, public sector spending contributes a significant portion of revenues for the business services sector. With public sector expenditure set for cutbacks from 2010 onwards, the prospects for business services necessarily diminish as well.

Arek Ohanissian, one of the report’s authors, commented: ‘Though most sectors in the UK economy will suffer from the recession, the dramatic reversal of fortunes for the business services sector from strong performance to significant losses would have been hard to imagine even at the onset of the financial crisis.’

The report did hold some positive predictions however. The IT services sector was predicted to return to growth following a brief dip in 2010, growing beyond pre-recession levels again by 2013.

Is the European market turning its back on the converged provision of IT services/telecoms by telecom vendors in Europe? That's the interesting question recently posed by analysts Kata Hanaghan and Katy Ring at the Bathwick Group.

The research firm publishes the Bathwick Services Index (BSI), which tracks the quarterly fortunes of European IT service providers - and noted an interesting trend in the first quarter of 2009. Among the European-headquartered companies tracked by the BSI, two providers of converged IT and telecoms services showed serious signs that they were struggling and both are divisions of big-name telcos.

The first is BT Global Services, identified as the division dragging BT Group into a loss for the year. The other poor performer was T-Systems, the IT services subsidiary of Deutsche Telekom.

"The challenge is that for decades, and still to the present day, the businesses of a telecoms company and an IT services company are very different. And the oft-foretold technology-based convergence of the two is taking a very long time to arrive, especially in how IT departments in buy-side organisations are structured," say Ring and Hanaghan.

"However, it does seem ironic that, at the point when the majority of buy-side organisations are developing a virtualised IT infrastructure requiring the convergence of network, server and application systems and skills, providers that might seem especially well-placed to provide and manage such an infrastructure (and deliver services across it) may be divested by their parent companies."

With the second quarter's Index due to end next week, the two analysts will be no doubt be looking for improvements in the performance of these two companies.

The current financial woes at BT GS, they point out, have predominantly been caused by the mis-management of two mega-outsourcing contracts in the UK (widely believed to be the NHS and Reuters contracts). "The management team is now different, new contract management processes are being introduced and the division is being restructured with the aim of returning the division to profitability," they point out. T-Systems, they add, has a very good dynamic services offering but needs to dramatically ramp up its customer base for these and other services, in order to compensate for reduced captive revenues from its parent company.

The suggestion is that these problems are specific to the two companies in question. It may be too early to attribute them to an inherent flaw in the model of delivering converged IT and telecoms services - but it does seem that, to date, that this model has been slow to gain acceptance.

Increasing economic pressures affecting the retail industry means companies in Western Europe and North America will increasingly look to outsource technology and business processes in a bid to cut costs, and focus on core skills. This is according to a new report by independent market analyst firm, Datamonitor. The report, “Retailing in a Recession:

The Opportunities for Outsourcing“, looks at the business processes retailers are outsourcing, and why.

“To survive or succeed in the downturn, retailers will be looking for efficient ways to generate revenue by managing the demands of the customer, while at the same time making cost savings across the organization”, says Christine Bardwell, retail technology analyst with Datamonitor and the report’s author. “Many are looking to technology and services to help cut the cost of managing inventory, non-critical business processes and store operations. Although retailers are outsourcing in a recession, the types of contracts have changed; large scale infrastructure overhauls are less common. Instead retailers are requesting a mixture of services on lower value contracts, or transformational deals over longer periods of time.”

Cost reduction is the main driver for outsourcing in recession-hit retail

In the current uncertain environment, the priority for a retailer will be to protect margins. In a climate of falling sales, while facing cost and finance pressures, retailers are battling to keep afloat. As such, cost cutting has become their main priority and any option for reducing loss is being considered.

“Cutting down on staff and inventory, the two biggest costs for a retailer, will be the principal areas of focus”, says Bardwell. “Cuts in these areas offer a two-fold opportunity for outsourcers as retailers will be looking to service providers to help cut costs across the business; and will also be short of staff, or having trouble managing correct stock levels so will look to outsourcers to provide the solution.”

Previous experience and small capital expenditure makes retailers reluctant to outsource

One of the biggest current hurdles to outsourcing is the industry-wide reduction of capital expenditure (capex) in retail. As capex must go a lot further than a year ago, retailers now require outsourcers to offer flexible payment structures, for instance by offering shorter-term contracts with monthly payments.

The shift from capex to operational expenditure frees up capex for more pressing issues. Previous experience with service contracts has caused retailers to doubt whether the benefits of outsourcing outweigh the challenges that can arise. Barriers to outsourcing include the unrest caused by offshoring jobs, language barriers, and retail sector expertise requirements.

Retailers require, strong, flexible partnerships that can evolve with their business

According to Datamonitor, retailers will expect outsourcers to not only know the demands of the retail industry, but also the challenges of their particular retail sector. As such, a service provider must endeavour to understand the nature of the business in order to work in partnership with the retailer. Outsourcing is not a silver bullet but with flexibility of services, payment schemes and contracts, the relationship between retailer and service provider will be a happy and successful one.

The report also assesses the key suppliers of infrastructure technology outsourcing (ITO) and business process outsourcing (BPO) to the retail sector. IBM is the top outsourced service provider to retail, with 14% market share but the report says this could be set to change as competition in the space heats up.

“The recession is pushing retailers to consider outsourcing in order to achieve cost saving and enhanced operational efficiencies. But competition in the services space is strong,” commented Bardwell.

Retailers are looking for more than just a supplier; they need a partner. A service provider that takes strides to understand the pulse of the organization will win over.”