Industry news

Companies are now well aware that they must account for the environmental impact of their business decisions. Existing European legislation, impending national programmes such as the UK Carbon Reduction Commitment and educated, vocal end-users all add to this pressure.

Consequently, many companies have begun to ensure the green promises they make are upheld throughout their supply chain. This is not just to maintain brand integrity. Pushing suppliers to uphold green standards mitigates the costs and risk involved when making changes to meet environmental commitments.

Whilst in-house technology departments have often led the way with green initiatives, outsourcing partners – especially those offshore – have escaped serious scrutiny. This is, however, beginning to change. Offshore partners now realise that they must measure up to the green mission statements being made by their customers.

So how do you go about ensuring your service provider, based thousands of miles away, is adhering to policies created locally?

Firstly, it is crucial that considerations such as environmental “track record” are included as part of the selection criteria for an outsourcing partner. Does the history of the supplier match the programmes and aspirations in place for your organisation?

The actual tactics in place for a better offshore green profile may include the physical facilities and offices used by your provider (locally as well as offshore). Practices such as recycling of IT equipment, energy conservation programmes and green procurement are good indicators. The critical point is do they fit with the culture already in place within your organisation?

Once this fit has been established the next element is to ensure a consistent method of green reporting runs throughout the SLA. Account meetings should take account of environmental metrics as well as operational delivery and financial savings.

Integrating this information to see where green practices are delivering savings or efficiencies is the ideal here. However, such a level of sophistication is still quite rare.

As the recession bites and cost savings once again take centre stage for outsourcing, it is important not to neglect issues such as green. They are the source of future stability and the commitments made now in the name of the environment will continue to reap financial benefits throughout the supply chain and across geographical boundaries.

This week we find that Obama plans to clamp down on the overseas earnings of US corporations by making a variety of amendments to the US tax code. His statement earlier this week certainly had some offshore service providers a little nervous, “That [old tax code] says that you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York.”

Eyebrows were certainly raised in the outsourcing world, evident through a host of sensational headlines in India’s Economic Times such as, ‘Obama torpedos Bangalore again’. But what do these proposed tax revisions mean for US companies and their offshore partners?

Essentially the tax code system, which Obama is attempting to change, allows US companies to defer paying corporate tax on income earned overseas, until that income returned back to US soil. A tax credit for tax paid overseas is also given to the businesses and the US Government will take whatever is left.

Obama’s revisions will mean that US companies will have to pay the US corporate tax immediately, although the tax credit will still apply. This revision will see US companies having to pay more tax however, will we see a significant drop in offshoring as a result? Will this bring the big players of the global offshoring market to their knees?

Mark Kobayashi-Hillary, NOA Offshore Director and industry expert, thinks not, “This is not a big threat to the outsourcing industry. Obama pledged these tax reforms in the election campaign so they should not come as a surprise to anyone. He is simply trying to stimulate future investment on home soil and in turn generate more jobs.”

A rational response, however, are these protectionist policies a determent to free trade? Emerging outsourcing destinations such as Kenya, Vietnam, Sri Lanka and Egypt have previously been unable to compete within global markets, however with a booming outsourcing market, these regions are now able to step up to the plate and engage in business with the rest of the world.

“It will be difficult for the Obama administration to be harsher on offshoring. If Obama does try to implement tougher sanctions then he would be going against international free trade laws that the US have signed up to.” Mr Kobayashi-Hillary responded.

So, can US companies and overseas service providers breathe a sigh of relief?

Peter Ryan, head of offshoring analysis at Datamonitor, believes that there is some cause for concern, “President Obama's recently announced changes to the tax code for US firms doing business abroad, could have significant implications for US firms with offshore sites. Should Obama’s new tax plans become law in 2011 as planned, the initial impact for contact center outsourcers selling offshore delivery will be increased price points. In an era of ever-tightening margins, not only will this option be unpalatable for many prospects looking to work with an outsourcer, it could also force existing clients to examine other business models for customer-facing work.”

Increased prices in difficult times may indeed have an impact on the market. However, as Mr Kobayashi-Hillary commented, “The savings made by offshoring work far outweigh the tax increases.”

Lower wage costs, lower infrastructure fees and government incentives all combine to make offshoring an attractive proposition. Tax adjustments, such as the ones planned for 2011, will not significantly impact the outsourcing market and in all probability will not enhance the job market in the US. Businesses don’t set up shop in Bangalore for tax relief. They set up shop in Bangalore because it costs significantly less to produce the same work than if they stayed on home soil.

Voters will be pleased that Obama appears to be coming good on his pre election promises. However, this is not the assault on offshoring that some were expecting. Obama may still have things in store for the offshoring community, but it is unlikely that the impact will be great. We are on the cusp of true globalisation and I can’t see any entity halting the progress. Outsourcing and offshoring is just too integrated into modern business to suddenly stop.

Channel 4 has selected Logica, to support its employees with an outsourced HR administration and payroll service for the next five years. Channel 4 made the decision to outsource its HR administration as part of a company-wide programme to reduce costs and streamline its operations. The contract builds on an existing 17 year relationship with the company.

Under the terms of the agreement, Logica will implement Oracle’s payroll application and integrate it with the company’s existing Oracle HR system to achieve a single and unified HR system. Logica will also manage the transition from the current bureau payroll service it provides to Channel 4, to a fully managed service. The new contract will also see Logica manage approximately 25 of Channel 4’s transactional HR processes such as joiners & leavers, employee changes and absence administration.

Commenting on the contract, Gemma Dowson, Senior IT Project Manager at Channel 4 said, “Logica has a proven track record in delivering new and innovative ideas to improve our processes and achieve greater efficiencies that align with our business and technology strategies. We believe that with Logica’s consistent level of support and delivery we will achieve our business aspirations and look forward to further strengthening our relationship.”

Last week saw the news Round-Up all in fluster about the state of Indian outsourcing. This week it is the US’s turn…

The business press reported heavily on Barack Obama’s controversial offshore tax avoidance crackdown. The US president, who campaigned relentlessly on the issue of closing offshore loopholes, said the steps he announced would raise $210bn (£140bn) over 10 years and "make it easier" for companies to create jobs in Buffalo, New York, rather than in Bangalore, India.

LEAVE INDIA ALONE, I hear you cry!

Corporate America also reacted with dismay, saying the rules would put US companies at a disadvantage to foreign rivals.

The steps announced would include closing the "check box" loophole that enables companies to avoid US and foreign taxes by shifting income to subsidiaries based in offshore tax havens.

Okay let’s be honest, this wont be top of most of the world’s lists when tracking Obama’s policies. However, for the elite few, like the Round-Up and you, the readers, this is a hot topic (elite or easily excitable – I can’t decide).

TPI has also been looking at the US this week with a comprehensive new look at the nation’s outsourcing escapades. This week the research firm released a new report entitled ‘TPI Momentum 2009 Market Trends & Insights Vertical Industries’ The report presents a comprehensive look at outsourcing activity across 26 key sectors of the US economy.

The sectors covered in the report correspond with the widely used Forbes categories. For each vertical, the report documents information on 20 different IT outsourcing (ITO) and business process outsourcing (BPO) functions, providing analysis on each area. Within and across these segments, it shows how client buying patterns have shifted over time, by region, scope and service provider.

Take a look at some of the findings and check out a summary of the report at TPI through this article.

In accordance with the upsurge of interest in outsourcing USA (and everything American with the continued popularity of Obama), Time Warner Cable Inc, a leading US television company, has extended its existing e-Care contract with Convergys. Time Warner Cable has worked with Convergys for over a decade in various lines of business including billing solutions. The company will now extend its agreement in order to create a superior customer experience.

Convergys will work with Time Warner Cable to offer ‘e-Care alternative customer contact channels’ including both email and online chat in both English and Spanish. Through these channels, customers can receive account information and support, digital phone technical support, and answers to queries about billing, browsing, connectivity, and email issues.

Another North American giant also got in on the outsourcing act this week. Xerox Corporation, the worlds largest printing company, signing an IT outsourcing agreement with CSC, the US outsourcer. The contract, which has a seven-year base period, is valued in excess of US $100 million.

CSC will provide mainframe processing and application support to Xerox’s North American business.

So although Obama has shocked the outsourcing world with his less-than outsourcing-friendly tax plans, there is still lots going on across the pond and that’s a good thing for us all. You always know where to come for a bit of positivity during uncertain economic times.

Unitech Wireless is working with Wipro to launch a telecommunication service that will provide wireless voice, data and ILD/, NLD services across India.

As part of the deal Wipro will implement a future- ready IT architecture in accordance with industry standards. Wipro will also deploy component based Service Delivery Platform (SDP) for Unitech Wireless to deliver wide range of services including Multi Channel Access, Real Time Information Delivery, Multimedia Content and VAS. Wipro will be working with Unitech Wireless from the launch and taking responsibility for key aspects of the service infrastructure.

Commenting on the deal, Rohit Chandra, Chief Operating Officer, Unitech Wireless, said “We are launching a Greenfield telecom operation and want to create a strong customer proposition for our services based on cutting edge technology and business processes aligned with IT. We chose Wipro as our partner because among the service providers in this field, we felt that they brought a unique combination of domain expertise, market knowledge and a customer-centric approach that allows us to grow together.”

Wilton Re, the insurance provider, has signed a new contract with CSC who will provide a full range of business process outsourcing (BPO) services. The 10 year agreement has an estimated value of US$90 million.

Under the agreement, CSC will provide full back-office administration services for 270,000 life policies and convert those policies to its CyberLife policy administration system.

Enrico J. Treglia, senior vice president and chief operating officer of Wilton Re, commented, "By expanding our relationship with CSC, we are able to provide insurers with cost-effective divestitures of non-core businesses.”

TPI, the largest sourcing data and advisory firm in the world has released a new report entitled ‘TPI Momentum 2009 Market Trends & Insights Vertical Industries’ The report presents a comprehensive look at outsourcing activity in 26 key sectors of the US economy.

The sectors covered in the report correspond with the widely used Forbes categories. For each vertical, the report documents information on 20 different IT outsourcing (ITO) and business process outsourcing (BPO) functions and provides analysis gleaned from the TPI experience of providing expert advisory services in more than 3,000 transactions. Within and across these segments, it shows how client buying patterns have shifted over time, by region, scope and service provider.

"With our global footprint and 360-degree view of the outsourcing industry, TPI is offering objective and concise intelligence that isn't available anywhere else," said Melany Williams, Partner and Managing Director, TPI Momentum. "This report will help all participants in the sourcing industry to uncover pockets of opportunity and align business development efforts with real-world market demand. If you're trying to decide where to focus your sales resources, you need this report."

Among the key findings were:

• Of the 26 industries studied, nine are identified as being strong verticals for prospecting activities. Among these, the Media industry has recently seen strong adoption of outsourcing among mid-market companies as well as increasing spending levels among companies with active ITO / BPO contracts. This recent increase in outsourcing activity is likely to continue as Media companies face significant market pressure and seek opportunities for short-term cost savings.

• In terms of the number of companies represented, the Aerospace & Defense sector is the smallest of the 26 industries classified by Forbes, yet it remains a strong market for outsourcing. In fact, 68 percent of the companies within this space have an active outsourcing contract with a total contract value (TCV) of $25 million or more -- the highest percentage of all verticals studied. Outsourcing activity is likely to be affected in the coming months due to a variety of changes in the sector including acquisition reform, an expected labour shortage and forecasted 2010 U.S. government budget cuts.

• TPI has observed that the larger companies in the Consumer Durables space tend to be experienced outsourcers. Because these companies have been hit particularly hard by the reduction in consumer spending, they are likely to seek outsourcing opportunities in areas they have not strongly considered in the past. When making outsourcing decisions, TPI has observed that Consumer Durables companies are increasingly focused on the long-term financial viability of the service providers considered, adding another layer of complexity to the selling process.

Xerox Corporation, the worlds largest printing company, has signed an IT outsourcing agreement with CSC, the US outsourcer. The contract, which has a seven-year base period, is valued in excess of US $100 million.

Under the terms of the agreement, CSC will provide mainframe processing and application support to Xerox’s North American business. Work will be performed by CSC’s Global Outsourcing Services at various locations across the globe utilising the company’s ‘World Sourcing’ delivery centers.

“Xerox’s selection of CSC speaks to their expertise and experience in managing critical components of IT services,” said John McDermott, chief information officer, Xerox Corporation.

Munich Re, one of the world’s leading re-insurance companies, has signed a new five-year IT outsourcing contract with Atos. Under the contract, worth over £13 million, Atos Origin will develop and manage all IT applications and systems for Munich Re’s UK businesses.

The decision to appoint Atos Origin forms part of Munich Re’s IT strategy in the UK to strengthen its client services and more cost effectively manage its risk by standardising IT systems and policies. The new contract will replace a number of existing contracts.

“Atos Origin proposed a simpler and more efficient solution that will enable us to better meet our future business requirements,” said Chris Everson, UK Head of Business Solutions at Munich Re. “The new service from Atos Origin provides us with the flexibility and control that we need to better manage risk, respond faster to changes in the market place and ensure compliance with new regulations.”

Atos Origin will deliver the services from the UK and India. The Atos Origin team in India will focus on applications development and management, while the team in the UK will work closely with Munich Re (UK) to manage testing and design further service improvements.

Capgemini is expanding its presence in Eastern Europe to meet ongoing client demand for outsourcing services with a new centre in Iasi, Romania. The centre will perform first line IT help desk support and business continuity work for Capgemini’s outsourcing unit. The new centre will be modeled on Capgemini’s nearshore centers in Krakow and Katowice, Poland.

Iasi is one of the largest university towns in Romania, offering a qualified pool of talented and skilled employees for Capgemini. The language capabilities of the graduates will help Capgemini to meet continued demand from its European outsourcing clients, supplying staff fluent in French, German, English, Italian and Spanish.

Richard Dicketts, Global Head of Infrastructure Management at Capgemini, commented, “Opening a new outsourcing centre in Romania highlights the ongoing demand for these services, despite the current economic climate, and enables us to continue to help our clients grow, innovate and maintain a sustainable competitive advantage.”