Industry news

Johnston Press, which publishes over 300 newspapers and magazines throughout the UK, has announced plans to outsource the production of certain local glossy magazines to the Press Association news agency.

The deal covers 15 monthly, bimonthly or quarterly magazines produced at Johnston Press publishing centres across the UK.

The Press Association will deliver its production services from its headquarters in Howden, east Yorkshire. The publisher will be tasked with producing over 700 complete pages for Johnston Press each month.

The services provided by PA will include, page setting, advertising placement and some editorial content. However, Johnston Press journalists will continue to provide the majority of the editorial content.

US Citizenship and Immigration Service (USCIS) has signed a contract with CSC to conduct scanning, indexing and file management operations at a records digitisation facility. The new agreement has a one-year base period and a contract value of US $27 million.

USCIS is the government agency that oversees lawful immigration to the United States of America. The Agency establishes immigration services and policies.

Under the terms of the agreement, CSC will support USCIS by providing file maintenance activities and electronic access to various types of records, including receipt, temporary and account files, and imaged data that reside in various USCIS offices. The digitisation of these files, which are stored in the USCIS Enterprise Document Management System, allows USCIS and its customers to electronically access specific digitised A-Files for processing immigrant applications or investigations. The applications include immigrant requests for naturalisation or permanent status in the United States.

USCIS originally signed the contract over to Datatrac Information Systems Inc. in 2006 for a term of five years with an estimated contract value of $150 million. CSC acquired Datatrac in December 2006.

The International Olympic Committee (IOC) has extended its contract with Atos Origin to serve as the IT systems integrator for the Olympic Games for an additional four-year period. After Vancouver in 2010 and London in 2012, Atos Origin will provide IT systems for the Sochi Olympic Winter Games in 2014 in Russia and the Olympic Games in 2016, the host country of which will be announced on 2 October 2009.

"Atos Origin, our long-term partner, is the brains behind the technology operations for the Olympic Games, consistently delivering high-quality services on schedule. The Beijing Olympic Games were spectacular and Atos Origin provided a crucial role in ensuring the success of the event from a technological perspective, and in making sure that the IT systems functioned perfectly. We are confident that Atos Origin will once again deliver an outstanding job for future Games”, said Jacques Rogge, President of the International Olympic Committee.

Under the contract terms, Atos Origin will continue to work on the integration and management of the vast IT system that relays competition results and information about athletes in less than 0.3 seconds to spectators and media around the world.

The agreement represents the largest sports related information technology contract ever awarded, and further entrenches a partnership of more than 20 years between the Olympic Movement and Atos Origin.

In today’s tough economy the telecoms sector has a lot to teach us about outsourcing. The telecoms industry not only represents a large proportion of IT spend (Gartner recently predicted this to be more than 57% in 2009) but the competitive nature of this industry and the consumer demand for service providers to deliver rich applications at lower costs means that the industry experts cannot afford to make the wrong decisions when it comes to outsourcing.

Due to intense cost cutting measures many CIOs are looking at outsourcing as a way to lower operating costs while simultaneously introducing modernisation and integration of systems. In fact, Amdocs recently commissioned a survey which found that 91% of service providers regard modernisation as a key component of operational support systems.

The survey of more than 100 executives with financial and operational responsibility from wireline and wireless service providers around the world highlights how important it is to go beyond simply surviving the current economic climate by cutting operational costs. In fact, increased service profitability improved customer experience, and improved time to market ranked nearly as highly in the survey as a reason to outsource as operational cost savings, demonstrating the expanded business value of OSS outsourcing.

As expected, outsourcing helps service providers to overcome major OSS challenges such as the moves towards complex next generation services and overcoming long delays in launching new services. The survey also found that some two thirds of the respondents would prefer to outsource business support systems (BSS) with OSS to help create a seamless integration between their BSS and OSS— a way to improve the customer experience and give them a competitive advantage.

If service providers don’t succeed in transforming their OSS/BSS systems as we move out of downturn, they miss the opportunity to re-define their cost base and position for growth ahead. Transformation of OSS/BSS systems in conjunction with managed services will ensure that service providers are ready to capitalise on market opportunities now and into the future, as we move beyond these turbulent times.

Budget cuts and job losses may be at the forefront of people’s minds, but there are some ways in which the downturn could be good for business. With organisations wary of spending any extra money at all, IT departments are finding it increasingly difficult to gain approval from the Board on new investments. Instead, they’re having to look at what they already have: many companies are using this period as an opportunity to rationalise existing infrastructure and extract maximum value from current systems.

And those who follow this strategy will reap the rewards – not only will it impact the company’s bottom line in the short term; it will prepare the business, and the staff, for the upturn.

Right now, it’s a good time for IT leaders to get to grips with the real needs of the organisation. IT departments can support their company through the recession by aligning themselves with the business’ priorities. They must establish a strong IT strategy which will ensure operations across the business run smoothly, staff work efficiently and teams are truly collaborative, so the organisation can increase profits, retain customers and gain a greater share of its market.

But this doesn’t necessarily require additional investment. At the moment, most companies are experiencing large budget reductions, with any increases relatively modest compared to previous years. Consequently, many organisations are shelving any non-essential projects and working with what they have in place already. By following three simple steps, businesses can sweat their assets, making the most of the technology, systems and resources they already have in place:

1. Re-organise, re-structure and automate

IT budgets are almost always spent in full, but all too often this just means people are buying technology for the sake of it. This results in complexity and additional management headaches, when what the business really needs is speed, reliability and ease of use.

IT managers need to establish what technology they have, what they need, and what they can manage. They may find they are over-subscribing to certain software programmes required for the number of the workforce that needs access, or it could be a case that some systems are no longer essential to the business’ operations.

A full audit of what is in use and what is of use will help rationalise the business. Any excess should be stripped out to avoid unnecessary complications and expenditure, making the whole company run more smoothly, more efficiently and more cost-effectively. It will also provide an accurate indication of areas that could make the best use of any future investment, as IT directors will be able identify outdated programmes or business critical tasks and systems.

2. Have your cake and eat it

Very often, organisations find they have invested in technology but failed deploy it. They end up wasting hundreds of thousands of pounds and losing out on increased staff productivity.

For example, Microsoft Office SharePoint Server has been around for some time, but there’s still widespread misunderstanding about how it works. It’s not like the Office suite, which is basically ‘plug and play.’ To take full advantage of its toolset, you need a fairly sophisticated installation, so many organisations are simply casting it aside.

But those who snapped it up and not utilising it are effectively sitting on money mountains. SharePoint provides the building blocks for gaining control over your unstructured data, moving towards effective enterprise content management. Once it’s up-and-running, it can improve workforce productivity exponentially. Organisations need to start realising the benefits of technology like this and stop wasting their investment by not using it.

3. Work smarter, not harder

Many organisations are already finding greater efficiencies through adopting different working practices that while reduce expenditure while supporting top-line growth. Shared services centralise back office functions, while remote and flexible working cut down on travel and office costs.

Another initiative that can be achieved quickly and has immediate return on investment is collaborative information management. Unlocking the value of information assets is vital to an organisation’s success in a downturn, whether this information is stored in IT systems of people’s heads. And for any organisation shedding jobs, greater collaboration and better information management is vital. When workers leave, they take their knowledge and experience with them; but those left behind need not suffer.

By consolidating information centrally, staff are saved from ‘re-inventing the wheel’ and can access, find and view the content they need immediately. Instant messaging and collaboration enable employees from across the business to work together more effectively, sharing and exchanging information wherever they are. This will improve overall workplace productivity and create a more integrated business.

By following these three steps, any money the organisation does need to spend on IT will be a long-term investment, not a short-term expenditure. In this way, the company can feel confident that it will outgrow the competition rather than just stay in business.

Everest, the international research institute, has recently released its 2009 Q1 Market Vista report. This report gives an overview of the global sourcing industry and highlights in particular the transaction trends within the outsourcing world. sourcingfocus.com takes a closer look at the report’s findings and explores just where the outsourcing market is heading.

The first thing that the report summary states is that the volume of outsourcing transactions has decreased by seven percent when compared to Q4 2008. This can hardly come as a surprise as many organisations would have been reluctant to shell out the initial investment associated with new outsourcing deals, instead opting to review their internal strategies first.

Anand Ramesh, research director at the Everest Institute, commented on the dip in transactions, “There is a significant amount of caution about new spending or new initiatives. Organisations are in a wait and watch mode.”

The actual cash value of transactions also dropped by 16 percent. Does this clarify the theory that end users are taking a cost is king approach to outsourcing? Suppliers might be having to offer lower rates in order to entice new business. In turn, end users who are renewing their contracts will inevitably be looking for a reduction in price.

Martyn Hart, chairman of the National Outsourcing Association warns end users of the risks associated with excessive bartering, “The recession will prompt end users to pin suppliers to the ground on price, heavy bartering will be taking place at contract negotiation meetings across the world. However, suppliers will make up their money somehow, probably through pricey change requests and we may find end users regretting their initial price busting tactics.”

Mr Ramesh also pointed to the fact that organisations are taking a piecemeal approach to outsourcing, “Organisations are hesitant to sign long contracts. They are not putting their eggs in one basket and are [instead] engaging in smaller transactions for small ACV.”

As a result Mr Ramesh believes that multisourcing is increasing. Big transactions mean big upfront costs, something which no organisation is very keen on doing.

Despite a slump in transactions, the outsourcing industry is growing. The amount of transactions are up from Q1 in 2008 and all involved in the market can rest assured that there will be a continued upward trend. Mr Ramesh believes that by Q4 of 2009 the market will be significantly more positive.

One area of particular interest is the large amount of outsourcing activity within the Banking Financial Services and Insurance (BFSI) sector. Transactions within the BFSI sector have grown by 40 percent compared to Q4 2008, this indicates that an extensive review of resource allocation is taking place within the sector. All those involved in financial services outsourcing have certainly had to look at efficiency.

Large mergers and acquisitions within BFSI will mean a duplication of roles, higher overheads and costly IT infrastructure. It is therefore understandable that outsourcing within that industry has grown.

Within the BFSI sector, ITO was reported as being by far the largest growth area with a 38 percent increase in the number of ITO transactions. This has amounted to a massive 120 percent increase in ACV for ITO transactions in the BFSI space, bearing in mind, this is only an indication of deals for which contract value was disclosed. BPO however was reported as staying pretty much the same as the previous quarter.

2009 was supposed to be the year for BPO. Research from organisations such as the London School of Economics predicted BPO to be racing ahead, even overtaking ITO in speed of growth. Well if that is the case, then the Market vista report shows BPO as a late starter, because in Q1 of this year the value of BPO transactions was down by US$530 million. This did not surprise Ian McGowan, a Director at ADEC, a provider of BPO solutions, “Revenue losses in the banking sector last year and the Lehman Brothers collapse would have had a direct affect on BPO.”

While BPO appears to be stalling, the report points to an increase in captive investment, with areas such as the Philippines enjoying particular growth. “This is a clear indication of large global corporates investing in captives rather than third party suppliers. There is more risk involved, however results can be seen within 12 months”, commented Mr McGowen.

So, this report brings a mixed bag for the outsourcing community to digest. There are certainly no signs of a long term slowdown, however there appears to be significant changes in end user strategy. Suppliers will need to be wary of cost, which in this economy is a given. However, vendors will also need to be prepared to deal wtih smaller, quick turnaround contracts, rather than mega-deals. Captives look set to gain more traction in 2009 and locations such as the Vietnam and Turkey will also be looking ahead with great optimism.

The recession has not significantly slowed down the industry, it has just catalysed a change in strategy. All those involved in outsourcing should take note and prepare for a dynamic 2nd half of 2009.

The SaaS undercurrent is growing at a rapid pace and looks on course to confirm its place as the true future of enterprise software delivery. The worldwide market for virtual IT delivery is forecast by Gartner to reach $9.6 billion this year and grow to $16 billion by 2003. The tide is clearly turning for IT and companies are investing more and more in virtual IT delivery. But what are the options in SaaS and how is it changing the delivery of outsourced IT?

Rob Lovell, CEO at Think Grid, commented, “Whilst these new models transform the way that business purchase and manage IT, the point is that there should be no need to change actual working practices. Employees must be able to continue to work in exactly the same they gotten used to and remain completely ignorant of the fact that behind the scenes, virtualisation and SaaS is making their company that much more efficient.”

But SaaS is definitely changing the way companies think about implementing new IT. The possibility of cutting infrastructure investments, accessing constantly up-to-date systems and taking the weight of maintenance off an organisation’s shoulders is a highly attractive prospect for end users.

Gartner’s research into SaaS found the market for SaaS in ‘communications and collaboration’ to be approximately $2.5 billion with CRM close behind at $2.1 billion. Applications like Salesforce.com and Sugar CRM are of course at the forefront of driving adoption of SaaS in this area. However, the adoption of ‘core IT’, those systems that pertain directly to the central operation of the business, is proving a harder nut to crack. The predicted market for ERP, though a seemingly large figure at $1.4 billion, only represents a $100 million growth on 2008. Likewise, Springboard Research expects the Asia Pacific SaaS ERP market to reach just $193 million by 2012. Either of these figures would quickly be overshadowed by some of the IT infrastructure outsourcing deals that are still being signed on a daily basis.

Though the Asia Pacific region is clearly looking at SaaS, it appears that it is mainly smaller companies and smaller deals. And the fact ERP is not leading the total market value in Gartner’s index suggests a similar trend worldwide. News of large core IT SaaS deals are still hard to come by and the market is still dominated by Salesforce.com’s CRM system as the shining example of SaaS success.

So what is putting the larger companies off looking at more integral IT through SaaS? A lot of the reticence seems to come from current perceptions of SaaS IT.

Sharon Mertz, research director at Gartner, commented “Certain factors can work to impede adoption of SaaS including: concerns about data security, a perceived lack of competitive differentiation, increasing concerns about scalability, questions about vendor longevity, and the fact that existing investments in applications capital and organisational expertise limit SaaS growth.”

However, industry feeling indicates that many of these concerns are becoming less valid as the industry evolves. “The Impact of virtualisation on outsourcing IT services in general and alternative delivery models actually causes an increase of offerings created by different providers,” said Claudio Da Rold, Vice President of Gartner.

The security question is also put down by vendors on the reasoning that they can be more foolproof in an outsourced capacity. They evidence the fact that through economies of scale, their back-up, physical security and business continuity offerings are much comprehensive that can be maintained in-house. Indeed, SaaS could ultimately prove more secure than maintaining an in-house datacentre.

However, due to differing revenue models, cost bases and development priorities it seems unlikely that SaaS vendors will be able to match their offerings to a company’s needs as effectively as a custom-developed IT project would.

Mikhail Bykov, Managing Director of Manufacturing and Enterprise solutions at Luxoft, a large Russian ITO player, commented “SaaS may not support unique business process of an organisation that may be achieved with custom solutions. This needs to be considered if your core IT supports critical and unique business processes.”

So for some end users, trying to implement core IT over SaaS, may simply be unfeasible due to lack of customisation.

The fact that many larger companies are tied into long-term, high-expense outsourcing deals is another factor hindering SaaS adoption identified by Gartner. A certain amount of the growth over the next few years then is likely to come from outsourcing deals ending and companies looking at new delivery and billing models.

Rob Lovell, CEO at ThinkGrid, commented, “In essence, gone are the days where IT needs to be a heavy, upfront Capex investment.”

The attractiveness of SaaS to larger companies is also likely to increase as the big IT players get in on the act. Springboard Research’s report on the Asia Pacific market found that: “Growth in SaaS ERP market is also constrained by the limited presence of large, well-established SaaS ERP vendors in Asia and the lack of robust and mature solutions that cater to the specific needs of the market.”

This is still largely true for the Western world too. The SaaS market is currently dominated by best-in-class, single-function products where many large companies will be looking for a more complete enterprise product. When the larger players manage to modify their offerings to the on-demand world, there is likely to be a big leap in the takeup of such services. SAP, as one example, is still struggling with the concept as it attempts to get its Business ‘ByDesign’ SaaS suite ready. The company is also struggling to make money from SaaS as it has been built on the ‘large upfront cost, implement, leave and update’ model of software management.

Also, in a recent interview with Information Week Bill McDermott, SAP CEO and president of global field operations, said that large organisations would ‘never’ be able to run their core business IT using SaaS. This kind of comment from one of the biggest IT vendors in the world has to affect the way larger companies look at SaaS.

If the larger players like SAP take longer to develop SaaS than expected, the profusion of high quality specialist SaaS packages is likely to continue and this could lead to different management models for SaaS products.

Martin Banks from Bloor Research recently described his vision of ‘reintermediation’, where end-users will purchase an end-to-end service from a single service provider with the different components delivered by a number of companies. This new SaaS intermediary will manage the relationships necessary to deliver the end-to-end service that a business signs up for. This model certainly seems plausible if larger vendors do not make the grade. It also negates worries over integration over various important business SaaS IT services. Any intermediary would naturally want to work with its preferred SaaS vendors to make sure their products worked seamlessly together. For example if a CRM system cannot integrate with financial IT to feed projected sales into financials data, its utility is much reduced.

The third possibility is of course that of a mega vendor rising from the younger 21st century IT companies. Google, for example, is always a threat to the bigger, less agile players. Salesforce.com’s ‘Force.com’ cloud computing platform also has much potential for delivering a wider reaching service. CODA, a UK based financial software specialist has developed CODA 2go, which offers full SaaS accounting capability represents the first cloud accounting application built Salesforce.com’s cloud computing platform. The likelihood of end-to-end ERP offerings being built through such platforms is high and could prove an attractive option for many companies in the future.

Maria Cappella, CEO of Vialtus Solutions, commented, “With the rise of new uses of technologies like cloud computing, virtualisation and SaaS, procurement professionals will increasingly look for a single provider to provide an end-to-end service, rather than using one provider for their hosting, another providing security (as a service), a third for the connectivity and network provision, and fourth that provides applications like CRM, e-financials/payroll, ERP and e-HR etc.”

Amid the bustle of what is still a very nascent market, It seems the SaaS world is ripe for experimentation by end users. However, it is still geared largely for the smaller IT user. Indeed, the SME market can take advantage of various benefits by implementing SaaS such as: subscription based pricing taking the initial financial liability away and the ability to access world-class software at a relatively ‘young business stage’, enhancing growth as a result.

However, due to the fact the market still has a lot of growing to do and maturity is low, many signal a word of caution.

Andrew Heather, General Manager EMEA from Tripwire, commented “We must remember that management will always be responsible for protecting company and customer data. It is therefore essential, when moving towards cloud computing that businesses consistently ensure the health of the cloud-provided services. This includes gaining complete confidence that the cloud provider is a viable, stable business with assurances and protections, such as comprehensive risk and security defences in place, to safeguard business data.”

It is clear that, as with anything new, companies must conduct appropriate research and due diligence into the problem, concept and provider before diving in. The movement towards SaaS however, seems set only to increase. But Gartner predicts that “through 2011, fewer than one-third of investments that vendors are making in the cloud will pay off, causing further market consolidation and forcing some providers to go out of business”.

The message is coming across loud and clear. Until the market matures to a greater extent, end-users should keep their wits about them when entering the world of SaaS.

The Australian Government has signed a US$61 million (AU$96 million) agreement with EDS for the management of technology infrastructure for the the country's Department of Agriculture, Fishery and Forestry.

Under the five-year agreement, EDS will provide desktop, server, storage and architecture services. EDS will manage and provide help and service desk support to approximately 5,000 employees across the department’s 300 locations, as well as provide the overall storage and IT architecture and design services in a multi-vendor agency environment.

“This agreement will help the Australian federal government meet its business and policy objectives and deliver better return on investment to the Australian people,” said David Caspari, managing director for Australia and New Zealand at EDS, an HP company. “It builds on existing services we provide to the government and strengthens EDS’ position as the No. 1 government supplier in the country.”

The contract was signed in March 2009.

Readers, it has finally happened. The Round-Up has now got sufficient evidence to show it might not be the infallible journalistic entity you all thought it was. I must apologise, profusely, for an inaccuracy that was published in last week’s news Round-Up. Thanks to Brian Daly at Unisys, we at sourcingfocus.com are able to right that wrong. When the Round-Up wrote about the Landis+Gyr ITO contract with Unisys last week, I also reported about 1,300 jobs that were cut on Monday. This, however, is where the inaccuracy lies. Mr Daly aptly notified sourcingfocus.com that the job loses had indeed happened five months before, in December, and not that Monday. For this inaccuracy, the Round-Up is extremely sorry. At sourcingfocus.com we appreciate, and in some cases, rely on our reader’s comments and input. After all, as the Round-Up has only recently recognised, no one is perfect.

Apart from the woe of recognising my fallibility, I have been consumed this week with interest in Research and Marketing’s recent report, ‘e-learning Outsourcing 2009: Advantage India’. It seems the outsourcing community can now add another string to its bow. The report explains how, in recent times, corporations, educational institutions and governments have started re-examining the way training and education are imparted. e-learning has now become a crucial part of their strategy to deliver knowledge. But maintaining e-learning systems within the organisation equals more costs. The solution? Outsource, and don’t look back – more international organisations, realising cost advantages, are moving from dealing with local e-learning service providers to directly approaching Indian companies. And yes, surprise, surprise this report does highlight India’s capabilities in e-learning outsourcing.

According to the article, revenues from the Indian e-learning offshoring industry stand at approximately $341 million at the end of calendar year 2008. While the economic recession will impact the growth in the industry for the next 6-8 quarters, the market will recoup and grow much faster, until 2012. The report estimates the market size will reach $603 million by the end of calendar year 2012. There is just no stopping them!

We all know that India is more than proficient in the outsourcing sphere. This report highlights just another example of this. It also seems the recent elections in the country will serve to increase India’s economic growth. As Hamish McRae wrote in the Independent this week, ‘It won’t just be Land Rover and Jaguar that will be rescued by an Indian company; the direct influence of its economic power will go far beyond the odd takeover’.

That said this weeks sourcingfocus.com’s news has seemed to state otherwise. A.T Kearny, a global management consultancy firm, has released a paper that asserts that deteriorating cost advantages and improved labour quality are driving a dramatic shift in the geography of offshoring.

It’s certainly a confusing world out there. It just shows that you need a great news source like sourcingfocus.com to make sense of it all (last weeks’ error aside).

While India, China and Malaysia retain the top three spots they’ve occupied since the inaugural GSLI in 2004, a fundamental shift in the index has taken place as once strong Central European countries have yielded ground to countries in Asia, the Middle East and North Africa.

The GSLI analyses and ranks the top 50 countries worldwide for locating outsourcing activities, including IT services and support, contact centres and back-office support. Each country’s score is composed of a weighted combination of relative scores on 43 measurements, which are grouped into three categories: financial attractiveness, people and skills availability and business environment.

My memory does serve me well enough to remember that last week, I too was hinting at the demise of the Indian outsourcing empire. Not sure where I stand now…all those mixed messages!

I think sourcingfocus.com has confused us all enough for one week. On to more concrete news items. MTV has signed up HCL to be its digital platform development partner.

The partnership aims to help MTVN brands manage the technology behind its digital content creation, media asset management, community networking and cross-brand programming. No confusion there then.

Another new contract has come in the shape of Unisys and TravelSky. TravelSky, a provider of information technology solutions for China’s air travel and tourism industry, has extended its licences with Unisys China for Unisys server technology through to December 2011.

TravelSky Vice President, Mr. Rong Gong, commented, “This supports our aim to make TravelSky one of the most reliable travel systems in the world while satisfying the ever-increasing growth of China’s aviation market.”

Let’s just hope those are green electric planes for all our sakes.

Amid the latest ‘dramatic shift in the shape of global offshoring’ that outsourcing advisors are all too ready to predict, it may be time for a rest. A little time to mull it all over, thank goodness it’s the weekend…

For all its rapid developments in other aspects of business, China has never really been perceived as one of the most attractive locations to which core business operations could be outsourced. This could be about to change according to sourcing industry commentators, KPMG.

In launching their report entitled A new dawn: China’s emerging role in global outsourcing, KPMG’s Advisory practice suggests that China is no longer the 'quiet man' of the outsourcing industry.

Over recent years, China has made major strides in laying the groundwork for a diverse and successful outsourcing market. Central and local authorities alike have demonstrated a quiet determination to promote IT and other business services industries in locations across the country, the report says. The quiet progress which has marked the early development of the Chinese outsourcing industry is about to catapult it to the forefront of the global outsourcing market according to the consultancy firm.

Edge Zarrella, Global Head of IT Advisory and a partner in the Hong Kong firm, explained: “China has been quietly asserting its position in the global outsourcing industry, attracting little in the way of fanfare. Having conceded a significant head start to the now established outsourcing centres like India, it suffered somewhat from the trend for multinationals to place all of their outsourcing work in one location.

“Two things have changed recently. Firstly, the plan enacted by the Chinese government in 2006 to develop 10 internationally competitive outsourcing cities is bearing fruit. Secondly, there has been a realization amongst many major corporates that they can combine the complementary strengths of different outsourcing markets to meet the increasingly complex challenges which they face. This is a major — and timely — boost for the Chinese outsourcing industry as it means companies are no longer thinking of, say, China or India. Now they’re thinking about China and India.

“It’s for these two reasons that I believe that China is not one to keep an eye on in the future; it’s the one to keep an eye on now. China’s days as the quiet man of the industry, gently ambling along with the pack, are over.”

The report suggests that strategic decisions based on a choice of one or more outsourcing destinations require a complex series of evaluations and, ultimately, trade-offs. No single destination can offer everything on the checklist. Therefore, companies are now combining the complementary strengths of several markets. The result is more robust and flexible than relying on a single supplier.

However, while many companies are showing greater appetite for outsourcing diversification, they still want the reassurance of dealing with companies with global perspective and experience. This is where the Chinese government’s 1000–100–10 plan comes into play.

Launched in 2006 with funding in excess of US$1bn, the plan aimed to establish 10 Chinese cities as global outsourcing bases (subsequently increased to 20 cities in January 2009), to attract 100 international corporates to outsource to these locations and to develop 1000 Chinese outsourcing vendors to service this new client base. It was a breathtakingly ambitious plan but the results can be seen with Dalian, Shanghai and Beijing already ranked in the top ten most attractive cities for outsourcing It is reckoned that Shanghai could even challenge Bangalore for the top spot within two years, with Dalian and Beijing thought likely to make it into the top five.

Ning Wright, KPMG’s China Sourcing Advisory Leader and a partner in the Chinese firm, commented: “On current reckoning, China may have only around ten percent of the global outsourcing market. It also still faces the inevitable concerns around intellectual property protection — although huge strides forward have been made in this area — and how it can ride out the impact of the economic crisis. In addition, there is a growing clamour for a professional trade body to be formed to articulate the industry’s needs — just as NASSCOM does for India. However, you cannot fail to be impressed by the vision which China is demonstrating in building a potentially world-class outsourcing industry and the incredible pace at which it is turning that vision into reality.”