Industry news

Unilever, one of the world’s leading consumer product companies, has signed an agreement with IBM to transform and operate its human resources (HR) processes across 19 Latin American countries.

The new agreement will see IBM provide related services to more than 27,000 Unilever employees from IBM’s service centers in Hortolandia, Sao Paulo, Brazil and San Jose, Costa Rica. The contract extends IBM's current operation of managed payroll and benefit management services for Unilever employees in Brazil, Mexico and Chile.

"Large, global companies such as Unilever understand that HR process transformation provides them with a competitive advantage," said Patricia Motta, IBM Managed Business Process Services Latin America. "Our mission in this case is to bring additional flexibility and the best practices of innovation to help Unilever quickly respond to business opportunities and customer demands in a secure, transparent, and standardised way."

The project is designed to help Unilever continue to streamline and accelerate the decision-making process and offer its executive staff the flexibility to be able to shift resources to focus on business critical initiatives, as necessary.

The new service agreement with Unilever will now include the following countries: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Trinidad & Tobago, Uruguay, and Venezuela.

The media is hooked on the recession – it’s official. The ongoing obsession with all things downturn shows no signs of stopping, but then why would it? We’re in it and just have to hope that the brave, mega debt-inducing, spending spree many G20 governments have agreed to will one day lead to those fabled ‘green shoots’ we all await. At such a time, it would not be unreasonable to assume this article would be any different, especially with the UK budget – which now is somewhat of a misnomer – firmly on the agenda. You wouldn’t be unreasonable, but you would be wrong.

This week sourcingfocus.com has decided to focus on the more jovial stories of the week. First up then appears to be that India has outsourced its comedy entertainment. Not content with receiving western comedy on the box, the canny guys at the Comedy Store have set up shop in Mumbai. Western comedians will now grace the Indian stage and it is hoped that humor will transcend cultural boundaries – lets hope Brand and Ross stay in the UK for now. The organisers have also said that they wish to discover an Indian stand-up superstar.

In the spirit of great comedy, we thought we would begin this week’s round-up with an Indian outsourcing themed joke…

‘When President Bush was in office the US Congress decided to outsource the office of the President to India. An economist at Bangalore University is going to take over as chairman of US Council of Economic Advisers. And in a move to outsource obesity, US plans to shed three million pounds of cellulite annually!’

Well, I didn’t say it would be a good Indian outsourcing themed joke but at least it was at the expense of somewhere else – isn’t that nice?

Whilst we are still on the Indian theme, Gartner has released a survey that shows that Indian business process outsourcing (BPO) providers have proved to be stiff competition to western competitors, accounting for five percent of market revenue generated among the top 150 providers in 2008. The Round-up team suspects this to relate directly to the sterling quality of comedy now coming from the country. Gartner has other ideas, suspecting it has something to do with economic pressures. You see what I mean – obsessed!

Those clever Gartner analysts expect this increase in revenue to be maintained, with the BPO market share of Indian vendors expected to nearly double by 2010.

In 2002 there were few, if any, India-centric vendors in the top 150 worldwide providers, but by the end of 2008, the top 20 Indian BPO providers accounted for US $4 billion in revenue, representing five percent of the US $80 billion revenue of the top 150 BPO vendors. With last week’s Satyam acquisition putting a stake in the ground (we hope) on outsourcing fraud, things are looking rather rosy indeed for the Indian subcontinent.

It may be good news for India, however, TPI, the sourcing data and advisory firm, has released first-quarter market data showing a reduction in outsourcing contract size.

The TPI Index, which measures commercial contracts greater than US$25 million, showed that the 141 contracts signed during the quarter with a total contract value (TCV) of $19 billion, were down 21 percent quarter-on-quarter and 22 percent year-on-year. Annual contract value (ACV) reached nearly US$4 billion in the quarter, down 18 percent quarter-on-quarter and 27 percent year-on-year. The TCV for the first quarter of 2009 was the lowest first quarter since 2001, and the ACV was the lowest first quarter since 2003.

Fear not however, hidden hand of multi-sourcing may be at work. The first quarter index had some interesting industry sector and geographical trends. The media, retail, utilities and telecom sectors have all increased their outsourcing activity amidst the current economic downturn. Word on the grapevine is that this trend will increase as outsourcing (of certain things) becomes easier, cheaper and faster to do.

Elsewhere in the world has been relatively quiet, or sourcingfocus.com’s outsourcing radar is broken, one of the two. There was some good news in Ireland however. The once booming beacon of Europe appears to be finding a second wind in the provision of BPO.

Early in the week, the Irish Republic’s leading outsourcing firm, Abtran, announced plans for a new innovation centre. The company will invest 6 million Euros to develop the centre creating 250 in the process.

Cork-based Abtran, which specialises in support services such as sales, administration and planning, hopes to finalise the centre in 2010 and will also expand its existing facility at Bishopstown, just outside the city. We’ll have to look into where they’re getting their business though as the current state of the pound is making the country less and less attractive to UK businesses. I’m sure they’ve got it all under control!

And that neatly, if somewhat soberly, brings us to the end of another weekly news round-up. I promise there will be no more bad outsourcing jokes next week, unless you want there to be?

TCS has reported record revenues for fiscal year 09 with operating profits rising 11.7 percent, up 2008 on the previous year. Net profit was up 10.1 percent at $1.12 billion.

Some of the drivers behind TCS’s growth include the addition of 163 new customer and new 26 sizeable contracts. The acquisition of Citigroup’s captive BPO also added significant new revenue streams.

Commenting on the results, S. Ramadorai, CEO and MD of TCS said, “In an unpredictable operating environment, TCS delivered healthy topline growth of 23% and crossed the $6 billion milestone in revenues. By focusing on operational efficiencies, collecting cash more efficiently and driving an enterprise-wide cost control program, we have improved our profit margins and continue to generate significant cash-flows. Even after the recent cash acquisition, we have cash of nearly Rs 43 billion.”

“In addition to total dividend of Rs 14 per share, I am delighted to announce the Board of Directors have recommended a 1:1 bonus share issue subject to approval by shareholders,” he said.

Indian business process outsourcing (BPO) providers have proved to be stiff competition to western BPO providers, accounting for five percent of market revenue generated among the top 150 providers in 2008, according to Gartner, Inc. Gartner analysts expect this increase in revenue to be maintained, with the BPO market share of Indian vendors expected to nearly double by 2010.

In 2002 there were few, if any, India-centric vendors in the top 150 worldwide providers, but by the end of 2008, the top 20 India-centric BPO providers accounted for US $4 billion in revenue, representing five percent of the US $80 billion revenue of the top 150 BPO vendors. Gartner expects this trend to accelerate because of economic pressures that are leading to demand for low-cost BPO.

“Indian BPO providers are swiftly evolving to balance exposure to vertical industries, currency and legislation issues,” said Mr. Arup Roy, senior research analyst at Gartner. “Their strategies include investing in onshore and near shore delivery, and pioneering new area of analytics services or knowledge process outsourcing (KPO) where Indian BPO players are shining.”

Although there are still no Indian vendors in the top 20 global BPO players, half of the top 20 India-based BPO providers now operate local U.S. and European sales and delivery centers.

Indian BPO providers have had the most success servicing English-speaking requirements, from North America and the U.K. North America has been the most successful sales location for Indian BPO providers, where the top-20 India-centric BPO providers generate about US $2.2 billion in revenue. Western Europe showed strong growth, mostly in the U.K., and accounted for US $1.4 billion in revenue for the top 20 Indian BPO providers in 2008.

From a vertical-market perspective, Indian BPO providers also had more success in telecommunications, manufacturing, insurance and banking than in government and retail, which are not traditionally sectors that have been strong users of offshore outsourcing.

Overall, Indian BPO vendors achieved growth rates between 12 percent and 200 percent (however some of them are starting from fairly small revenue in the first place). Gartner analysts said the BPO market share of Indian vendors will continue to grow based on:

• Indian BPO vendors gaining increased acceptance as being able to reliably deliver services in a market

• Indian vendors continuing to make acquisitions of Europe- and North America-based shared-service centres

• Many of these vendors are starting to grow revenue from continental Europe and via partnerships with indigenous BPO providers; this will also help Indian BPO providers understand local business cultures

“It is highly likely that many new competitors will emerge from India during the next few years. Contact centers and analytics services will likely see the highest growth, having the lowest entry barriers because relatively little technical or specific process expertise is required,” said Ms. Cathy Tornbohm, Research Vice President, at Gartner. “These barriers will also be kept relatively low for other types of BPO as prospective clients with existing Indian player IT relationships will look to Indian BPO players to balance their portfolio of bidders.”

Additional information is available in the Gartner report “Competitive Landscape: Business Process Outsourcing, India.”

TPI, the sourcing data and advisory firm, has released first-quarter market data showing a reduction in outsourcing contract size.

The TPI Index, which measures commercial contracts greater than US$25 million, showed that the 141 contracts signed during the quarter with a total contract value (TCV) of $19 billion, were down 21 percent quarter-on-quarter and 22 percent year-on-year. Annual contract value (ACV) reached nearly US$4 billion in the quarter, down 18 percent quarter-on-quarter and 27 percent year-on-year. The TCV for the first quarter of 2009 was the lowest first quarter since 2001, and the ACV was the lowest first quarter since 2003.

The index also highlighted that the information technology outsourcing (ITO) market delivered a steady flow of contract awards during the past three quarters and the first quarter of 2009 was no exception. ITO transactions, which accounted for 101 contract awards valued at US$15 billion during the quarter, tend to make the most significant near-term cost impact for buyers of outsourcing.

Peter Allen, Partner and Managing Director of TPI, said, “The TPI Index for the first quarter of 2009 delivered a profile of contract awards that reflected the pace set at the end of 2008, and which conformed to the pace experienced prior to the unusual surge of nine to 15 months ago. Looking forward, we anticipate a sustained pace of smaller contracts not unlike that before and after the ‘surge’ of 2008 contracts.”

The first quarter index also provided some telling industry sector and geographical trends. The media, retail, utilities and telecom sectors have all increased their outsourcing activity amidst the current economic downturn.

Tom Lang, Partner & Managing Director of Americas industry verticals at TPI, commented, “With pressure to reduce costs, it is no surprise that some sectors are looking to outsourcing as a strategic driver to help meet those goals.”

The TPI Index also revealed a “tale of two regions” when analysing geographic differences. By number of contracts and TCV, EMEA accounted for the majority of the global market in the first quarter of 2009. The Americas region contributed the greatest ACV in the quarter, at $1.6 billion, demonstrating that the durations of contracts awarded there have tended to be materially shorter than contracts awarded in EMEA.

Peter Allen, summarised, “The pace of outsourcing contract awards has returned to the levels seen prior to the EMEA-driven surge of a year ago, overall, there’s no appreciable upward movement in outsourcing awards. The comparisons tell the story of a relatively soft market for outsourcing compared to this time last year, although some industries are adopting outsourcing at a more rapid pace to better manage the current economic conditions.”

Equifax, the US credit reporting agency, has signed an ITO contact with IBM. The contract covers the provision of IT services in the US, Canada, Spain and the U.K.

As part of the agreement, IBM will provide data centre services including mainframe, mid-range server, client service desk, network and business continuity and resiliency services for Equifax's operations. IBM will utilise its global delivery network of service centres and data centres to support Equifax's employees and customers worldwide.

It is hoped that the new agreement will generate savings and enable the flexibility required for Equifax to support its business. The deal has been put in place to ensure consistent operations and administration across all the countries in which Equifax operates.

"IBM is a key global strategic supplier to Equifax and this new agreement delivers performance accountability, cost productivity, service enhancement and software innovation while deepening the global integration and collaboration between our organizations," said Robert Webb, CIO, Equifax.

Tech Mahindra has finalised plans for its acquisition of a controlling stake in Satyam. In a meeting on Friday company representatives met with the Board of Directors and key executives from Satyam Computer Services to discuss the deal and examine important transition issues.

In a statement from the company it said that the following Tech Mahindra representatives are expected to be nominated to join the Satyam Board. Mr. Vineet Nayyar, Vice-chairman and Managing Director, Mr. C.P. Gurnani, President, International Operations, Mr. Sanjay Kalra, President, Strategic Initiatives; and Mr. Ulhas Yargop, Director, Tech Mahindra and President of the IT Sector, Mahindra Group are all likely to form part of the new management structure.

Mr. Vineet Nayyar, Vice Chairman, Managing Director and CEO of Tech Mahindra, “We have been impressed by the extraordinary skill and dedication of the Satyam leadership, and indeed, of their entire workforce. We have complete confidence in Satyam’s executive leadership to restore the company and take it to new levels of success. We would like to reassure stakeholders that priority focus is being given to retaining critical customer-facing resources, so that the customer experience continues undisturbed”. “This is also a new beginning for Satyam – and for Tech Mahindra. Both companies will now have access to enhanced talent and scale to compete in the global market.”

Under Tech Mahindra’s plans, Satyam will continue to operate as a stand-alone unit and its leadership will continue to drive operations.

It has been widely reported that Mumbai Stock market-listed Tech Mahindra, subject to due diligence, has had its offer accepted to buy a controlling interest in the scandal-hit Indian outsourcer Satyam. News of the bid from Tech Mahindra, which is 31% owned by BT Group, will come as a huge relief to Satyam’s customers.

But the relief felt by Satyam’s current customer base may be short lived. The greater stability the deal brings for Satyam’s future must be balanced against with the very real possibility that the cultural mix between the two organisations may not work – a prediction of several broking firms.

Irrespective of the outcome of the resulting merger, Tech Mahindra cannot be considered the tonic for the rest of the marketplace. When the scale of Chairman Ramalinga Raju’s alleged embezzlement (US$ 1 billion) was announced in January, a huge shockwave ran through the whole offshore market, primarily felt by those using Indian offshore providers. The effects have been twofold. Firstly, with suspicions over the legitimacy of India’s economy added to, companies have begun to review their reliance on India...

Those companies who are offshoring to India are understandably concerned at the prospect of ‘another Satyam’ being discovered, or indeed of other problems surfacing, especially in the light of India’s political upheavals and those of its neighbours, like Pakistan. While there is not a mass exodus from Indian-based outsourcers, geographical risk needs to be reassessed. Proactive risk assessment programmes are being actively pursued, including analysis of levels of dependence on Indian providers, risk mitigation plans and precautionary investigations into providers outside India.

Secondly, the corporate structure of Satyam with a shareholding pattern held overwhelmingly by one family that allowed such a fraud to be perpetrated has been examined, bringing those companies with similar structures under close scrutiny.

These are irreversible effects – so much of an offshoring relationship depends upon trust and this has been ’dented’ if not for the entire Indian IT marketplace, then certainly for the Top Tier providers. Western organisations may now avoid the major players and instead choose perceived ‘safer’ Tier Two Indian IT providers, or look elsewhere towards the emerging destinations previously overshadowed by India’s dominance.

Although Satyam itself may have been rescued, there has been severe short term damage to the reputation of the Indian IT industry. And while there is as yet no evidence of another Satyam-type incident, if a similar situation were to occur, it could be devastating to the rapidly growing Indian economy.

The Australian National Audit Office (ANAO) has extended its 12-year outsourcing relationship with Unisys Australia for an additional five years.

Under the terms of the agreement, Unisys will continue to provide the federal auditing agency with desktop and infrastructure support, LAN and security administration, desktop asset management and change control support. Unisys also takes on the newly defined role of multi-sourcing Services Integrator to strengthen collaboration and effective working relationships between all ANAO internal and external service providers.

“ANAO’s relationship with Unisys spans more than a decade. To date, an outsourced model for IT services has proven successful by enabling us to not only reduce costs but also deliver efficiencies in our provision of audit services to some 300 government bodies. In this latest extension of our relationship with Unisys we have worked together to raise the bar even further, using the ITIL framework to centralise and align our workflow processes and systems to reduce cycle time and improve efficiency,” said Gary Pettigrove, Chief Information Officer, Australian National Audit Office.

“We have also appointed Unisys as the Multisourcing Services Integrator to strengthen collaboration between the internal teams and 17 external service providers. This approach also aims to provide greater transparency and reporting across ANAO’s IT service delivery organisation. This is designed to help achieve better efficiency, effectiveness and coordination of ICT management in line with the recommendations of the Gershon Report,” Mr Pettigrove said.

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