Industry news

The Economic Times has reported that Merrill Lynch will move many of its IT contracts away from Satyam to Tata Consultancy Services. The contracts are reported to be worth up to US$40 million.

The Indian newspaper also commented that in early February Merrill Lynch sent a team to assess the situation at Satyam’s headquarters.

The bulk of the contracts will move to TCS. However, Satyam will continue to service parts of the contract for the foreseeable future.

The full story can be read on the Economic Times’ website

India's Tata Communications plans to invest $430 million in the Asia-Pacific region.

The investments will include developing an internet data centre and the completion of the main segment of its TGN-Intra Asia Cable System. The development forms part of the company’s commitment to enhance its global infrastructure as part of an ongoing US $2 billion expansion plan over the next three years, the company said in a statement.

The Tata Communications Exchange and the TGN-Intra Asia Cable System are integral parts of the Tata Global Network (TGN) that includes one of the most advanced and largest submarine cable networks, a tier-1 IP platform and more than 1 million square feet of data centre and co-location facilities worldwide.

The new infrastructure investment comes due to increasing outsourcing demands from global multinational corporations into emerging markets. Tata Communications itself is expanding its capacity with the construction of a flagship data centre, the Tata Communications Exchange in Singapore. It will be ready for operation in early 2010. The new data centre will provide increased capacity for both domestic and international companies

“The Asian market continues to be promising, even in the current economic environment. Businesses need to capitalise on the opportunities this region provides, and investments in Asia are critical for the growth of global business,” said Vinod Kumar, president and chief operating officer for Tata Communications. “Our large-scale investment in the Tata Communications Exchange, coupled with our submarine cable build-out, ensures scalability and global reach while delivering our commitment to meet customer requirements. We will continue to be an active leader in offering superior services into emerging regions where we see high growth potential and opportunities for customers.”

The credit crisis seems set to prompt a new rush for outsourcing services across the I.T. sector, with a number of new locations worldwide emerging as viable Business Process Outsourcing (BPO) hubs, according to KPMG's Advisory practice.

Launching their Exploring Global Frontiers report at last week’s NASSCOM outsourcing event in India, KPMG claims to have identified 31 cities which are rapidly emerging as leading pretenders to the BPO crown held by the traditional powerhouses such as Bangalore, Chennai or Shanghai.

As those locations rapidly approach saturation point, there is a sizable opportunity for these new and emerging locations to swallow up a large proportion of the new outsourcing work which the credit crisis is apparently creating.

The 31 locations are an eclectic mix, ranging from well-known cities in developed countries to lesser-known places in the emerging markets, well off the tourist track. Winnipeg, Belfast and Brisbane all feature for example, alongside Queretaro, Davao City and Cluj-Napoca.

On the KPMG list, Buenos Aires, with its population of nearly 13 million, thus features alongside tiny Port Louis (population 130,000) in Mauritius. Despite the difference in size, both are emerging as important future outsourcing centers, with the latter rapidly developing an international reputation as a disaster recovery center.

Speaking at the report’s launch, Edge Zarrella, Global Head of IT Advisory at KPMG and a partner in the Hong Kong firm, said: “Traditional sourcing locations, which have been at the forefront of the outsourcing boom, were always going to reach saturation point. Corporates now need to know which locations to consider next for their outsourcing activities. There are many locations around the world which are able to supply a credible outsourcing capability. However, there are subtle nuances in terms of labor skills, niche specialisms and government incentives which have led us to highlight these 31 locations as stars of the future.”

“The need to develop new, cost effective, viable outsourcing locations has been highlighted by the economic events of the past few months. Companies are focused on reducing their cost base, both for short-term and long-term gain. As a result, more organizations are considering savings obtained through outsourcing parts of their operations. Most importantly, they should be convinced that by doing so, they are not sacrificing performance for the sake of cutting costs. Our location study aims to highlight the benefits brought by the different city choices available to them.”

The full list of highlighted destinations includes 10 locations in the Americas (Buenos Aires, Campinas, Curitiba, Calgary, Winnipeg, Santiago, Guadalajara, Queretaro, Boise, Indianapolis); 10 in Asia-Pacific (Brisbane, Changsha, Hangzhou, Ahmedabad, Jaipur, Nagpur, Penang, Davao City, Iloilo City, Ho Chi Minh City); and 11 in Europe, the Middle East and Africa (Sofia, Zagreb, Cairo, Port Louis, Belfast, Gdansk, Cluj-Napoca, Rostov-on-Don, Belgrade, Tunis and Lviv).

The reasons for these locations making it on to the final KPMG list are varied but cities in the Americas should typically benefit from large labor pools, scalability, a more mature service offering, proximity to the major client base and multiple language skills. AsPac benefits from lower costs, younger populations, plenty of government incentives and the lessons learned from the numerous outsourcing centers which already dot the region. The Europe, Middle East and Africa region offers great diversity, excellent infrastructure and numerous niche specialisms.

Zarrella concluded: “These are fascinating times to be choosing a new outsourcing provider or location as there is simply so much choice. New cities are emerging as outsourcing contenders all the time, each boasting a different set of characteristics. Just within our 31 for example, there are specific specialisms on offer — such as accounting, R&D or even animation — driven by an apparent skills bias within the pool of locally available graduates. As a word of warning though, these locations are still ‘emerging’ and, as such, can still carry a degree of risk; an element of venturing into the unknown. This is why all outsourcing location decisions should be carefully thought through on a case-by-case basis; there is no ‘one size fits all’ approach to outsourcing.”

Related publication:

• Exploring global frontiers

Some good news has come out of Nasscom in recent weeks. The organisation has announced the formation of a corporate governance and ethics committee to prevent a recurrence of Satyam-style corporate fraud and books-cooking. Satyam recently admitted that a figure of $1 billion on its books was fiction.

The new permanent committee linking business people with academics will be chaired by N R Narayana Murthy, chairman of Infosys, whose executives have been outspokenly critical of the damage done to India's reputation by the scandals.

Certainly, both India and Infosys stand to gain by association with the stand against corporate scandal. Infosys, along with other leading outsourcing giants, has done much to increase India's global reputation for service and price competitiveness.

That said, some US commentators have scented blood in the aftermath of Satyam's fall from grace, suggesting that poor financial reporting is rife throughout Indian business and that relations between some Indian companies and local government are a grey area.

Few, however, have put their name to the criticisms, while some of the sentiments smack of triumphalism.

An exception has been UK investment bank Noble, which published recent research claiming that 20% of India's top 500 companies indulge in accounting malpractice, including fictitious sales and revenue overstatement.

There may be a certain irony in today's banking sector taking pot-shots at an expanding market in the downturn, but the message is clear: Indian business needs to be seen to clean up its act to restore international confidence, even if the Satyam scandal does prove to be a one-off aberration.

• Reports from Reuters suggest Satyam may have up to a fifth fewer staff than it reported. The original report, exposed in India’s Economic Times, suggested that Satyam’s headcount could have been inflated by 15-20 percent.

According to the newspaper the Serious Frauds Investigation Office believes Satyam’s headcount could have been inflated to siphon off money as salary payments for non-existent employees.

See News for more.

Micro Focus, a provider of enterprise application management services has signed a deal with Capita Life & Pensions Services to undertake a number of strategic modernisation projects. The partnership is designed to provide cost savings and increased efficiency to the UK life and pensions industry.

The agreement with Capita Life & Pensions Services is an initial three-year framework with a view to a wider ongoing commercial relationship. Micro Focus products will be used in strategic modernisation projects supporting the realisation of significant cost benefits by migrating some core administration systems off the mainframe to more contemporary Windows environments.

David Stephenson, UK Country General Manager for Micro Focus, commented, “In a time of economic uncertainty, our products and expertise will enable Capita to drive greater efficiencies by maximising the value of their existing IT.”

Amid talk of an acquisition for embattled outsourcer, Satyam Computer Services, reports from Reuters suggest the company may have up to a fifth fewer staff than it reported. The original report, exposed in India’s popular daily the Economic Times, suggested that Satyam’s headcount could have been inflated by 15-20 percent, citing unnamed sources.

According to the newspaper the Serious Frauds Investigation Office believes Satyam's headcount could have been inflated to siphon off money as salary payments for non-existent employees.

"Since a major chunk of the costs were actually salaries, a minor distortion in the number of employees could change the personnel expenses significantly," the paper quoted the source as saying.

The speculation comes at a difficult time for the company prior to a possible acquisition deal by Larsen & Toubro (L&T), India’s largest engineering and construction conglomerate. The company has appointed Japan's Nomura to advise on a possible deal after expanding its holding in the company to 12%. After spending US $140 L&T reportedly plans to merge its ITO business L&T Infotech with Satyam.

It is currently uncertain as to whether the staff speculation will affect L&T’s plans.

The Department of Health has signed a two year contract extension with Atos Healthcare, a business division of Atos Origin, to continue managing the electronic booking system, Choose and Book.

Atos Healthcare together with its long-standing partner, Cerner Corporation, a supplier of healthcare information technology, designed, developed and now manages the Choose and Book service to provide patients with increased choice and improved access to NHS services.

Don Trigg, Managing Director for Cerner Limited, said, “We are pleased to continue our support and commitment of the national Choose and Book system through our partnership with Atos Healthcare.”

Indian industry trade body Nasscom is on day two of its three-day annual conference, where the message has been “prepare for the worst, hope for the best”. It seems to have opted for the latter, despite attendance and sponsorships being 20% down on last year.

Last week, the organisation released figures for the Indian IT software and services market, which show that aggregate revenues for the sector are expected to reach $60 billion by the end of fiscal 2009. Export revenues are predicted to show healthy growth of 16-17% – reduced from earlier predictions of 20%.

Forrester and Gartner analysts are less upbeat about India's domestic prospects, suggesting that overseas firms are moving much faster to exploit the local market as a source of future growth.

India will account for just $34 billion of the $1.66 trillion global IT services market this year, according to Forrester, while the global market for goods and services will fall three percent this year.

The local Indian market is, despite the boom in outsourcing and services to the west, almost a green-field site, with just two percent of the local population owning a PC.

Such statistics are manna from heaven for at least one American company. Speaking at the event, Cisco's chairman and CEO John Chambers delivered his customary evangelical sermon about the strength and innovation of the networking behemoth.

I have witnessed similar Chambers speeches at other events: he walks among the crowd and bestows his beneficence upon the implicitly humble, meek and lowly. It can be truly unnerving.

Some of the audience were less than impressed, with Nasscom's own blogger describing Chambers as a “robot” struggling to access a hidden message in his head.

Others complained that he didn't talk about India's potential at all – the supposed subject of the speech – but simply came down from the Mount with his ancient stone tablets, presumably with smoke and electrical sparks issuing from his ears.

But the real message was clear, as it always is: “we are here to sell to you”. Cisco has expanded aggressively into India, investing more than $1.2 billion in the past four years. The company aims to make Bangalore its global HQ outside the United States.

One local official understood the message for local Indian suppliers. "The IT industry has looked outwards. Now it is time to look inwards," Commerce Minister Kamal Nath told delegates.

Governor of the Bank of England Mervyn King has used the launch of the Bank's inflation report to talk about the "paradox of policy" in the UK's finances, and how the services sector is at the heart of the economy.

Speaking this morning in the City, King said that increasing the supply of money in the UK meant adopting policies that would in normal circumstances damage the economy – the paradox of the times in which we live.

King said that the UK economy will shrink by four percent in 2009 if interest rates stay at their current level, and inflation will fall to 0.5 percent in two years. This puts into sharp relief his comments in 2008 that the UK economy "needed" to slow down.

World trade shrunk by 10% in the final quarter of calendar 2008, said King.

There is a fault line in the international money markets, said King, who claimed that the Bank had for a long time been pointing this out. However, this does not explain why the downturn, when it came, seemed such a surprise to the UK's financial sector.

"I'm not paid to forecast the future," he said in response to a question about the unexpected "shock" of the downturn.

The UK is now in "a deep recession", he said, and a further easing of monetary policy is needed. This may mean a shift towards quantitative easing – the modern version of printing money.

King said this may be discussed at a future meeting, and that interests rates did not need to fall to zero for it to be considered.

Of the falling interest rate, King said that savers were not responsible for the credit crunch, but no one seriously believed that raising interest rates to increase the value of people's savings would help the UK economy.

In future, new policy instruments should curb explosve growth in the financial sector, said King, who emphasised that there is no reason why high unemployment should be the price of poorly regulated financial services.

New figures released this morning put unemployment at 1.97 million.

Despite all the bad news, King said there was reason for optimism and the international bailout packages designed to increase liquidity and the credit supply "will work". The results, however, may not be seen until next year.

It seems, then, that King is attempting a public double-header: saying that he saw the flood but, Canute like, was surprised it did not recede when he put up his hand to stop it.

There is also a worrying double-speak in today's discussions about the bailout packages in the banking sector. These were specifically designed to ease the logjam of credit in the short term; now King is saying up to 18 months may pass before we see real change.

The fact remains, however, that if banks can supply no credit, then they have no role.

The modern banking culture is surely to blame: we value debt more highly than good sense: customers with dozens of maxed-out credit cards score more highly than people with a healthy bank balance and zero debt. High street banks have begun to see themselves as high stakes dealers – like the Masters of the Universe in Bonfire of the Vanities – not as custodians of the public's purse.

• Sir James Crosby has resigned as deputy chairman of the FSA, after yesterday's revelations in front of the Select Committee concerning the sacking at HBOS of Paul Moore, a risk management official who says he warned the bank that it was fatally exposed and taking on too much risk.

It has emerged that Crosby sacked the official in person. HBOS has said today that the sacked official's allegations have "no merit", in an attempt to deny board-level culpability for the high levels of risk in the banking sector.

Sir James Crosby has been one of Gordon Brown's closest and most trusted economic advisors.

The U.S. Department of Homeland Security's Federal Emergency Management Agency (FEMA) has awarded Accenture a US $58 million contract to provide program-management and business-architecture services for the agency's Flood Risk Mapping, Assessment and Planning ("Risk MAP") program, which is designed to help reduce the nation's vulnerability to natural hazards. The competitively bid contract has a one-year base period and four one-year options.

Through collaboration with state, local and tribal entities, the Risk MAP program will provide an integrated national assessment of flooding risks based on digital flood-hazard data and Web-accessible data. This information will enable communities to develop action plans and make informed risk-management decisions that reduce the loss of life and property.

Under the contract, Accenture will work with FEMA's mitigation directorate to manage the Risk MAP program, including the work and activities of multiple organizations across several other Risk MAP contracts; integrate the work and activities of other contractors with FEMA's efforts; design and implement a nationwide communications and outreach strategy; and foster partnerships with key FEMA stakeholders.

"The work we'll be doing with FEMA on Risk MAP aligns with our commitment to helping our clients serve their clients — in this case, people who live in areas that are prone to weather-related issues," said Jerry Briggs, managing director of Accenture's U.S. federal practice.