Industry news

SWIFT, the financial messaging provider, has announced a three-year managed services contract with BT.

BT will provide a solution which connects SWIFT’s strategic offices across Europe, the US and Asia.

The contract includes the implementation of five systems, supporting equipment and software. Furthermore, BT will provide managed services including 24/7 helpdesk support and on-site maintenance.

Francis Vanbever, CFO SWIFT, said “We were attracted to BT’s complete service offering. Based on our existing relationship with BT, we are confident that we have chosen the right conferencing partner.”

Large financial firms signed 33 percent fewer transactions and divested heavily in captives during the fourth quarter of 2008, according to Market Vista: Q4 2008, a report on global outsourcing and offshoring activity from the Everest Research Institute.

“The decrease in outsourcing transaction activity is primarily on account of deferred spending by large financial firms; however, we expect outsourcing and offshoring activity in the financial sector to pick up during 2009,” said Eric Simonson, Managing Principal, Everest Research Institute. “The fourth quarter also saw Citigroup and Lehman Brothers shed off captives. Reducing fixed costs and increasing flexibility through third-parties are key reasons for captive divestiture by financial firms.”

The Institute’s quarterly Market Vista reports provide data and analysis of deal trends in the outsourcing and offshoring market, captive landscape, current and emerging locations, key supplier developments, and key developments across the top 20 financial services companies globally. The Market Vista Q4 report also includes a special section on emerging locations including Johannesburg, Ho Chi Minh, Istanbul, Bangkok, Guatemala City, San Salvador, Kiev and Cairo.

Other insights for the fourth quarter 2008 activity include:

• Overall outsourcing transactions decreased 6 percent compared to the previous quarter but was higher than the first and second quarters of 2008

• Total ACV increased by 11 percent from US$3.2 billion in Q3 to US$3.5 billion in Q4, primarily due to the signing of multiple large contracts. IT outsourcing contracts accounted for over US$1.9 billion; contracts with ITO and BPO accounted for about US$1 billion

• For the fourth consecutive quarter, Europe accounted for a significant portion of the outsourcing market. Despite a marginal increase in market share from 39 to 41 percent from Q3 to Q4, transaction signings decreased by 2 percent and ACV dropped 41 percent

• Captives activity was dominated by set-ups in India, China and other Southeast Asian countries: 22 new announcements occurred in Q4, compared to 22, 18 and 16 in first three quarters, respectively

• In Brazil, currency depreciation in the last few months has resulted in a 12 percent reduction in operating costs, restoring labor arbitrage opportunity to 2007 levels

• Destinations in Africa are pursuing offshoring investment, including the South African government and industry bodies that are taking initiatives to improve infrastructure, provide fiscal incentives and lower operational costs

• Reversing the trend from the previous quarter, aggregate US$ revenues across the group of suppliers declined by 2.5 percent. Revenues of traditional global suppliers declined by 3.2 percent, while those of offshore-centric suppliers increased by 3.5 percent

Quarterly Market Vista reports include key developments among 20 leading global suppliers. Traditional supplier profiles include Accenture, ACS, Atos Origin, Capgemini, Convergys, CSC, EDS, Hewitt, IBM, Perot Systems and Unisys. Offshore-centric supplier profiles include Cognizant, EXL, Genpact, HCL, Infosys, Satyam, Tata Consultancy Services, Wipro and WNS.

Everest will hold a Webinar on the report on February 19 at 8:30 am CST; 9:30 am EST; 2:30 pm GMT Standard Time. To register, please visit: www.everestresearchinstitute.com/Events/Webinars.

The U.S. Army's Product Manager Joint-Automatic Identification Technology office has signed a BPO contract with CSC under a subcontract with Savi Technology Inc., a Lockheed Martin company. Savi Technology is one of four companies to be awarded the Radio Frequency Identification (RFID) contract, which has a three-year base period and 12 one-year options.

The contract, valued at $428 million for the four firms, will see CSC provide training, warranty and maintenance, technical engineering, and hardware and software delivery and installation.

"CSC is honored to support the Army and its tireless efforts to protect the American people and our coalition partners," said James W. Sheaffer, president of CSC's North American Public Sector line of business.

According to technology research and advisory firm Gartner, Inc. the market for Business Intelligence (BI) platform software in Australia is forecast to reach a$174.8 million (US$152 million) in 2009, up 16.8 percent from A$149.6 million (US$130.1 million) in 2008.

Speaking ahead of the Gartner Business Intelligence and Information Management Summit in Sydney next week, Gartner analysts said BI platform purchases should be more resilient to a recession compared with some other software areas, but a tougher economic environment, together with stronger pricing pressures, would still hamper growth during the next five years.

Additionally, many organisations are still trying to get value from their BI investments, according to Gartner. Further investments by these organisations will be constrained until they determine how to get value from the investments they have already made.

For the fourth year in a row, BI applications have been ranked the top technology priority in the 2009 Gartner Executive Programs survey of more than 1,500 chief information officers (CIOs) around the world.

Ian Bertram, Gartner managing vice president and chair of the 2009 Gartner BI Summit, said that because BI has the highest priority for CIOs, it will fare better than many other technologies and management practices in the economic downturn.

“Businesses in this region will continue to prioritise BI because it's transformational,” said Mr. Bertram. “BI is even more important when times are tough. It can help find bottlenecks and inefficiencies or to expose areas that are profitable. We continue to see traction for solutions such as spend analytics, risk and fraud.

“The rapid growth in information generated from enterprise applications, the popularity of metrics-driven business initiatives and the growing need for regulatory compliance will also continue to drive growth in BI,” he said.

While market demand for BI platforms will be favorable, heavy discounting can be expected, according to Gartner. The effect of the market consolidation by SAP, Oracle and IBM is to reduce overall revenue because BI is often sold as an add-on or part of a larger solution bundle. This will keep overall revenue growth lower. BI investments are also likely to be subjected to increased scrutiny from finance, with CFOs doing final negotiations on pricing and maintenance.

Mr. Bertram said skills shortages continue to hamper BI projects in Asia Pacific.

“Mature markets such as Australia and Singapore continue to make investments but struggle with a gap in implementation skills. Limited BI skills in Asia Pacific will inhibit growth in license revenue, but it also represents an opportunity for service providers. Software vendors should work on improving usability, design appropriate learning programs, propose alternative delivery models and form strategic partnerships with local service providers,” he said.

The overall Asia Pacific BI platform software market will continue to grow at a respectable compound annual growth rate (CAGR) of 15.3 percent through 2012, reaching more than US$510 million by 2012, according to Gartner.

Australia will remain the biggest BI platforms software market in Asia Pacific through 2012, reaching A$243.8 (US$212 million) in revenue, followed by China. The local BI market will be sustained through maintenance revenue, which will become more pronounced in the slowing economic environment.

Kale Consultants announced that it has entered into a multi-year outsourcing contract with Wataniya Airways. As part of the deal, Kale will deliver complete outsourced revenue accounting and passenger audit services from its delivery centre. Kale will provide services to the airline from its Managed Processing Services centres in India.

George Cooper, CEO of Wataniya, commented, “Outsourcing our accounting and audit services to a specialist like Kale has been a key strategic step in our preparations to commence operations in January 2009. This will help us to keep our costs in line and build efficiencies to focus on devising competitive strategies in our core area of business”.

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.”