Industry news

The worldwide application management (AM) market is growing at 7.2 percent according to a study by NelsonHall the independent analyst firm.

Dominique Raviart, Research Manager at NelsonHall, commented, "Application management has undergone a lot of changes in the past years, moving away from T&M to SLA-based provisioning and overall becoming much more industrialized than in the past".

Raviart added, "Clients are now awarding much larger standalone contracts than in the past".

Key findings revealed in the NelsonHall research report include:

• Spending in AM on a worldwide basis will be growing by 7.2 percent. Volume will be up by c.9 percent while price reductions will impact overall spending by c. 2 percent.

• Clients are turning to multi-sourcing and are awarding standalone AM contracts. Simultaneously, the size of those contracts is increasing, including in the past two years several deals above the $1bn landmark.

• Offshore and nearshore sourcing represents almost 30percent of AM spending worldwide. While spending in onshore services will be flat until 2012, client demand for offshore and nearshore growing by 14 percent on average each year. Despite this growth, the delivery of AM services located offshore and nearshore will only account for 38 percent of AM spending by 2012 or around 60 percent in terms of headcount

• The potential for offshoring remains high. Yet it is constrained by public sector reluctance to offshore.

More details of the report can be found here: Nelson Hall AM Research

The IT Services market in India is estimated to grow from US$4.1 Billion in 2007 to US$8.1 Billion in 2011, representing a compounded annual growth rate (CAGR) of 18.6 percent from 2006 to 2011, according to a new report from Springboard Research.

The report, titled “India IT Services Market and Forecast 2006-2011”, finds that the IT Services growth rate in India is well above the 10.5% CAGR of overall Asia Pacific market and makes India the fastest growing IT Services market in the Asia Pacific (excluding Japan) region.

According to the report, the Indian IT Services market is heavily dominated by infrastructure Services, which are estimated to garner 54 percent of the market in 2007. Springboard further forecasts the segment to grow in line with the overall market and reach US$4.27 billion by 2011. However, Applications Services with a CAGR of 19.6 percent remain the fastest growing market segment, while IT Consulting – typically used by vendors as entry point to reach clients in India – is estimated to grow from US$0.22 Billion in 2007 to US$0.40 Billion by 2011.

Sanchit Vir Gogia, Senior Research Analyst for Services at Springboard Research, commented: “India is the epicenter of growth in Asia Pacific IT Services marketplace. Not only is the India IT Services market forecast to be the fastest growing in the region, the country also has a rather unique position in the worldwide outsourcing arena through a well-educated and language-proficient workforce, that sets it apart from other Asian competitors”.

Some key findings from the report include:

· Infrastructure Application Integration is the single largest category in India and is expected to contribute approximately 21 percent of the total IT Services opportunity in India by 2011

· Enterprise IT Outsourcing enjoys the highest growth momentum in India with a CAGR of 24.4 percent during 2007-2011 and is expected to become the second largest market opportunity in the country by 2011.

· Enterprise Application Integration, the second-ranked market in India currently, will slip to the third place by 2011 despite registering a high CAGR of 19.1 percent. Together, the top three markets will garner over 42 percent of the Indian IT Services market by 2011.

· The report uses Springboard’s Market Attractiveness Index to rank 15 individual IT Services markets on the basis of growth opportunities. According to the Market Attractiveness Index, the top five IT Services markets in India are:

1. Infrastructure Application Integration

2. Enterprise IT Outsourcing

3. Enterprise Application Integration

4. Custom Application Development

5. Network Integration

When Hillary Clinton rose in front of 80,000 people to nominate Barack Obama for Democratic presidential candidate last week, she handed him not just her support, but also, it seems, her anti-offshoring campaign.

In accepting the historic nomination, the increasingly statesmanlike Obama took the opportunity to lambast offshoring and outsourcing as he outlined his approach to government.

Obama said he would “stop giving tax breaks to corporations that ship our jobs overseas, and I will start giving them to companies that create good jobs right here in America." While this is not a new promise from a Democratic candidate, it has never had such a global audience.

Indian firms – who are the main beneficiaries of US outsourcing activities – have reacted with a mixture of alarm, stoicism and optimism. While they look to Europe and elsewhere for new business opportunities, the fact remains that some 60-70% of their BPO revenues flow from the US.

Nasscom president Som Mittal responded that any decision to outsource is a strategic economic one for US companies, not a political one, and that outsourcing had helped boost the US economy over the boomtime of the past decade.

"Obama earlier said India and China will help the growth of US. US tech firms have thousands of jobs, but not enough talent at home," he added.

Infosys' T V Mohandas Pai reiterated the point, saying that almost 50% of the revenue of the top 1,000 US companies comes from outside the country.

What is certainly true is that many US firms believe they face a homegrown talent crunch, as well as the need to cut costs in these chillier economic climes.

Offshoring is also a way of outsourcing risk and hothousing R&D and development at a fraction of the cost of doing it at home. So slamming companies that outsource to the global market may be an easy patriotic bell to ring, but it ignores many of the reasons that US companies do it – and the inherent benefits to the US economy of doing so.

Nevertheless, many parts of the Indian BPO market are feeling the pinch as the depth of the economic downturn encourages some commentators – not to mention our injudicious chancellor – to talk of a serious recession.

But there is some good news for India as increasing numbers of financial services firms in Europe, Australia and New Zealand are offshoring work to the country.

A recent Deutsche Bank report has identified restructuring as the main impetus behind the trend, with offshore software development, business process outsourcing, call centres and accounting all on the rise.

The study also found that 32 percent of IT workers and 38 percent of support staff within European banks work overseas. Meanwhile, half of all retail banks worldwide are seeking to offshore at least part of their IT functions over the next five years, said the Deutsche Bank report.

Is Brazil finally emerging from the shadow of its BRIC cousins?

Early in the decade, Goldman Sachs devised a new acronym for emerging economies. Unlike the tiger nations of the 1990s, these countries were to be known as BRIC and the 21st century was expected to be theirs. However; whilst Russia, India and China have forged ahead, Brazil has been seen as lagging behind, unable or unwilling to take advantage of increasing globalisation.

But, is the general scepticism about Brazil’s inclusion amongst the BRIC countries justified? The country is politically stable, it has a rising economy, a well-educated workforce and a burgeoning financial market of its own. Brazil is certainly also experiencing solid growth. Last year it became a net creditor to the world for the first time; in May Standard & Poor gave the country its first ever credit rating and in February, according to Morgan Stanley Capital International, Brazil became “the world’s largest emerging market”, as a rally for Brazil stocks combined with falls in China left Brazil with a slightly larger market value: “now accounting for 14.95% of the MSCI emerging markets, it is also bigger than Korea, Russia or India”.

Is Brazil finally emerging from the shadow of its BRIC cousins? Is its boom sustainable and is the time now right for increased foreign investment?

Certainly, there are still concerns about the country; its sluggish approach to fiscal reform and worries about inflation contribute to a sense of unease. Its GDP is steadily rising and represents firm progress, but at 5.4% a year it is less than the growth in other BRIC countries; India and China report 8.9% and 11.5% respectively.

It seems however, that although the numbers may be trailing the others, Brazil has many other benefits. Compared to other BRIC nations it has respectable corporate governance, there is a sustainable supply of well-educated people and the developing economy is supported by its convenient geographic location, making it better placed to service Europe and the USA. Brazil also doesn’t have the wild east reputation of Russia, the introspection of China, or the prospect of price/wage inflation that has bedevilled India. Perhaps it is this that is driving Brazil’s improvement against its rivals and luring foreign investment?

This, and the development of the financial centre, Sầo Paulo. With over 20m people, the city also has a massive student population. The university is the largest in Brazil and the third largest in Latin America, turning out a regular supply of well-educated, young Brazilians.

It would be missing the point therefore, to see Brazil as the new India for outsourced projects, or this growth as a temporary blip. We’ve all known for years that scouring the world for the cheapest day rate doesn’t usually get the best results for an outsourcing project. What’s important today is the level of service and commitment. Brazil is unlikely to follow India down the cheap and cheerful route. It understands the importance of tying service levels and deliverables to appropriate costs, especially in a multi-layered, financial services project.

This sector in particular can take advantage of Brazil’s increasing prominence. Most banking IT projects require a combination of skilled resources, which can be delivered in a variety of locations; the 4Ps of outsourcing - project, people, place and only then price. Brazil is exceptionally positioned to respond to this need. The idea is to consider the needs of the project first and then identify the right people to complete it. After that the various places and the price become obvious. With its high-calibre workforce and its association with Europe, Brazil is well-placed to fulfil the people and place side of the project.

Yet, this is not just about Brazil’s ability to service the rest of the world. Of increasing significance, is not only Brazil’s new economy and its geographical position, which makes it well-places to service both Europe and the USA, but its own, rapidly growing, banking sector. Brazil is becoming the project part of the 4Ps, the centre of the project and not just the service provider. For technology companies, particularly ones serving the banking sector, the country must now represent a logical investment prospect?

If the 19th century was dominated by Great Britain and the USA defined the 20th century, then it seems that the emerging economies, BRIC with Brazil included, are well-placed to impact the 21st century. As this decade progresses at least, Brazil is definitely emerging from the shadow of its BRIC cousins.

57 percent of Shared Service Centres (SSC) have problems with regulatory compliance, according to a study released by outsourcing consultants, Alsbridge.

The study, undertaken annually, also found that 89 percent of shared service managers foresee challenges with their SSCs, which is a worrying statistic given the pressure being placed on both private and public sector organisations to implement shared service agreements.

Elaine Harrison, Senior Manager at Alsbridge plc, commented, “SLAs should provide a link between services provided by the SSC and the business objectives by creating cost/performance accountabilities. However SLAs should not be seen as a substitute for an effective governance framework”.

EquaTerra, the outsourcing consultancy, expects the Chinese HR outsourcing industry to be worth more than £41bn by the end of 2008, according to a new report by the company. The firm also predicts rapid growth of up to 25% in 2008 and 2009.

The report, written by EquaTerra’s Shanghai-based consultant, Vibhash Ranjan,  provides a snapshot of the maturing human resource outsourcing (HRO) market in China today and an expert analysis of current and future trends.  Some other interesting points highlighted in the report include:

Drivers of growth

· The recent spectacular growth in the Chinese economy is compelling foreign owned organisations based in China to adopt sophisticated HR related practices.  Factors influencing the growth of HRO include rising labour costs, new types of employee supplemental benefits and a rise in the focus on employee engagement and talent management.  

Market Growth

· In 2008 and 2009, the HRO market is expected to expand by at least 25 per cent.  However, due to the prevailing operational complexities in China, most multinational companies choose to adopt the services of Chinese HR service providers such as FESCO or CIIC.

Differing drivers of change

· One of the key reasons that Chinese organisations will choose to implement a HRO strategy is to free up the HR department from transactional and administrative tasks and let them focus on strategic tasks of planning and management.

Important markets

· The adoption of HRO in China has traditionally been driven by multinational client companies which account for over 90 per cent of the number of deals and total contract value. As these companies have their major operations based in Shanghai, Beijing and Guangdong regions, these three areas account for approximately 85 per cent of the market.

Future outlook

· To date, China still does not have enough skilled manpower to meet the growing demand of the HRO services market. This will lead to wage acceleration for providers, margin erosion and raiding other providers (especially of benefits administration and compensation providers) for resources. Ultimately, the dominant provider players will be those companies that can obtain and retain quality delivery people.

The full whitepaper can be seen here: Human Resource Outsourcing in China

Trustmarque Solutions, a UK software licensing company has won a two-year contract, worth over £4 million, to supply encrypted and non-encrypted hardware and software to the Ministry of Defence (MoD).

The deal, which follows the consolidation of the Defence Equipment and Supply (DE&S) procurement framework, will also see Trustmarque supply the MoD with anti-virus software from security vendor, McAfee.

Robert Cornish, MoD Key Account Manager for Trustmarque, commented on the deal: “Under the contract, we will be able to supply the MoD with everything they need, from desktops and laptops, to software and all associated licences. This means we can bring the same savings through leveraging our long-established hardware relationships, as we have done historically for their software purchases, using our twenty years of experience establishing ourselves in this market.”

The DE&S consolidation comes as part of a wider strategy to formally merge the DE&S with the Office of Government Commerce (OGC), which is an independent office of HM Treasury, established to help Government deliver best value from its spending. To this end, the DE&S is collaborating heavily with the OGC to ensure their procurement methods are in line with one another, to make the eventual merger as seamless as possible. In the long term such an arrangement will provide continuity across the whole of government.

Tech Mahindra, the largest independent India-based telecommunications IT services provider, has decided to acquire an equity stake in Servista, a leading European systems integrator.

As a part of the agreement, Tech Mahindra will be Servista’s exclusive delivery arm for the next three years and will also help Servista develop its European IT offshoring business.

Ben Andradi, chief executive officer, Servista Ltd said, “We are delighted to enter into this highly complimentary relationship with Tech Mahindra that will deliver the huge benefits of Indian offshoring to the European market place”.

EADS, a global aerospace and defense service company, has selected Atos Origin as a preferred supplier for engineering services. The selection has consolidated a 15 year relationship between the companies in France and Spain.

Atos will now be added to the EADS’s list of 28 global partners after making it through the company’s rigorous tender process involving 2,000 vendors. Atos is now EADS preferred supplier for engineering services which covers the purchase of more than €2 billion in engineering services a year.

Infosys has announced that it has agreed terms for a cash offer for UK-based SAP consulting company, Axon Group. The £407 million deal could be completed as early as November 2008.

Commenting on the transaction, Kris Gopalakrishnan, CEO of Infosys said, "We are excited about this acquisition. We hold the management and employees of Axon in high regard and look forward to welcoming them to the Infosys Group".