Industry news

Release Consulting, an independent IT consultancy specialising in the music and entertainment industry, has finalised an agreement with Universal Music Group (UMG), one of the world's leading music companies, to service its international IT Digital Initiatives (ITDI) department.

Release was previously the in-house unit at Universal Music Group International (UMGI) in London, managing its ITDI and digital supply chain programmes. UMGI is responsible for Universal Music's businesses in the world outside North America.

The new company, based in West London, aims to offer programme and project management, business analysis, technology solutions and support services to the wider industry, whilst continuing to provide Universal Music with such services.

Will Lovegrove, managing director, Release Consulting, said, "The IT skills and business analysis expertise that have delivered good results for Universal Music Group International will be in demand from other media and entertainment companies who are facing, or will face, the same challenges that the music industry is facing today. I believe Release Consulting is well placed to help those companies with those challenges."

Rahmyn Kress, managing director, supply chain management at Universal Music Group International said, "The ITDI team under Will Lovegrove has had a successful track record in designing, constructing and supporting a number of UMGI's IT systems. Now Release Consulting will provide project management and support services, and we're pleased to have the continuity and expertise that Will and his team represent.

Lloyds TSB will offshore up to 445 UK IT positions to low cost Indian locations by the end of the year.

The deal, the details of which have not been formally announced, will see Lloyds TSB offshore 250 permanent staff and up to another 195 contractors and temporary staff from their IT function.

The decision has not gone unnoticed by unions with Unite issuing a statement stating that: ‘the decision by Lloyds TSB…is unjustified and represents a lack of faith in the IT skills of their UK workforce’.

The Union believes that the decision will affect IT workers at various UK locations including London, Manchester, Birmingham, Cardiff, Bristol, Haywards Heath, Gloucester, Andover, Edinburgh and Brighton.

John Bancroft, Unite Official said: "Unite the union is disappointed by the offshoring announcement today by LTSB to go ahead with the transfer. We do not believe that the business case for this decision has been made; we are challenging the bank to consider alternative options."

BT's CEO Ben Verwaayen has stepped down on the day the telecoms and services company released on-target fourth-quarter earnings and higher revenues than the market had anticipated.

Verwaayen will be replaced by BT retail chief Ian Livingston at the beginning of June.

The company's revenues rose two percent to £5.4 billion, ahead of forecasts of £5.3 billion.

Global services revenues were up 10 percent year on year, the highest quarterly growth for more than two years.

Verwaayen has presided over a successful, 21st century reinvention of BT as a serious player in the broadband, Internet and services space, which many critics believed was a high-risk strategy.

Charitable donations are always a private matter of personal conscience, but I am extending an appeal to sourcingfocus.com's growing community of outsourcing professionals to consider supporting the urgent Red Cross appeal to help the hundreds of thousands of people who have been affected by the recent earthquake in China. Many thanks. The Editor.

Red Cross China earthquake appeal

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After intense speculation Hewlett Packard (HP) has confirmed its acquisition of EDS, the leading global technology services company, in a $25 a share deal worth approximately $13.7 billion.

The acquisition will almost double HP’s services revenue, which amounted to $16.6 billion in fiscal 2007. The two companies’ combined services businesses for fiscal 07 boasted annual revenues of more than $38 billion. With a combined 210,000 employees, HP hopes to level the playing field as it chases IBM in the business services space. However, the FT today expressed reservations about HP’s ability to take on IBM.

Commenting on the deal, Mark Hurd, HP Chairman and CEO said, “The combination of HP and EDS will create a leading force in global IT services. Together, we will be a stronger business partner, delivering customers the broadest, most competitive portfolio of products and services in the industry. This reinforces our commitment to help customers manage and transform their technology to achieve better results.”

EDS will continue to be led by EDS Chairman, President and CEO Ronald A. Rittenmeyer, who will join HP’s executive council and report to Mark Hurd. HP aims to complete the acquisition towards the end of 2008 when it plans to establish a new business group called ‘EDS – an HP company’.

Aviva, the world's fifth largest insurance group, has signed-off on a six-year contract with Cable & Wireless (C&W) Europe, Asia & US worth £300 million.

In a bid to reduce costs at the insurance company, C&W will deliver over 70 different services including telephony, data and WAN to support its 35,000 staff in the UK and India.

The contract extension, adding to the companies’ existing 12 year relationship, will see C&W manage connectivity for over 1,000 sites. The company will also implement new BlackBerry services and speech recognition.

Norwich Union Insurance CEO Igal Mayer, said: "It is important to our market success that we are able to respond to business and customer needs promptly and reliably. This contract represents a significant commitment on both sides to ensure cost effective service against the backdrop of a highly competitive marketplace."

A ‘borderless state’ will prevail within the information and communications technology (ICT) industry by 2015, according to Gartner. Analysts predict that organisations, including governments, will increasingly source their ICT from around the globe without regard to the ‘country of origin’ or ‘headquarters’ of the vendor supplying the solution, be it software, hardware, telecommunications, IT services, or people.

“Rapid IT growth in emerging nations is removing borders in business that will impact everyone. Even if you have no direct operations in China, or India or anywhere else in the emerging world, your suppliers are probably there and so are some of your partners and customers,” said analyst Partha Iyengar. “Organisations must learn to trade and compete with these rapidly transforming, highly organised companies, which leverage low-cost, highly skilled labour sources. If they do not, they will be at a significant competitive disadvantage.”

Gartner said that far from being a new phenomenon, the erosion of traditional borders is the latest stage of globalisation that goes back to the industrial revolution and beyond. Today, social, political and financial forces are combining to transform developing nations into economic powerhouses with enormous ramifications for businesses worldwide.

Although there is still a huge gap in the absolute sizes of emerging and mature ICT markets, emerging regions are rapidly catching up with mature markets in IT investments. According to Gartner, the compound annual growth rate (CAGR) from 2006 through 2011 shows that IT spending will represent 8.5 percent of combined total gross domestic product (GDP) in emerging markets. IT spending will be 4.3 per cent of GDP in mature markets in the same period.

As the growth rates of emerging markets continue to accelerate and further expand beyond the current leaders – Brazil, Russia, India and China (BRIC) – the power of these regions in the global IT industry is becoming more pronounced.

Gartner estimates that IT spending in the emerging markets will grow at a CAGR of 9.9 percent to reach $1.3 trillion by 2011, while in the mature markets it will reach $2.5 trillion in 2011, representing a CAGR of 4.6 percent.

In some segments, such as the telecoms equipment market, emerging markets will overtake developed markets, further blurring long-established borders. In 2010, Gartner predicts that IT spending in telecom equipment in emerging markets will overtake that of mature countries, increasing its lead in 2011. By 2011, IT spending in telecom equipment will reach $263.5 billion in emerging countries, while in mature markets it will account for $236.5 billion.

Nowhere is the effect of this more visible than in the IT services sector where Indian ‘mega vendors’ such as TCS, Infosys and Wipro are increasingly considered for strategically important deals, involving multiple services when competing against today’s traditional global leaders.

According to Gartner, the six leading Indian heritage providers, with predominantly Indian delivery resources, have been growing at 35 per cent over the past several years while the top ten global providers have been typically growing under 10 percent annually.

According to Mr Marriott, research vice president at Gartner, “Vendors must consider other emerging markets as a source of future competition and opportunity. High quality vendors will not only be coming from China and India in the future. Regions such as Eastern Europe, Latin America and relatively untapped portion of Asia/Pacific are now viable locations for offshore services.”

“Chief information officers (CIOs) must understand the future growth plan of their organisation into many other parts of the world,” he concluded. “Possibility to access services in these countries, such as Argentina, Vietnam and Romania, will provide opportunities but there will be challenges in developing the governance required to effectively manage this new breed of vendors.”

• The findings echo many of the presentations at this week's FT Outsourcing Conference in London. See News Analysis for more.

The "nice decade is behind us", said Bank of England governor Mervyn King today, warning that inflation will get worse before it gets better, leaving little scope for an economy-boosting rate cut.

In its quarterly Inflation Report today, the central bank predicted that inflation could nudge four percent and the economy could even contract.

The Monetary Policy Committee is facing its most difficult challenge yet," King told reporters. "We are travelling along a bumpy road as the economy rebalances."

In a marked contrast to the interventionist policies of the US administration, King said that "monetary policy cannot, and should not try to, prevent that adjustment".

The economic downturn coupled with the “vast number of new providers” means that outsourcing is a buyers' market, while the provider landscape is moving towards companies finding their niche.

Speaking at the FT Outsourcing Conference in London this week, Elizabeth Buckley, director of Arete Research said “The entire market is driven by the clients. In the last downturn we saw the number of outsourcers increase; we saw many players enter the market. [Now] if you go back to what clients want, these large, mega outsourcing relationships... we are seeing fewer and fewer of those. For example, EDS and GM was broken up; ABN Amro are also doing the same, bringing in lots of new providers. Whenever project work came up during the contract the actual provider would be chosen from [a number of] incumbents.”

“Lots of new, niche providers mean that the balance of power is very much in the client's space. [Niche providers] need to differentiate themselves to win new business.”

Meanwhile, the large outsourcing providers are layering on new levels of business process outsourcing (BPO), she said, which she claimed remains an immature market outside of the CIO space.

“We've seen BPO become more mainstream and in horizontal areas such as HR,” she continued. “The big thrust now is very much toward vertical BPOs. If you look at horizontal BPOs, we're seeing a lot of the remote, offshore providers moving into horizontal areas – for example, TCS moving into HR globally with an SAP platform.”

Niche players have an advantage in the uncertain economy, said Bruce Keith, director growth capital at 3i plc – a view not shared by some other speakers at the conference, who saw the momentum coming from the big, established players. “The FD has taken more control of what's going on in businesses. I think [the economic downturn] will force FDs to consider whether captives should form part of the organisation. New people coming through will be the niche guys who will do something dfferent.”

This assumption of greater control by finance executives suggests that many clients are indeed are now feeling the economic pinch – for example, Vanco has recently lost its CEO to be temporarily replaced by the finance director (see News Analysis).

Keith said that in the current climate, fortune favours the brave – and the innovative mid-sized player: “A lot of the captives that have been built up in the past few years, have been because Bangalore is cheaper than Birmingham or Berlin. They have delivered on [service] being cheaper, but they haven't delivered on the next stage [innovation]. I don't think it will be the bigger players; it will be the medium players.”

Arete Research's Buckley added: “You can imagine the problems of retaining quality staff when working with only one client; that will be one of the big challenges for Indian captives. Clients want to see their own dedicated teams; so the real challenge [for outsourcers] is being able to leverage a platform across other clients to get the kind of profitability you expect.”

Asked about the next hot outsourcing destination – that interminable watercooler topic for the industry – both speakers felt that “geography” (location – why do analysts insist on using the wrong word?) is irrelevant. “It's about a global delivery mindset; you should be able to attract the best talent so that clients in New York, the Cayman Islands or London can have a 24/7 service,” said Keith, reeling off a choice selection of some of the wealthiest regions on earth as though low-cost destinations were, indeed, an irrelevance.

Arete's Buckley was more on the money, topic-wise at least: “Regional players who lack differentiation are going to be in trouble. The challenge for Indian SIs, for example, will be having centres in Brazil or eastern Europe."

Questioned about the consumer backlash against offshore call centres – as highlighted in sourcingfocus.com's exclusive research last week – 3i's Bruce had a solution for a US that believes it is haemorrhaging jobs overseas: “The Dollar is now so weak there is an opportunity for voice-based services [in the US].”