Industry news

Americans overwhelmingly want their next President to stem the outsourcing of jobs overseas, instead of making it easier for immigrants to live and work in the US, according to the latest America at Work survey by the Employment Law Alliance (ELA), an integrated global network of independent law firms specialising in employment and labour law.

The poll, based on a sampling of 1,125 working Americans over a five-day period last week, is believed to be the only national survey to date focusing exclusively on the kind of workplace-related issues that will confront the next President.

Among numerous findings, the results suggest that 86% of Americans want their next President to make it harder for companies to outsource US jobs to foreign countries. This high percentage suggests that similar sentiments expressed by both Democrat candidates, Hillary Clinton and Barack Obama, have found many willing listeners in the American heartlands grappling with the credit crunch in the wake of the sub-prime mortgage crisis.

Less than half of those polled said they are concerned about any focus on immigration issues. Percentages range from 40% favouring making it easier for professionals to work in the US to 25% granting amnesty for illegal aliens.

The US, it seems, favours closing the door and battening down the hatches to weather the economic storm, and the public do not see closer alliances with Asian economies or importing skilled workers from overseas as having much bearing on economic prosperity.

This contrasts with recent speeches by prime minister Gordon Brown who has stressed the importance of closer ties with India and China. At the same time, however, changes to UK immigration law have moved the UK closer to the Australian points system, which some UK employment lawyers believe could make the UK less attractive to skilled overseas professionals wanting to work in the UK

Workers were split along racial lines regarding views on workplace issues and immigration reform. For example, 55% of non-whites support relaxing immigration laws for professionals versus just 36% among whites. Geographically, 46% of workers in Western states (the heart of high-tech America) thought the President should make increasing legal immigration a priority compared to a low of 25% among Midwestern workers.

The survey was conducted prior to the Pennsylvania primary on April 22nd to help provide context to a broad range of workplace issues, so expect outsourcing and immigration to figure prominently in Clinton's campaign speeches in particular.

Stephen J. Hirschfeld, CEO of ELA, said: "The President is the chief executive officer of the country and here we have Americans telling their next CEO what they think should be on his or her agenda when it comes to working men and women."

Communications and networking giant Cisco has announced the next phase of its corporate strategy for China, marked by outsourcing and new public-private collaborative programs. The announcement follows hard on the heels of the $16 billion multi-year China innovation and sustainability initiative that Cisco announced in November 2007, which includes research and development, education, procurement, investment and training.

Included in the announcement is a Memorandum of Understanding (MOU) with China's National Development and Reform Commission (NDRC) with a focus on next-generation Internet and green research and development programmes, leadership training, best-practice sharing and business development investments, and a separate MOU with China's Ministry of Commerce (MOFCOM), providing assistance to Chinese businesses in the development of IT and business process outsourcing (BPO) capabilities within the country.

Cisco also announced the establishment of the Cisco China Strategy Board, a cross-functional executive board of senior leaders across Cisco's global business, to evolve and drive the vision and strategy for Cisco in China. The impressively monikered Jim Sherriff will become chairman of Cisco China – and Chairman Sherriff is surely the perfect title for the head of such a close partnership of Chinese and US interests. As chairman, Sherriff is responsible for implementing the company's vision and strategy for China and representing Cisco's global business operations through direct engagement within the country.

"The next stage of our strategy for China reflects the country's importance to Cisco's global growth strategy and to our long-term business model, built upon next-generation innovation in collaboration and Web 2.0 technologies," said the characteristically evangelical Cisco chairman and chief executive officer John Chambers. "Cisco's public-private collaboration within China not only helps accelerate these business efforts, but also helps the 1.3 billion people and growing number of entrepreneurs within the country gain access to social and economic opportunities afforded by the Internet."

The memorandum between Cisco and NDRC aims to broaden and deepen cooperation in the areas of manufacturing and service outsourcing, next-generation Internet, venture investment, training and development, as well as environmentally-focused research and development including energy efficiency, emission reduction and network-based green urban development.

Under the memorandum between Cisco and MOFCOM, Cisco will work with the ministry to help implement the Thousand-Hundred-Ten Project for China's business process operations industry. Through this program, Cisco says it will provide training to improve the skills of employees of China's business process operations companies. By helping to build a strong talent pool, Cisco believes it is contributing to a critical step in the development of the industry, with the goal of improving portions of Cisco's global business process services to the country over the next three to five years.

Formally launched in early 2008 and overseen by Chambers, Cisco China Strategy Board is a cross-functional executive board of senior leaders across the company's global business aligning to drive Cisco's long-term corporate initiatives within the country. This includes oversight of the multi-year initiative in China, exploring further opportunities in public-private collaboration for social and economic development, Cisco's China business operations strategy, as well as small to medium-sized business and consumer IT market development programs.

"One of the key drivers of Cisco's differentiated strategy is our ability to capture market transitions. China is very clearly a market in a dynamic state of transition. As we continue to evolve our innovation, education and sustainability programs within China, we are also focused on our goal of making China one of the company's top three world markets in the next five years," continued Chambers.

Cisco first established operations in China in 1994 and now employs more than 3,000 staff in sales, customer support and service, research and development, BPO, IT outsourcing, Cisco CapitalTM programs, and manufacturing.

Indian IT services vendors have had several reasons to be nervous of late – well, as nervous as one can get when your company’s revenue growth is north of 25% and your operating margin exceeds 20%.

Rupee appreciation, domestic salary inflation, pressure in the US banking market and mounting anti-offshoring rhetoric from the US Presidential candidates have sent jitters through the stock prices of the top Indian suppliers, and prompted some to write rather premature obituaries on the Indian IT export market: http://www.forbes.com/technology/enterprisetech/2008/02/29/mitra-india-outsourcing-tech-enter-cx_sm_0229outsource.html

And another issue that is keeping some awake at night is whether the Indian Government will extend the IT sector’s tax breaks that are due to end in 2009. One of the major factors behind the Indian IT sourcing phenomenon was the development of Software Technology Parks of India (STPI) in 1991, in which companies operating in designated areas qualified for a ten-year income tax exemption.

Debate has raged in India as to whether a country with such a huge need for public infrastructure investment, can afford not to tax some of the most successful multi-billion dollar enterprises doing business in its cities.

There was no mention of an STPI extension in the Government’s latest budget, announced earlier this month. But the vast majority of the vendors I have spoken with in the last couple of months are cautiously optimistic that the Indian Government will extend the tax breaks within the zones beyond the current deadline.

Industry association NASSCOM continues to push hard for an extension, and representatives from the Ministry of Communications and IT has been making positive noises about it in the Indian press and at recent conferences

This is partly because the Indian Government has become anxious that the country’s national champions may up sticks, and take their business out of India to alternative sourcing locations.

It will be a long time before China’s IT services export industry achieves the same scale and maturity as that of India. But already, Indian and Western services vendors have set their sights beyond the over-heating labour markets in Bangalore and Mumbai, and are setting up in cities such as Chennai and Gurgaon: http://www.reuters.com/article/rbssTechMediaTelecomNews/idUSDEL5984620080325

And of greater concern to the Indian Government is that all of the country’s tier-one vendors are setting up secondary sourcing centres in Latin America, Eastern Europe and Eastern Asia. Countries such as the Philippines and Vietnam have learned from India’s success and are offering tax holidays of their own.

NASSCOM believes that the non-extension of the tax break would land a crippling blow to the Indian IT industry, resulting in the loss of some 400,000 jobs in the medium term.

This is a tough call for the Indian Government to make, and one that echoes the recent crackdown by the UK Government on non-domicile taxation. With less than two years to go before deadline day, it doesn’t have much time to make up its mind.

Offshore gains a foothold in UK public sector

Government has long been seen as the last sector that would open its arms to global sourcing.

Offshoring is a sensitive issue for any business, but stir in public data protection laws, strong unionization and the close scrutiny of the national media, and it is easy to see why the government space does not account for a significant chunk of the Indian suppliers’ revenue – less than 2% for the top five players in the UK.

But while we are very unlikely to see any public sector bodies enter into deals that would cut UK public sector jobs and replace them with offshore labour, there are increasing opportunities for both offshore specialists and Western companies to use their global sourcing capabilities on government projects.

This was highlighted when Indian vendor HCL Technologies recently won a $4m deal with Wiltshire Police Force to build a remote working system to enable officers to access vital information while in the field. HCL is implementing the system and will provide ongoing support over the next five years, but will not handle any sensitive data as part of the contract.

Cash-strapped government organizations are becoming more open to utilizing global delivery, particularly on the ‘build’ part of IT projects. In public healthcare, TCS and Infosys have both worked for the NHS for several years, and TCS has just been named as one of the health service’s approved ASCC suppliers.

Don’t be surprised to see offshore services vendors in the hunt for future government sector business. They aren’t going to oust the likes of EDS, Fujitsu from IBM on public sector outsourcing engagements, but there is enough project work out there for it to represent a pretty big growth opportunity.

Last week BT announced that Ian Livingston will take-over as CEO of BT Group from 1st June. What do we think should be on Ian's 'to-do' list?.

In our view Ian has five challenges to address:

- Top-line growth: BTs recovery from the abyss peaked in Q3 two years ago with growth (year-on-year) of 8%. The corresponding figure was 5% twelve months ago, and 1% in the results announced in February this year. Any growth for what is a fixed-only business is highly credit worthy, and yet the feeling is BT should have done better. Ian's challenge is to repeat the success he has had in turning around BT Retail across the Group.

- Customers and services: BT needs to evolve its portfolio to suit its customers, not technology. For example, approximately 19,000 graduates will join the UK job market in 2008 (Source: Association of Graduate Recruiters). This generation of students are compulsive communicators (good for the industry), and use a mix of direct (voice, email, but also Instant Messaging and texts) and indirect (social networking sites, on-line message boards, second-life etc) means to communicate. BT needs to provide these new workers with the direct and indirect communications services they need in the workplace.

Central to achieving a greater understanding of customer needs is marketing. BT needs to ensure that its brand is spontaneously linked to the communications services it provides to the market segments (both decision makers and users) that matter most to it. Ian needs to bring customers and marketing more to the fore in BT.

- Networks and technology: Last week in EuroView I referred to BTs need to refresh its 21CN story and address the issue of fibre in the access network. In The Sunday Times two days ago Ian was reported as laying down a challenge to regulator Ofcom on FTTP (fibre to the premises) and the USO (Universal Service Obligation). I doubt he issued a challenge as such, but the point is BT feels it should not have to pay the billions it would cost to provide FTTP across the UK, as it is no longer dominant, and the concept of USO is outdated.

FTTP is the issue in the UK telecoms market in 2008. Resolution of this is important for the UK economy (or it will get left behind), and BT has to be part of the solution if it is to happen. But it has to be sorted quickly, oddly enough because of the 2012 Olympics. Can you imagine the furore if UK citizens were unable to watch the Olympics in HD over broadband (but overseas customers could) because Ofcom and BT were unable to sort this out? BT is, of course, also the official communications partner to the 2012 London Olympics to add another twist to this.

- Strategy and structure: Some weeks ago we said that BT's strategy needed updating. The strategy (to defend traditional services, grow the new wave and transform the business through 21CN and IT) remains valid, but is now well-worn. We would like to see its strategy expressed more in terms of customers, services (not products) and customer service.

Last year BT re-organised to create Design and Operate functions within Andy Green's Group Operations and Strategy division. This includes both the BT network and IT systems. Since Andy left, it has been unclear to us who (other than the CEO) leads this division. Aligning structure to strategy is a popular business school idiom, but it also happens to work. This needs to be sorted out.

- People and processes: Communications is a services business, so the service that customers receive is largely dictated by those that deliver it. Ian needs to continue to invest in the integrated, automated and rationalised IT systems, but also in the people that are central to making customers happy. Investing in the former should lead to great improvements in efficiency, but one (process) without the other (people) is flawed. As Openreach has shown, investment in people can make a big difference. People not systems deliver service excellence, and become the embodiment of the brand.

Ian inherits a stable ship, but the company needs to kick-on from here. Addressing these challenges will go a long way (in our view) towards achieving this.

Logica has inked a four-year IT development and support deal with the Home Office for the Independent Safeguarding Authority (ISA) and the Criminal Records Bureau (CRB), which will investigate people seeking to work with children and vulnerable adults.

The company will design, build, host, and support application services and also provide vital data assurance and disaster recovery capabilities.

According to Ovum, while Logica's commercial sector business suffered major revenue falls in 2007, its UK Government business grew by 10% to £372 million, predominantly boosted by its DISC application services contract win with the Department for Constitutional Affairs in 2006.

Like the DISC contract, this latest win plays to Logica's strengths, says Ovum. “Application management services is considered to be one of the company's core competencies and it also has a strong track record in the 'justice and home affairs' market (other clients include the Crown Prosecution Service and the Office for Criminal Justice Reform).

“In addition, while the application development and support market in the UK is under particular pressure from the Indian vendors (with Logica some way behind its peers in developing its offshore capability), this remains less of an issue in data-sensitive areas of UK government such as 'justice and home affairs'.”

NorthgateArinso, the HR division of Northgate Information Solutions, has announced a business process outsourcing (BPO) agreement with German giant SAP AG.

The deal will enable NorthgateArinso to deliver additional services further up the HR value chain, expanding provision of payroll and employee administration services to offering customers full human capital management outsourced solutions, using its preconfigured euHReka HR services platform.

This agreement builds on over a decade of providing HR integration, consultancy, and outsourcing expertise in support of SAP solutions.

Monica Barron, VP of research at the Everest Research Institute, said: “Talent management is proving to be a significant component of human resources outsourcing, with increasing numbers of buyers looking to include processes such as recruiting, learning, and performance management in HRO transactions.

"Buyers are looking for a combination of process expertise, technology and tools to support talent management, and the blended offering and delivery capabilities of both NorthgateArinso and SAP should help to meet a growing demand in the marketplace.”

The Flemish Public Employment Service (VDAB) agency has selected EDS as its new partner to manage its information communication technology (ICT) infrastructure. The contract has a six-year term and is worth approximately €50 million (US$74 million).

Under the contract, EDS will provide a range of infrastructure services, including user support, user infrastructure management and maximum availability of the ICT environment for the agency's customers and partners. EDS will provide desktop support to more than 5,000 users in 200-plus locations and manage approximately 100 servers.

“An open infrastructure that allows efficient collaboration with the various partners is crucial to support VDAB's steering role in the Flemish labor market,” said Fons Leroy, managing director of VDAB. “In the coming years, the challenge is to bring about innovation and synergy with the Flemish government, and VDAB has chosen to take on this challenge together with EDS.”

“Together with my team we negotiated a transparent and flexible outsourcing model that allows change and encourages a competitive pricing,” said Paul Danneels, CIO of VDAB. “We are looking for innovation in support of further strengthening VDAB's pioneer role in career guidance and education infrastructure. This contract will also allow us to cooperate with the Flemish Government in various areas.”

“For this contract EDS has established a balanced cooperation with local subcontractors,” said Jan Cleeren, sales manager for the Belgium public sector. “Together with Belgacom and Econocom, we will deploy the best experts to be able to meet the high execution demands typical for this agreement.”

Telecoms firms are increasingly looking to outsource their IT departments so that they do not have to maintain in-house IT teams, it has been suggested.

Industry commentators feel that they have come to this decision because IT is not their core business, according to livemint.com.

New telephony groups including Datacom Solutions are currently in talks with IBM about outsourcing their technology requirements, as these young businesses are looking to streamline their operations to allow them to provide their communications networks more efficiently, reports the news provider.

Vivek Gupta, director for communications sector at IBM India, said: "These companies are not looking at maintaining large in-house IT teams because it is not their core business. We have had an initial round of discussions with all of them."

The news follows reports last week by ZD Net that Gartner has predicted increasingly technologically literate clients will shape the future of the IT outsourcing industry.

Infosys has reported quarterly revenue of $1.14 billion. For the March 2009 fiscal year, the company has issued guidance of revenues of $4.97 billion to $5.05 billion, and profits of $2.31 to $2.35 a share, exceeding analyst expectations.

Infosys shares arose by more than five percent on the news. Other IT outsourcers stocks rose higher as well, with Cognizant, Satyam and Wipro all seeing similar single-digit increases.

Inefficient, out-dated management and analysis of customer data is threatening the UK banking industry's ability to support growing numbers of consumers falling into the downwards debt spiral, warns Detica, the business and technology consultancy. Many banks and building societies are likely to struggle to actively support these consumers under the requirements of the new Banking Codes which came into force at the beginning of April.

Under the new UK voluntary Banking Code, banks and building societies should provide more support to consumers heading into debt problems, including actively identifying and contacting those customers who may be at risk. Detica believes that a significant number of UK retail banks are not currently equipped to identify these customers under the new Code's requirements.

Maggie Scott, Executive Manager from Detica's Financial Services unit, says: "Due to a stream of recent regulatory requirements, banks actually have a great deal of data in place to build an accurate profile of their borrowers. Historically, however, banks have only used this data to assess their customers' financial circumstances when applying for credit. The challenge now is for them to apply this intelligence to identify financial stress and to act on the information to get in touch with customers to discuss ways to support them. If banks can't do this, then consumers won't benefit from the aims of the new Code and we risk debt spiralling further."

Scott adds: "Key to success for banks is creating the right organisational change. They need to put the insight developed by back office analytical teams at the fingertips of frontline customer service agents who are speaking to consumers directly."