Outsourcing: Philips Increases Work to India

Royal Philips Electronics, one of the world’s largest manufacturers of lamps and healthcare equipment, has announced that it intends to bring down its operating costs by up to 30% over the next two years. Its strategy is to reduce the number of IT suppliers from around hundred to nearly 10. It will also be outsourcing more of its software development and support activities to India. Experts estimate that the total value of its outsourcing projects during this period will be around $500 million.

“As part of our ‘One Philips, One IT’ initiative, we plan to consolidate our data centers (over 400 currently), bring down the number of suppliers and move more work to our center in India,” said a prominent member of the company’s management committee. “We want to leverage our outsourcing partners and Indian operations more than ever before,” he added.

“Going forward, we would like to outsource our entire helpdesk to a single vendor — – — the discussions are already on,” he added. By the first quarter of 2010, Philips plans to use only one global service provider for managing its 40 helpdesks around the world, he also stated.

But competition is hotting up for the large Indian outsourcing companies. Just delivering computing infrastructure maintenance is no longer going to cut ice; European service providers like T-systems are offering enterprise business applications bundled along with infrastructure maintenance. Philips is in fact going to announce an outsourcing contract with the same T-systems in the near future, and this contract will include SAP as a service.

Philips has also planned to invest more in business intelligence software.

Source: The Economic Times, Friday, 9 October 2009.

As always, FYI 

Outsourcing Firms: Consolidation in India

A recent study by Gartner, an IT research and advisory firm predicts that more and more business process outsourcing (BPO) service providers in India will cease their operations because of the economic meltdown. At least 25% of the top service providers will find it difficult to sustain themselves and will not be an independent business by 2012.

The financial services sector, like those with substantial amounts of revenue from banking sectors, is first to be hit by the meltdown as this sector makes up almost one-third of the total BPO market, worldwide.

Gartner believes that buyers should be prepared. They should build exit strategies into contracts and have backup plans in the event of contracts; this has been the rising trend since 2007.

The entire scenario of business process outsourcing will change with market exits, acquisitions and the arrival of new vendors in the coming years. The economic crisis, unprofitable contracts and the inability to adapt to standardized delivery models will make it very difficult for most service providers to continue in their existing avatar. Where some outsourcing firms will be acquired, others will exit the market completely. Firms with new business models who will deliver business processing services as automated, utility services will take over.

Gartner is of the view that buyers’ vendor selection teams should study the prospective providers’ business deals or models to fully understand how they make their profits. It would be in their interests to become familiar with the vendor’s winning model of acquiring new businesses.

Source: The Economic Times, 30th September, 2009

FYI…

Outsourcing to India: the Other Side

Silicon.com has published an article on August 25^th, 2009 on how Indian outsourcing workers are being stressed to their limits.

Though it has been hailed as the key to India’s economic growth, the inside story of its the outsourcing industry is one of sheer drudgery, with punishing deadlines, long night shifts, irate customers a thousand miles away a the sheer, mind-numbing tedium of writing code.

With young employees in the outsourcing industry already suffering from acute physical stress due to over-work and lack of adequate sleep, matters are being compounded because of the recession and anxieties about losing ones job. This is on top of occupational illnesses like obesity, migraines and depression which fracture relationships and significantly increasing the risk of diabetes and heart disease.

Young, enthusiastic, just-out-of-college students struggle to keep apace with the frenetic work culture. Initial job euphoria is high, with non-stop partying and reckless spending during weekends. Bingeing on junk food and alcohol is the norm of the day. Peer pressure adds to the situation until youngsters end up totally stressed and unable to work.

Industry sources say that they end up losing a large portion of their employees solely due to stress. People on night shifts are the main casualties.

With healthcare being not being given due importance, the industry could be facing a severe crisis. Counseling centers say that they are seeing a lot more youngsters in the age group of 19-30 years who are unable to take the stress. The centers tell them to ease up and start managing job stress easily so they are able to take care of their relationships better.

Though some of the bigger companies are trying their best to provide facilities like an in-house gym, medical insurance, better work options, doctors, nutritionists and healthy food, their efforts are ignored by many of the younger employees. They are unable to get out of the groove.

Only time will tell whether there is a solution to this  perplexing sociological problem.