“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 

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…

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.

Bombardier is looking to lower its operational costs by ratcheting its outsourcing of design projects up. Bombardier has requested Indian tech vendors to bid for an outsourcing contract which is said to be in the vicinity of $200 million in the coming years. The contract includes engineering design projects for Bombardier’s C-series jetliners for which Lease Corp is a major customer. Bombardier has already got the blueprint for the C-Series ready and is looking at India to source metallic and composite structure designs which include floor panels, landing gear, doors, fuselage and wings.

A couple of large Indian companies who are already working with Bombardier are discussing the contract with them while others are eyeing the opportunity.  Bombardier Aerospace has been doing business with these companies since 2005.

Sources say that some of the said Indian companies have definitely decided to bid for the Bombardier contract. Certain of them are looking at a larger share of the contract which will include mechanical engineering design work.

Cost-saving is no longer the only reason aviation companies look to India. Now it’s also for her enormous group of talented, skilled engineers who understand the nitty-gritty of complex avionics. A senior spokesperson from an Indian joint venture said that their company had provided customers a cost-saving of at least 20-40 percent with their business models using a group of engineers who provided a range of related services within a time frame of 18-24 months.

Airbus and Boeing have already been outsourcing to India for some years.  Boeing outsourced software development for its 787 Dreamliner to India, and is now in business talks with a number of smaller institutions for development of futuristic aerospace technology. Airbus is talking to Indian companies about making components for Boeing and Airbus’ doors and landing gears.

Currently at around $1.8 billion, the Indian engineering sources outsourcing (ESO) industry is expecting a growth of up to $50 billion over the next few years as aviation industries continue to look at outsourcing design work to India for lowering their costs.The legendary pool of smart Indian engineers does indeed exist and is making an increasingly significant contribution to high-flying products!

A recent article in the Wall Street Journal described how there has been a significant increase in Japan’s hitherto minimal outsourcing to India.

This increase is in part due to enhanced efforts on the part of Indian service providers to penetrate the Japanese outsourcing market, a consequence of the Indian companies’ falling fortunes from the recession-plagued US market. On the other hand, it is also due to the Japanese noticing that many of their competitors are gaining cost advantages by outsourcing tasks to India, causing them to follow suit to maintain market share.

Examples of projects being outsourced are car navigation systems, automated securities trading systems and medical scanners.

The article mentioned how, in two very well-known Indian software companies, the very small teams dedicated to Japanese projects of a few years ago now teams with thousands of people. And these companies are predicting steady growth in the future due to the fact that very few new engineers are being produced in Japan.

Traditionally, cultural barriers, such as language and business conventions, have not permitted India’s outsourcing business with Japan to grow rapidly. So Indian companies are teaching their engineers the Japanese language and Japanese business customs.

An issue which has to be addressed is the difference in the Indian and Japanese product development strategies. The Indians believe in building , testing and delivering a product quickly then fixing any late-emerging bugs in the field as and when they occur. The Japanese, on the other hand, expect flawless performance from the moment of delivery, even if it takes longer to deliver the product. The article does not comment on whether the Indians have a solution to this, but judging how things have evolved in the past, it won’t be long before such a solution emerges.

Thanks for reading —