by Lucky Balaraman, Executive Director, TMG

I just read an excellent article on CIO.com listing 11 New Year’s resolutions every outsourcer should make. They are:

Resolution #1: I will be realistic.

Resolution #2: I will follow the Golden Rule.

Resolution #3: I will dream big.

Resolution #4: I will keep it simple.

Resolution #5: I will say what I mean.

Resolution #6: I won’t believe the hype.

Resolution #7: I will create rules and live by them.

Resolution #8: I will pay attention to my bills.

Resolution #9: I will measure what matters.

Resolution #10: I will seek out the best partner for me.
Simply going with a three-letter brand name outsourcer or advisor isn’t always the best move. In fact, it can be a costly mistake. "There is lots of competition in the outsourcing market today," says EquaTerra’s Ayling. "You will always find a supplier who has the right capabilities for you, and, where what you spend with them will make you important to them." Take an unsparing look at your vendors and advisors, says Baker & McKenzie’s Hansen. If they don’t share your core values, show them the door.

Resolution #11: I will have fun.

I have reproduced the detail of #10 because I have, in the following video, expanded on it by describing what you need to do to find that best partner. It’s only 2:20 minutes long… play it now.

Go to the original article at CIO.com

Happy Outsourcing in 2011!

by Lucky Balaraman, Executive Director, TMG

All the outsourcing bluster on the web has disappeared! As a consequence, so have all the Indian opinions on the subject. Since TMG now provides an outsourcing consulting service, it is but natural that I say a few words on the aforementioned phenomenon. Take a look:

Outsourcing is still an excellent solution in a wide variety of circumstances. In case you want to explore setting up a processing center at Chennai, India, check out the above link and contact us.

Have a great holiday season,

Immelt was in Mumbai recently, during which visit he addressed the US-India Business and Entrepreneurship Summit.

“You guys are not living up to your side of the bargain,” Immelt told the room full of India’s top executives. “There is a trillion dollars of infrastructure investment in India and it’s not happening.”

Very easy for him to say!

Apart from that, “You guys are not living up to your side of the bargain,” is a very crude way to talk to India’s top industrialists, many of whom are probably more experienced and more educated than he is.

Another quote: “There is no reason that our [US companies] infrastructure revenues should not be the same as in China…Let’s make the infrastructure happen.”

If Immelt wants to pull in GE revenues for say, power plants, can he compete on value for money with the Chinese? Not likely. That being the case, is India supposed to buy billion of dollars of equipment from the US just so that the H1-B visa fee can be brought from around  $4,000 back to around $2,000, which will save India a piffling $200 million a year? Or so that the Democrats can stop howling about outsourcing because research found that it would get them votes?

Come on, Mr. Immelt, India wasn’t born yesterday.

President Obama landed in Mumbai a few hours ago. His visit here will be the longest he has ever made to another country, and he is being treated as an honored guest in the true Indian tradition.

I expected all interactions between him and his Indian counterparts to consist of the exchange of pleasantries and platitudes, including mild references to outsourcing. But there have been a few exceptions:

1. There was mention of how all Indian companies will be removed from the restricted list regarding US nuclear technology exports;
2. President Obama announced that India has ordered $10 billion of equipment from the US and in the process created 50,000 US jobs (would he dare say that in the US?… )

Again, since President Obama is a guest, it is unlikely that anyone will jab him with questions about the visa fee hike and Governor Strickland’s outsourcing ban. The emphasis will be on ensuring he has a pleasant, memorable stay. The outcome will be the warm, fuzzy feeling two friends have when they meet after a long time.

By Lucky Balaraman, Executive Director, The Magnum Group

As anyone connected with international business knows, there is a hue and cry in the US about IT jobs being outsourced to India. President Obama has doubled the visa fees for IT specialists coming to the US to work (for companies with less than 50% US citizen/permanent resident employees) and there is the H-1B and L-1 Visa Reform Act of 2009 in the works for denying H1-B visas to such companies altogether.

But the point is, far more significant than the 40,000 or so jobs filled by Indian IT specialists in the US  are the millions of manufacturing jobs lost to China (5.38 million between 2000 and 2009). The US administration and media have been strangely quiet about this. My surmise is that it is because China is one of the US’s prominent lenders — (China held $844 billion in US T-bonds as of June 2010).

Finally this weird silence is springing cautious leaks. In this article in the Economic Times (the large business newspaper of the Times of India), a senior official at one of the top US tech firms is quoted saying, “We are already struggling to rival cheaper offshore locations in manufacturing…”  And as one would expect, he requested anonymity.

But at least it is a beginning, and one hopes that more voices will soon be heard pointing a finger at the Phantom of the US Job Market.

During the preceding months of 2009, when the growth of healthy companies outside India had slowed to around three or four percent annually, Indian IT companies were clocking up eight to ten percent. Why weren’t they hit as badly by the global recession? Because they turned their sights on the Indian market and, to their delight, discovered salubrious springs of business there. LARGE springs.

The Indian banks and insurance companies were major sources of the warm, mineral-rich water that the IT companies were relaxing in while the rest of the world moaned. But it seems that after a while, those same banks and insurance companies got wind of how important they were to the health of the IT companies, and they decided to leverage this.

The Indian banks and insurance companies are now knocking on the IT companies’ doors with a smile on their face saying, “Seeing that we’re giving you all this business and keeping you well-fed, and that without us you’d be up the you-know-what creek without a paddle, maybe you wouldn’t mind re-negotiating our contracts worth $800 million to provide one hell of a more services for the same money. If you say no, you might regret it.”

Knowing how things go in India, the IT cos will join their palms in a namaste, touch the feet of the clients and murmur, “Whatever you say… you are our friend, philosopher and guide.”

Let’s see how it pans out… I’ll keep you posted.

Cheers,

source: livemint.com

With the economic meltdown making US consumers cut back on costs, there’s been a paradigm shift in the way American firms and multinationals are looking at fast developing countries like China, India and Brazil. They are not looking at these countries as mass producers of low-cost goods and services, but are now looking at them as potential customers. This could signal the beginning of a new phase in the US economy where the emphasis is less on US consumers and more on places like China where the consumer now has more money to spend.

The local markets of advanced nations appear small as compared to the potential markets in nations like China, India and Brazil where the combined population would be in the vicinity of 2.5 billion people who are younger and willing to spend as compared to the smaller but older populace of Western Europe, Japan and the U.S.

According to experts, Brazil is likely to help Latin America out of recession. Though many nations globally are still in the grip of the economic crisis, the Brazilian economy is likely to grow by 4% to 6% next year. Rio de Janeiro being chosen as the venue for the 2016 Olympics is seen as significant in helping the economy recover faster.

But whether this helps increase employment and investments in the U.S. is still not very clear. The fact that there is increasing American investment for production near emerging economies in lieu of shipping goods from US facilities overseas, means Americans are definitely looking at profits from those emerging markets.

The U.S. is definitely trying to boost its economy by increasing exports just as they have in the past. Had it not been for overseas customers, a small construction-equipment firm like Power Curbers Inc. near Salisbury, N.C., would have gone under during the meltdown.

They were lucky that infrastructure development was going on in other countries, as almost 75% of the sales were international as compared to the 25% just two years back, said the president of Power Curbers Inc.

Companies like General Electric Co. say that advanced nations like the U.S. are relying heavily on new economies. The GE chairman said that to be able to sustain the balance in the shift of consumption power from “wealthy nations to emerging giants” there has to be a different business format for a company like his to succeed. With a growing market in heavily populated countries like China and India, the old business format of developing products at home and distributing them globally will no longer be relevant, he said in the October issue of Harvard Business Review. He added that more power needs to be placed in the hands of the local people of these countries and their views taken on designing, building and marketing the products.

Though he did not refer to the implications of this on American employment figures, the trend is clearly visible from the company’s annual reports. The report quotes that GE, in 2004, had 165,000 employees in the US and 142,000 employees outside. But last year the figures were: 152,000 employees in the US and 171,000 outside. This clearly indicates growing US investment overseas. But it’s also likely to revive old issues like the outsourcing downside as well as US tax and currency policies that encourage outsourcing.

Source: Chicago Tribune, October 6^th, 2009

FYI

Indian technology outsourcing companies are no longer content to remain in the background but want to be in the lead.

Top Indian tech companies were long satisfied with doing software maintenance and database upgrading work for US and European firms like Citigroup Inc. and BT Group PLC (who were looking for cost effective solutions). But the Indian firms now want a larger share of the pie: they are broadening their services and want to compete for more advanced work which is usually outsourced to bigger, rival companies like International Business Machines Corp., Hewlett-Packard Co, or Accenture Ltd.

They are looking for a chance to run external data centers for customers which will help them expand into increasingly popular areas of “cloud computing”, a style of computing in which dynamically scalable resources are provided as a service over the Internet. They are attempting to combine these services into “end-to-end outsourcing packages” for clients as well.

Though Indian firms have tried for years to advance to the next level with their offshoring model, they are now under pressure to change their business format. The recession and increasing competition worldwide in the tech services industry has knocked down the annual 30% revenue growth they have been accustomed to. Annual export revenue growth in the outsourcing industry came down to 16% in the current financial year which ended in March. Industry experts, NASSCOM (The National Association of Software and Services Companies), predict a growth of only 4% to 7% this financial year. A company spokesperson from a Houston-based outsourcing advisory firm, TPI, says that India needs to really convert their businesses totally to continue to see the old growth range again.   

If Indian firms are able to progress to the next level, it could well be the deciding factor in determining if its outsourcing industry, which is currently at $58.8 billion, will remain just a back-office service provider to the technologically advanced Western firms or will see new areas of growth as well as be the rising star that it has been in the past decade.

India is under pressure because of many factors. Firstly, service providers who are based in the US have expanded their presences in India. Secondly, worldwide customers are scaling down their IT expansion plans and consolidating outsourcing vendors to decrease spending. Thirdly, competition in the form of cheaper offshoring alternatives is available from places like Philippines and Vietnam.

Industry experts say that India needs to be able to strike big deals like IBM did. IBM snagged deals in which companies like Australia’s Qantas Airways and J.P. Morgan Chase & Co. became part of their client list. For India to qualify for deals like these, she must hire more highly qualified experts in core fields like telecom, pharmaceuticals and credit derivatives, and must be open to changing the current business format.

Taking risks have never been India’s forte, but for big infrastructure outsourcing deals, there will be high costs and risks. Service providers must be ready to buy equipment for clients, take over their IT staff and take on the onus for reliability of remote data centers 24/7.

Such deals don’t work strictly on billing for the number of hours worked but rather, should be worked out in such a way that the service provider makes money only if the client sees profits. The profit margins can be lower, in the 15% to 20% range rather than on the 20% to 30% which has been the norm in the Indian software business.

A company official from top tech Indian company Infosys said that it’s not an easy job to take over the entire operations of a company’s IT related work. He says that the mindset required for running it and pricing it is very different and that the Company is still in the process of learning along the way. But things are changing for the better.

Among the largest Indian outsourcing firms, Wipro, the third biggest  in terms of sales after top dog Tata Consultancy Services and  Infosys recently clinched a deal with the Australian based Origin Energy to set in motion the overhauling of the company’s retail business operations. In 2007, Wipro bought Infocrossing Inc., a U.S. data-center management firm with expertise in health care.

With IBM striking an innovative deal with India’s largest telecom company to outsource everything from billing to network management to delivery of cellphone content like ringtones, a trend has been set for other companies to handle similar work. Tata Consultancy Services has won a contract to handle all IT infrastructure for Indian wireless startup Unitech Wireless, a joint venture of Unitech Ltd., a large Indian property developer and Norway’s Telenor ASA. The deal, worth almost $500 million, binds the Indian company’s revenue with the success of Unitech’s cellular network rollout.

Indian Company HCL won a major $350 million, seven-year contract with Reader’s Digest Association Inc. to manage the company’s network infrastructure and advise it on how to expand into digital media. The Company added that Reader’s Digest’s bankruptcy proceedings will not affect the contract. HCL also bought outsourcing specialist Control Point Solutions Inc. in 2008.

But India’s finding it hard to sustain her image as a low-cost service provider and has not been able to beat rivals on cheaper pricing when it comes to bigger, infrastructure heavy deals. A consultant with an India-based outsourcing advisory firm sums it all up to say that landmark deals like these will prepare the ground for Indian firms to test their ability globally to take on larger contracts in the future.

FYI…

Source: Wall Street Journal, October 5^th, 2009

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…

BusinessWeek published an article dated 25th September, 2009 about the world’s outsourcing market being worth $373 billion.

The new Canadian research firm, XMB Global, predicts India and China as the leading outsourcing countries with a growing market of 14.4% this year, with India generating revenues of US$48 billion and China at US$28 billion.

Vincent Altez, a senior analyst at XMG says that the dynamics of global sourcing will undergo a sea change in 2010 because of various factors.

In his report he says that India will snag 44.8 percent of the global market with China following closely behind with 25.9 percent. But the growth is expected to remain more or less the same as that of 2008 with no significant growth because of Satyam Computer Services’ financial debacle and demand paving the way for other offshore countries. Altez in his report said that recession “has provided the opportunity to rationalize and shift work to other offshore destinations other than India”.

According to the XMG report, the Philippines is responsible for 6.9 percent of the total offshore revenue which is more than its 6.7 percent revenue generated in 2008. The Philippines has registered revenue of US$7.3 billion at the end of the year which makes it the third-best performing destination with revenue growing at 21.7 percent. The figure is perhaps less than the expected 24 percent because of indifferent demand due to slow growth for IT services and with key players like India and China delaying their expansion plans.

Though the worldwide growth graph this year at 14.4 percent will be lesser than last year’s 19 percent, it is still seen as positive because the expansion in the industry is in spite of the recession. Altez in his report noted that offshoring and outsourcing is “part of a natural ongoing economic revolution notwithstanding a financial crisis”.

Altez says that the economic recovery of Europe and the United States, as well as the Chinese and Vietnamese governments’ determination to attract foreign investors, will have a hand in changing the dynamics of global sourcing in 2010.