Global-O&O

DATE: March 8th, 2010
(EconomicTimes: LINK)

For the last 18 months attrition rates in IT/BPO firms out of  India and captives has been a non issue. A number of firms in their quarterly earning reports have also continued to show improvement in their ability to hold on to employees. (Q4,-2009 attrition: Cognizant Attrition, WNS attrition, Genpact Attrition, TCS Attrition, Infosys Attrition) . Compare this to the attrition rates for Q4-2008 which was around the time the financial crisis started, and the attrition rates showed signs of getting better ( Attrition Rates 2008 ) . This improvement in attrition rates was less   about the ability of the outsourcing firms to manage their employees  and more around the market crisis where the jobs and projects  disappeared.

 In some of my earlier posts, I had commented that if you look at glass half full, this was a relief  for companies offshoring their work as attrition was no more on their top list of risks.  This may be about to change with the markets opening up in India and  employees who  have felt they got the short end of the stick looking to switch jobs and bolt out of the door as offers and opportunities start coming back. With a number of firms now opening up their hiring process, going back to campuses for new recruits, if you have been working with offshoring vendors in India,  it may be time to plan for a spike in attrition rates.

The improved attrition rate

The market slowdown which took everyone by surprise and despite the brave face put  by outsourcing vendors that the financial crisis is good for the offshoring business, the impact of the economic crisis was global. It impacted the offshoring growth engine hard like the rest of the world . Employers who were jostling each other to offer better employee perks to retain and hold on to employees who had never seen an economy down cycle, realized that they dont need to do the pampering any more. With the slow down on the revenue side, vendors with operations in India had to continue to look at cost side to manage their growth expectations.  Employee perks started to go away, and salary increases became more performance driven and market driven if any. Given that the number of opportunities also suddenly disappeared overnight, the employees had no choice but to stay.

With the markets on the path to recovery ( in India)  and more projects going to vendors, attrition is bound to rise in the next coming months as employees who have been forced to stay will start looking for change. A number of folks I speak to in India have confided tha they have lost their employer loyalty and will switch to a stable, well paying job as soon as they get an opportunity.

The attrition rate may never reach the highs they were  before the crash , but have the potential to get back on the top of the risk lists for companies offshoring. The reason the attrition rates will not climb to their pre crisis days is that the employees while looking for change are more cautious to where they are going. Earlier it was less about the firm the employees were joining and more about the as employees even when looking for a change are not going to see a big jump in their pay checks or perks. Though a number of them will look for more ’stable’ firms. Smaller and mid size firms which suffered the most during this downturn may be the ones which will get affected the most in terms of rise in attrition rates. Larger firms can offer more stability to the employees which they will want now.

Overall in the marketplace though the salary structures will continue to be more rational and people looking for a change will have to understand the new market dynamics

For companies who are working with vendors in India it is though time to dust of your contracts and revisit the attrition, training and retention plans with your vendors.

Mohit Sharma is the CEO of Corrystone Global Partners. Corrystone is a specialized globalization  firm providing advisory, education and staffing services to firms in  US and India. We work with  firms in the US  which are exploring low cost options for IT, Business Process work and  looking at ways to further optimize cost and manage operational risk. For firms based in India  we help with marketing presence , M&A & client management services in the US. Contact us at info@corrystone.com  to learn more about how we could help you.

SOURCE: Business Week
DATE: March 10th, 2010

As per Celent, Financial services companies spend in 2009:
$350 billion globally on IT
$120 billion in North America.
50% spend on : software, internal head count, and external services.
70% of this spending has gone to keep the lights on and other routine maintenance expenses.
The investment required to replace and modernize applications that are well past their sunset date is estimated to be between $250 billion and $300 billion

http://www.businessweek.com/globalbiz/content/mar2010/gb2010039_433787.htm

SOURCE: Press Release
DATE: March 9th, 2010

The F&A space is the new battleground for a number of mid size firms looking to distinguish themselves in the crowded and competitive BPO space. This is also where a number of the IT firms are trying to stake a claim in as their core expertise.  A number of the mid size firms we believe have to continue to figure out ways to grow in a market which is becoming very commoditized. Acquisitions like this is one way to build revenues and expand your expertise.
Aditya Birla Minacs, a global business solutions company, today announced the acquisition of UK-based Compass BPO Ltd, a leading pure-play end-to-end Finance and Accounting (F&A)services provider. Compass BPO has appeared in the top 15 upcoming F&A BPO players in a recent Gartner report. It was also cited in the Top Offshore BPO providers by FAO Today magazine™, and in the ‘Global Services 100 – 2008 list’ by NeoIT™ and Global Services™.Through this acquisition, Minacs will take over all the operations of Compass across the UK, US,Middle East and in India, bringing Minacs’ F&A employee strength to 600. The founders of Compass – David McCullough and Mark Atkins – will join Minacs’ management. This announcement comes close on the heels of Minacs’ recent inauguration of its new Global
F&A Center of Excellence in Chennai. Its end to end F&A services portfolio now includes transactional accounting, knowledge based services (e.g. financial planning and analysis, research, budgeting/ forecasting and reporting), risk support services, business solutions (implementation and Hosting/ DBA services) and IT-based financial solutions and services.Commenting on the deal, Deepak Patel, CEO – Aditya Birla Minacs says, “With Compass forming the core of Aditya Birla Minacs F&A, we are now strongly positioned to be an integral part of our clients’ core processes. Compass is already a highly respected force in the F&A space with the full spectrum of capabilities. With 10 years of operations, it has excellent client credentials, a highly qualified team, and strong domain expertise. This move is part of our strategic roadmap,and brings to Minacs significant credibility in the fast growing F&A business”.
David McCullough, CEO – Compass BPO said, “We at Compass are excited at the opportunities for accelerating growth by leveraging Minacs’ global platform. Our best-in-class F&A expertiseand value-added business solutions will bring great advantages to Minacs’ Fortune 500 client base. We are also delighted to be part of a team that is known for its heritage of long term partnerships with clients”. Minacs has invested significantly in developing new capabilities in the recent past. F&A is a key focus area, including deployment of proprietary point solutions, which integrate with any ERP,allowing easy F&A process ransition, client control and transparency. Similarly, Compass BPO provides business intelligence solutions for financial analysis and reporting enabling clients to make quick and informed business decisions.

About Aditya Birla Minacs

Aditya Birla Minacs is a pioneering business solutions company that partners with globalcorporations in BFSI (banking, financial services and insurance), TIME (telecom, technology infrastructure, media, and entertainment), manufacturing and the public sector. We leverage years of process, domain and technology expertise to deliver superior business value to clients
with our seamless customer lifecycle and enterprise services. 13,000 Minacs experts across 3 continents and 29 centers spanning Canada, Germany, Hungary, India, Philippines, the UK and
USA power our solutions through a global delivery model that helps our clients enhance revenues, profitability and customer service.
Minacs is a subsidiary of Aditya Birla Nuvo Ltd.
Visit http://www.minacs.adityabirla.com  for more information.

SOURCE: Financial Times
DATE: March 8th, 2010

The article in Financial times talks about the challenges of suing an Indian firm by overseas stockholders and claiming damages.  The suit is against Satyam whose chairman confessed to a fraud in the company to the tune of US $ 1 billion and is being bought by shareholders who hold ADR ( American Depositary Shares) in Satyam. Satyam case will test rights of foreign investors in Indian companies

Satyam which is now part of Tech Mahindra  continues to have their fair share of legal issues and are keeping a number of cross border legal firms pretty busy.

Two firms – US based Bridge Strategy Group and Ghent, Belgium-based supply chain solutions firm S&V Management Consultants which were acquired by Satyam have come to legal closure on their issues with Satyam.

Satyam had also purchased back in April 2008 the market research and customer analytics business unit of Caterpillar the construction giant and was planning to leverage that to launch there Knowledge Process Outsourcing Services. That disputes looks like is still ongoing and not resolved.

Two Satyam disputes settled amicably

Satyam and Upaid also continue to spar over their tax and legal issues.

Satyam, Upaid in tax row

SOURCE: Press Release
DATE: March 8th, 2010

Domestic Indian markets are an area of focus for IT vendors in India and large established multi nationals with operations in India. A number of these deals seem to be going to the larger firms. IBM, Accenture have had a fairly high success rate in winning these domestic deals. If the government press release is to be believe there is about $ 10 billion in money for IT governance projects being set aside in India. The $10 billion Indian e-Governance marketplace

Press Release

Wipro Infotech, the India and Middle East IT Business of Wipro Ltd (NYSE:WIT) , has won a turnkey project from the Financial Intelligence Unit – India, Ministry of Finance.

As part of the project, Wipro will implement FINnet (Financial Intelligence Network) for the Financial Intelligence Unit.

The scope of services includes development of portal, data warehousing, de-duplication, analytical application and ERP implementation at the data centre and disaster recovery site.

The project is scheduled to be completed in 24 months, in different phases, with a further service period of 36 months.

According to a press release, IT enablement of key processes would ensure substantially higher productivity, faster turn-around-time and effective monitoring in all areas of the unit’s work.

Economic crimes

The project assumes significance in light of growing economic crimes within the country and the Government’s efforts to arrest it.

With this project, the Government intends to use technology to bring efficiency into analysis of data, added the release.

Mr Arun Goyal, Director, Financial Intelligence Unit India, said, “Wipro has been selected through an open and stringent bidding process. We are keen on timely implementation of the project as it will significantly enhance the unit’s capabilities to collect financial information from various reporting entities, analyse it and disseminate actionable information to various law enforcement and intelligence agencies.”

Mr Ranbir Singh, Head, Government Vertical, Wipro Infotech, said, “This is a very prestigious project for us and we are delighted to have been selected for it. We are confident this implementation will bring in more effective governance from both the economic and security point of view.”

SOURCE: Press Release
DATE: March 8th, 2010

Sunera Technologies (Sunera), a Michigan Corporation and a pioneer in enabling Technology and Services companies worldwide, announces the addition of a new ISV customer based out of Massachusetts under its unique Collaborative Offshore Initiative (COI) program. Under the terms of its unique Collaborative Offshore Initiative (COI), Sunera will set up a software product development facility in India for this customer, leveraging its India experience, infrastructure, operations and best practices to manage India initiatives. This customer foresaw the short-term and long-term benefits of COI. Sunera plans to help them to build and operate for the term of the contract and then transfer ownership to them at the end of the Term.

Sunera has another unique initiative called Collaborative India Initiative (CII) besides Collaborative Offshore Initiative (COI). Through these initiatives Sunera assists its partners in four areas 1. Business Development Program (BDP): Expand business in India market 2. Product Development Program (PDP), Build and Operate a Product Development Center in India 3. IT Cosourcing (ITC): Providing alternate to Outsourcing, helping IT leaders with ability to have better control, see greater value from their India Initiatives and 4. Business Process Management (BPM) – reduce operating cost of business operations like market research, inside Sales, recruiting, customer support, procurement etc.

This new partnership envisages to look at India beyond COI and Outsourcing Product Development to increase their sales in India’s market as well and will be leveraging Sunera’s CII as well. On its part Sunera will bring its India expertise, market know-how, offshore best practices, operational know-how and physical infrastructure to ensure that the partner will be highly successful without having to deviate from the core strength which is Software Product Development and capture new markets.

Mr. Ravi Reddy, Managing Partner for Sunera Technologies, said, “This partner was ahead of the curve and quickly saw the potential of Collaborating India Initiative and the risks of going for a captive center without having the deep expertise to run business in India.” He continued to add that “With over 100 Years of management experience in the leadership and multiple similar initiatives being successfully executed, Sunera is well positioned to be a leader in helping companies find an Alternate to Outsourcing and also launch their products in India Successfully.”

Sunera expects the Hyderabad Center for this ISV partner to be in operation within three months, and it will provide additional expansion capabilities for future growth and capabilities including India Business Development and Business Process Management (or also called as Business Process Outsourcing).

About Sunera Technologies Inc.

Sunera Technologies, has pioneered Collaborative Outsourcing through its unique approach of partnership for Revenue Maximization and not just cost optimization. It has focused on enabling its customers to take advantage of India with its unique Collaborative India Initiative and Collaborative Offshore Initiative model that delivers benefits of both worlds: Outsourcing and Own Captive Center. Sunera now has over a dozen customers helping them with building India delivery and Business Development capabilities.

SOURCE Sunera Technologies Inc.

SOURCE: Philadelphia Business Journal
DATE: March 8th, 2010

Sunoco Inc. has hired EquaTerra, a consulting firm based in Houston and London, to explore the possibility of outsourcing parts of its human resources, finance, information technology, accounting and procurement functions, a spokesman for the company said Monday.

More…

SOURCE: Barrons
DATE: March 8th, 2010

The Indian based outsourcing vendor stocks have done fairly well in the last few years. Shares of Infosys, Wipro are up by 300% since their lows in 2008. Some of the other shares like Genpact which has been stuck have seen upward momentum and have had a nice jump in the last year.  Currently Wipro trades at 34 times the earning, TCS at 22 times and Infosys at 26 times. 

The mid size firms like iGate, Mastek have seen the recovery coming back although at a slower pace. Their is the concern expressed about protectionism, weakeness in European economies and lack of job growth in the West as possible concerns why the outsourcing market may be in for a slower growth in the near future.

We think that the outsourcing marketplace is going to continue to grow but the growth rate for larger firms and others is going to be divergent. Where larger firms  are going to see a continued growth at a steady pace  ( although not the pre crash days) as they leverage their economies of scale and companies are comfortable with the name brands. These are firms like Infosys, TCS, Wipro. Wipro e.g. is diversifying into other non conventional area likes energy, consumer goods, defence.

Smaller or Mid size firms growth rate may be less than the larger firms as these firms figure out how to either build a niche to grow, survive. These firms are  going to be benefit  more by the tail end of the recovery than the larger firms whose clients typically larger organizations start loosening their purses earlier.   Where these smaller and mid size firms might see a growth opportunity is if the adoption of cloud computing expands the outsourcing/offshoring marketplace to participants which could not leverage this earlier. Namely the smaller and mid size firms in the US or the west.  Cloud computing though may not be all beneficial to the outsourcing firms as moving to cloud might be a more viable option to save costs vs leveraging offshoring.

Good news is that for companies looking to leverage outsourcing it is a buyers market. The bad news is that making the right decision with the changing pace of marketplace, new technologies and outsourcing vendors changing their models is a tough call. That is where we can leverage our experience to help you create the right roadmap and help you navigate the path.

Mohit Sharma is the CEO of Corrystone Global Partners. Corrystone is a specialized globalization  firm providing advisory, education and staffing services to firms in  US and India. We work with  firms in the US  which are exploring low cost options for IT, Business Process work and  looking at ways to further optimize cost and manage operational risk. For firms based in India  we help with marketing presence , M&A & client management services in the US. Contact us at info@corrystone.com  to learn more about how we could help you.

Indian Outsourcing: Labor’s Cheap, Shares Aren’t

SOURCE: MoneyControl
DATE: March 5th, 2010

SOURCE LINK

There has been small uptick in the income tax (I-T) rate, which IT companies will have to pay next year because of the Software Technology Parks of India (STPI) clarification. However, I-Gate founder and CEO Phaneesh Murthy is optimistic about IT sector’s growth. Speaking to CNBC-TV18, Murthy said IT companies can expect 5-8% sequential growth in the first three quarters of 2010. He is comfortable with the current pricing level, which he felt would protect margins.

Speaking about the US, Murthy said the country is unlikely to see a double-dip as spending revival was broad-based. He also felt employment level should start picking up in the US.

However, he is sceptical  about Europe’s growth in 2010.

Below is a verbatim transcript of an exclusive interview with Phaneesh Murthy on CNBC-TV18. Also watch the accompanying video.

Q: What is your sense—are things alright or any sign of trouble with volume growth for the IT sector?

A: I actually think we are coming out of the recession at what I would call a scorching pace. There are four-five trends which are happening and because of that the base is been set very high; the first is the rebound in financial services, the second is broad base increase in IT spending, the third is the fact that there is significant pent-up demand which has been there for the last 15-18 months because nobody has got what they wanted. The fourth of course is the fact that because of the concerns, which now are probably going away about the double dip recovery, nobody wanted to do any employment. Consequently, outsourcing was the answer and we started seeing the benefits of that, most companies grew 5-7% last quarter.

I anticipate that for the first two-three calendar quarters of 2010 also we will probably see even more accelerated growth rate on a quarter-on-quarter basis. I think I had talked about a 15-17% increase in 2010 over the previous year in terms of the growth of the industry. I probably will want to revise that upwards of 20% now. So I think overall quite positive news for the industry.

Q: When you talk about huge improvement in sequential growth for companies as well, how much of an uptick do you think they can set themselves on to for the rest of this year?

A: I think the sequential growth in my sense it will be probably about 5-8% for at least the first three quarters. After the first three quarters what I anticipate is that either the double dip recession will come in, in which case spending will go down and I do not think that that scenario will actually happen. But because the market will stabilize, employment will start picking up and therefore the pace may come down but for the first two-three quarters definitely we are seeing clear signs of more than 5-7% growth happening on a sequential basis.

Q: Any improvements in pricing that are likely with the kind of volume growth that you are talking about?

A: I think the market has kind of stabilised now quite a bit and because of the stability in the market while I am not necessarily saying that pricing power is there and so on. I think pricing is at a much more comfortable level. We seem to get for the right solutions, the right kind of prices which will protect good margins so, I think 2010 would be a year where you would see pricing compared to 2009, which was a disaster year anyway mildly positive.

Q: Will it continue to be a differentiating year though in that it’s the bigger guys within the IT space who will manage to move in terms of prices and volumes? Do you think this time the midcaps may begin to recover as well by way of business flow?

A: Since the spending rebound is fairly broad base, the bigger vendors have more customers. Therefore, they will see the rebound obviously. Anybody who has customers will start to see rebound. To me the market structure is such that there is a fairly broad based recovery. I think where you will not see growth in companies who do maybe some subcontract work or work through intermediaries. There may not be much of a growth but anybody who is dealing directly with the customers, will start seeing a fair amount of rebound.

Q: What about Europe? It seems to be the problem area from a sovereign perspective and so far it’s lagged the US and its recovery even for large sectors like banks, financial services & insurance (BFSI). Do you see Europe picking up majorly in 2010 or will it continue to be a laggard?

A: I do not hold out too much hope for Europe. The US has come back quite sharply and even the US economy grew at what I would consider at scorching pace for the size of their economy coming out of recession in fourth quarter. Europe on the other hand has fair amount of problems with multiple countries in Europe doing quite badly which is occupying a lot of European attention. With the amount of unemployment, etc. Europe always has been kind of more inward looking economy. I would tend to believe that Europe will not come out with strong growth in 2010.

Q: Have some of the problem pockets begun to recover though for example telecom as a vertical because that impacts a lot of influential names over here whether it is Infosys or Tech Mahindra?

A: I do not know enough about the telecom sector because we do not play enough in it. We do play in manufacturing and financial services. So, I do not have clear trends on the telecom sector.

Q: Are there any fears of protectionism affecting volumes that one should have for 2010 or is that all media talk? It’s not really affecting business on the ground.

A: We are not yet seeing any problems in the US on the ground but I do believe that the Obama administration has a number of agendas on the table, much bigger than this one. By the time they come around to it, I actually also do believe that employment will start picking up in the US. So I am hoping that the talk of protectionism and those kinds of sentiments will start vanishing as employment starts picking up in the US again potentially in third or fourth quarter of this year.

SOURCE: EconomicTimes
DATE: March 5th, 2010

Wipro had recently announced management changes in their top leadership with some of the key folks moving to the Premji Venture Capital foundation and TK Kurien heading the Wipro (Wipro shuffles top management).

Mark Fleming is going to head the companies telecom, media and technology business reporting to Girish Paranjpee the co-CEO of Wipro. T.K. Kurien, president of Wipro Consulting and the company’s telecom and strategic initiatives, will head Wipro EcoEnergy from 1 April.

Wipro is continuing to make a push into hiring some industry veterans for industry vertical growth and also help Wipro grow their consulting business.  

More..