Diligenta, a subsidiary of TCS, had yesterday announced that it had acquired Unisys Insurance Services (UISL) from Unisys Corporation, in lieu of which the company received business worth £250 million for the next six years. With this, Diligenta won business from Phoenix Group (earlier known as Pearl Group) and Old Mutual International. Phoenix Group is an existing customer of Diligenta.

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Wipro , a publicly traded firm recently announced that the son of it’s founder Azim Premji is going to take the role of the Chief Strategy Officer reporting directly to the co-CEO of the firm. Looks like a succession plan for new leadership and keeping the business in the family . Wipro has seen a number of changes and departures in it’s senior leadership and looks like more changes are coming.  The 33 year son of Azim Premji , Rishad will work for the Wipro Infotech group, the largest and most profitable business of Wipro.

Wipro crowns it Prince

Deutsche Bank has moved work back in house from Infosys BPO for some of it’s back office processing. Around 150 people have been offered jobs with the MNC captive in Bangalore at a salary 50% average higher than what they were getting paid at Infosys.

A number of financial services firms with both captives and third party relationships in India are rebalancing their workforce and looking to pull more work in house to get scale.

LINK

As a number of clients continue to be cautious on the economy, off shoring work has steadily ramped up. Less stellar than the earlier growth, the off shoring growth is evident in the quarterly earnings of off shoring firms and the ramp up of hiring targets by these firms.

With a post recession up tick in the demand for off shoring services, a number of Indian firms are getting aggressive about how to find and more importantly keep employees. Attrition rates have slowly inched back up, wage hikes are being announced by companies to hold on to employees and campus hiring is seeing a surge as the concept of bench strength again trickles back. Ramping up for new client engagements and transitions are taking longer as finding the right people at the right price is tougher now.

Table 1: Attrition Rates in Off shoring Firms

Post 2008, when the global economy was in a freeze mode, the Indian firms had reduced campus hiring, limited employee perks, pay raises, promotions. For a number of  employees in this industry, which had only seen a dramatic growth, the slowdown was a tough wakeup call. For a number of these employees, they had limited opportunities to move to and stuck around waiting for the right opportunity. These employees although more wiser in their career tracks are now willing to jump ship for the right opportunity and pay hike and have less loyalty to their employers. At the same time the jump to a new opportunity also is a longer process as employees are now doing their due diligence before jumping ship, specially the middle managers.

Where India has a demographic advantage of a large growing young workforce it does face the challenges of an archaic education system which ill prepares people for real life global workforce and adds to the supply side challenges for global firms. Where in companies have taken the ownership of training their employees and make them more marketable, during the last couple of years when the markets were slow, the firms were reluctant to invest in training adding to the supply side vows.

For companies which are working with these vendors in India, these supply side challenges is a cause of concern. These companies are finding that where the teams have spent time together building and training staff with vendors, key employee leaving causing more disruption than if the same employee was local.

There are a few issues which emerge due to the supply side challenges for companies who are outsourcing work or planning to outsource work.

1. Firms which are outsourcing need to be prepared for increased cost of transition, specially those starting out new as it takes longer for firms in India now to find and on boarding the right candidates.
2. Firms have to be careful that they are not getting the less qualified ( Team B or C or D) staff for their assignment as this has serious downstream impact. A number of vendors would try to pass on candidates which may not be qualified for the task.
3. HR management even if the staff is a vendor staff is a critical part of planning for globalization. The firms have to take a higher degree of ownership to help retain key staff.
4. Knowledge retention strategies have to be revisited to ensure that higher attrition results in limited disruption of business as usual.
5. For clients looking for vendor staff, it is important to get and look for the right level of staffing. In a number of instances we have found that if you look for the superstar all the time, it is not a viable option. Define the role clearly on what you are looking for, and find people that fit the role and can grow in that role.
6. Training and replacement planning for staff leaving has to be planned as part of the discussion with the vendors to ensure that the companies are not being charged for higher attrition or staff turnover. Plus firms have to retain more onshore staff to deal with higher attrition offshore (increased cost).

Overall the supply side challenges will continue to exist with emerging economies where the gap between supply side and demand both domestically and globally is very high.  That coupled with the fact that the job creation in the US markets is still lagging and there is a talent base available in the US which is willing to work for less.

For firms which are outsourcing, planning for supply side challenges in India coupled with availability of local talent should be an important part of looking at their outsourcing roadmap on how they operate today and for the future.

Mohit Sharma is the CEO of Corrystone Global Partners. Corrystone is a specialized globalization  firm providing advisory, training 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, manage operational risk and setup presence in India. Contact us at info@corrystone.com  to learn more about how we could make your journey more productive by leveraging our experience.

In an interview with FirstSource new CEO, Matthew Vallance the article talks about the future growth strategies FirstSource is looking to grow their BPO business ( LINK).  To compete with the larger players, firstsource which had an early mover advantage and a strong domestic backer in India is looking at ways to grow. Despite the strong local backing and a number of acquisitions, partnership which FirstSource made, it has not been able to scale it’s business or grow a brand beyond the local markets.

With the new CEO looks like FirstSource is looking at building deeper specialization, looking at carveouts, expanding geographies to places like Australia and looking beyond partnerships to directly go to market. Firstsource through it’s acquisition has over 2,000 people in the US and 3,500 people in the UK ( total employee strength as of end of March was around 25,000). Revenues for year ending March 2010 were around $413 million of which 60%  came from the US , 27% from the UK and 13% from APAC. Their attrition rate for the March 2010 quarter was 43.5% for India and Philippines and 34.5% in US and UK.

Progresso is a centrally hosted management information platform that provides relevant data, tools and services directly to schools, parents and local authorities. It will reinforce Serco Learning’s position as a provider of high quality and innovative solutions in education, and over time will replace Serco’s existing platform–’Facility’.

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The quarterly results are out for most of the offshoring vendors large and small for the quarter ending June 2010. Where the results show a back to business as usual for larger firms, the smaller and mid size firms continue to struggle and loose market share.

The recent article in EconomicTimes points to this growing divide between the small/mid-size and larger firms. ( LINK).

A number of these smaller firms are trying to build vertical expertise, go deeper within certain domains but the overall change in marketplace is making survival and growth harders for these smaller and mid size firms.  From a price point perspective the larger firms are willing to offer the same price as the larger firms. Clients from a risk perspective prefer dealing with larger firms.

 The gap is clear now and the smaller and mid size firms, those which will survive on their own have to be focused on vertical segments, continue to actively manage their cost, create partnership for larger deals and continue to build a branding to mitigate client risks ( real and perceived).

From a customer perspective looking to offshore, the smaller and mid size firms do offer certain advantages specially if the scale of operations , IT these firms are looking to offshore is not very large. The challenge for companies looking to offshore is that if the scale is too small, offshoring will not provide the benefits and if it is too large , smaller and mid size firms will not be the right fit.

With a number of our clients we help them go through the exercise of understanding the scale and scope of their operations and IT to determine the right fit for them. Larger firms currently chasing multi million dollar deals may not be the right fit for a number of the smaller/mid size firms.

Though the market for offshoring is mature and industry players are all well known and so are the processes, upfront work to understand the scope and scale of your initiative is critical to ensure it works in the long run.

Wipro Technologies, the global IT services business of Wipro Limited, announced that it has entered into a five year agreement with ArcelorMittal, a steel company, to consolidate and migrate its messaging systems to the Microsoft Exchange 2010 messaging platform.

Wipro will host the new global messaging system on its hardware, hosted at six ArcelorMittal datacenters, spanning across North America, Latin America, East and West Europe and Asia. As a critical component of this engagement, Wipro will secure ArcelorMittal’s global messaging system using Anti-Virus, Anti-Spam and Archival solutions. Wipro will also manage ArcelorMittal’s global messaging systems for the entire period of the contract. This engagement will help transform ArcelorMittal’s messaging environment and curtail their global messaging spending.

Wipro will use its Next Generation Global Command Center (GCC) for rendering the global messaging management services.

“We believe that Wipro is the right choice for transforming our messaging systems into a state-of-the-art service. This is vital for us as today’s communication and collaboration is highly dependent on this service,” said Patrick Vandenberghe, Group CIO, ArcelorMittal.

“We are excited to further enhance the existing partnership that we have with ArcelorMittal. We will implement Wipro’s best practices in Project Management and Infrastructure management space to help ArcelorMittal transition smoothly to a highly available, resilient and transformational Global Messaging System,” said Deepak Jain, Senior Vice President and Global Head – Technology Infrastructure Services, Wipro Technologies. “Wipro’s technology and project management expertise coupled with global remote infrastructure management delivery model will help ArcelorMittal achieve their strategic objectives.”

N. S. Bala, Senior Vice President and Global Head, Manufacturing Business Unit, Wipro Technologies, said, “Our global engagement has been strengthened further with this deal and we are happy to be a strategic partner to ArcelorMittal. I am confident that our extensive transformational capabilities and experience in the steel industry will enable us to continue to deliver significant benefits to ArcelorMittal.”

The author’s view point is that in the long term, each country which may have a demographic advantage faces equally daunting challenges to overcome to take advantage of the benefits and that US may be in a sweet spot down the road.

Here is some baseline data:
By 2050 Japan and Europe will see working age population shrink by 30 mil and 37 million .
China’s working population will keep growing for 15 years and then turn down . China will have 100 million fewer people in workforce than today.
India will grow by 300 million working age persons over the next 40 years.

300 million additional people in workforce. 

What will stop India for achieving the growth of nation’s wealth and leverage a workforce to deliver to the world ? According to the author archaic labor laws,bring more women in workforce & invest in education and training. If all the roadblocks are removed it could add 4% point to economic growth according to Goldman Sachs.

Add to the challenges  narrowing the rural-urban divide, building infrastructure. A tall order but achievable if there is the will.

Q1,2011 Earnings: Quarter Ending June 2010

FACTS

• 38 new clients added.
• # of active clients – 590
• 341 million dollar clients, 26 50+ million dollar clients
• Top 10 client contribute 26.1% of revenue
• 137 Global Fortune 500 as clients and 124 US Fortune 500 are clients
• Projected to hire 36,000 this year vs earlier forecast of 30,000. Increased numbers are due to projected demand and also to mitigate attrition risks ( 2,000 for growth and 4,000 for attrition)
• Pricing stable but overall pricing came down by 1.6 to 1.7% this quarter
• $ 15 – $16 million dollars in visa expenses per quarter
• Retail Spending and Energy & Utilities spending growth is because of discretionary spending increase.

METRICS

• Revenues – $1.358 billion QoQ – (+4.8), YoY – (+21%)
• Net Income – $336 million QoQ – (-6.6%), YoY – (+4.2%)
•  Earnings forecast for next quarter – between $1.413 to $1.427 billion, YoY growth between 22.4% and 23.7%
• Earnings forecast for next year – between $5.72 billion and $ 5.81 billion. YoY growth forecast of 19% to 21%
• Cash – $ 4.658 billion
• 8,859 addition of gross employees, net addition of 1,026 this quarter
• 114,822 employee strength end of June 2010
• 108.495 software employees ( 95,863 – billable, 5,029 Banking Product Group, 7,603 trainees)
• 6,327 – Sales & Support
• Attrition Rate – 15.8% ( compared to 13.6% last quarter, 11.6% 2 quarter prior) BPO had larger number of people leaving 5,411 compared to 3,589 last quarter.
• Majority of the people leaving are those between 2 to 6 years of experience
• Infosys BPO employee strength – 18,609, Australia – 394, China – 1,765, Consulting – 605, Mexico – 414, Sweden – 17, Brazil – 116
• Revenue break up – North America – 67.3%, Europe – 20.3%, India – 1.7%
• Application Development – 40.8%, BPM – 5.7%, Consulting Services and Package Implementation – 24.9%, Infrastructure Service – 6.9%, Product Engineering Services – 2.1%, SI – 4.2%, Testing Services – 7.3%
• Insurance,Banking – 36.1%, Manufacturing – 19.5%,Retail -13.2%, Telecom -14.1%, Energy & Utilities – 6.0%
• Subsidary Revenue (millions USD)  BPO– 78.14, Consulting – 38.55,  China – 15.81
• Net Income (millions USD)  BPO– 6.42, Consulting – 3.25, China – 1.69

LEARNINGS

• Europe markets are slower in recovery and growth in these markets will continue to lag and be slow to come back. A number of outsourcing vendors are cautious about the European market growth
• Budgets for firms are closed and the firms will spend the budget this year compared to last year when the budget were reopened during the year.
• Larger firms continue to do well and grow and the gap between smaller and larger firms continues.
• Offshoring is becoming more commoditized and risk factors associated with offshoring are part of standard operating procedures for firms doing global business.