Outsourcing the prevalent trend of 2003

2003 changed the face of IT like never before. It was a different kind of year for the Indian information technology (IT) services industry. Multinational IT enterprises suddenly scrambled to expand their Indian operations.

A huge backlash against the outsourcing of jobs from the US and other western nations to countries like India developed. And the US cut the number of H1B visas it offers foreign workers. Some Indian IT companies have responded by trying to move more work offshore faster to reduce the dependency on visas and by seeking local recruits for on-site positions.

With outsourcing becoming the talk of the town, Indian IT companies started bagging large orders worth $50 million to $100 million, up from $10-25 million earlier. Foreign companies started working with multiple partners to spread their risks. The potential outsourcing alternative to India -China which continues to be debated every other day in corporate boardrooms.

With companies like Accenture, IBM Global services making an entry, it has made the Indian IT services industry sit up and acknowledge that they need to do a lot to compete in this ever changing competitive landscape and have to keep improving day after day.

When these companies announced their offshoring plan, most Indian IT companies said complacently that these MNCs could not scale up fast, that this is a people's business, a process-oriented business and that most Indian global companies were at CMM Level 5.

The backlash against outsourcing and the New Jersey bill against outsourcing state government jobs to India have clearly demonstrated the importance of IT professional and trade bodies making an impact in the US and Europe, of developing a good image for the industry.

India's IT companies may have arrived on the world stage, but they won't be content at being just global companies. They want to secure a position among the Global 10 in the years to come.

Hughes Software BPO strength to double in 2004

With expectations of a contribution of about six per cent from its business process outsourcing division, Hughes Software Systems will double the division's current manpower strength of 300 in 2004. It already has a workforce of 2,200, and would be adding another 1000 professionals to work upon wireless solutions and network management products.

Arun Kumar, president and MD of Hughes Software Systems, “We will more than double the manpower in the Hughes BPO division next year”. He also added that the division is expected to contribute six to seven percent to the overall revenue of HSS, though at the moment it contributes only about 1 percent. He also hinted that talks are at an advance stage to bag a few non-HNS (Hughes Network Systems) clients for the BPO division. HNS is the parent of HSS.

The Hughes BPO division provides online customer care services using voice chat and e-mail across multiple industry segments like IT, networking, telecom, automotive, insurance, banking and financial services. This BPO division was set up by Hughes in the last fiscal.

U.K minister backs BPO to India

Outsourcing jobs to India has created many controversies in U.K. But that fact hasn't deterred Trade and Industry secretary Patricia Hewitt in giving her full support to British firms moving work to India.

On being asked that what she thinks about the issue of the political workers having pressed for policies that says that contracts should not be placed with companies that decide to open call centers in India. For that she said what they are fighting for is short-term benefits, but they don't see the long-term benefits that it will bring to the consumers. Trade unions are campaigning against a number of firms that are switching work to Indian call centres because of the threat to jobs in Britain. They don't understand that business process outsourcing saves costs to the consumers.

Meanwhile the U.K. based insurers have put together the first specialist cover for companies 'off-shoring' call centre and back office operations in India and elsewhere amid warnings that such relocations involve huge risks.
This insurance cover becomes very important because 50 per cent of all outsourcing contracts fail within 12 months." said John Eltham, director and head of special risks at independent broker Miller Insurance Services. 'Our clients are now asking for insurance as part of their risk analysis', he added. So an insurance package helps companies against the risks associated with business process outsourcing.

But although bigger companies are ready to take the plunge of outsourcing, the risks of business process outsourcing are preventing the small players from going ahead. Some of the risks involved with off shoring include discrimination, government interference, forced abandonment of operations, war and political violence.

Certainly if operation of business process outsourcing goes well, it offers a lot of benefits to the company in question and offers cost savings up to 80pc in certain cases.

Aon, the world's second largest broker, has also put together an outsourcing insurance package. Its director of counter-terrorism and political risk division said that, 'The rate at which companies are off-shoring significant parts of their operations to cut costs, the key lies in quickly relocating those operations, if disaster strikes. And that is very vital if they wish to protect their revenues and reputation'.

The mood is very positive in Britain about outsourcing business processes to India. And if the success rate of such operations is high then it could have more U.K. firms outsourcing to India.

U.K. budget can further open gates for BPO to India.

Business process outsourcing deals come pouring down to India. If U.K. Chancellor Gordon Brown's pre-budget report is anything to go by, India can look forward to more outsourcing contracts from UK banks and insurers in the near future.
In his proposals on Thursday, Brown hinted a possible clampdown on value added tax (VAT) loopholes, which allowed outsourcing firms to avoid the levy on contracts, which will save millions of pounds for the exchequer.
If the new proposal comes into play India could be the biggest beneficiary, since more UK companies could transfer their call centre and back office functions to India to avoid incurring VAT.
"India is attractive for other reasons apart from VAT, such as the lower labour costs. But it is another reason for banks and insurers to look offshore when they are considering outsourcing", Mr. Kendra Hann, head of London VAT at Deloitte accountancy group was quoted saying. 'If one has to claw back at the 17.5 percent tax, the best way in which do it would be to move offshore. New proposal could inadvertently help offshore suppliers, which are not subject to this tax', said Mr. Nigel Roxburgh, co-founder of The National Outsourcing Association.

Business process outsourcing: the latest buzz

The most ringing these days is customer service and call center outsourcing, also known as BPO (Business Process Outsourcing). The market for offshore outsourcing (to low wage countries) is growing with a whopping 40% this year. Now is that phenomenal or what.
In these days of tight budgets and heightened attention on ROI (Return on Investment) and TCO (Total Cost of Ownership), companies are taking a good look at what they are in business for, and what they are best in. This focus on the core business has lead to the selling of complete branches of companies. Now, businesses go even further by taking a look inward, in search of generic processes to outsource, because now they want to focus only on the core areas of their strength.

Benefits of Business Process Outsourcing:

1.The #1 reason for outsourcing is, of course, to lower costs. Outsourcing companies can have lower rates because of the greater efficiency, but also through economies of scale, which actually means that fewer personnel is needed for servicing the combined contracts than when each company would organize it themselves.

2. Lets companies focus on core areas of their work.

3. It’s easier mix more junior and senior staff, which is a near to impossible feat if you have just two customer service reps!

Pitfalls of outsourcing:

1.Outsourcing projects often fail on unclear expectations at both the customer and service provider.

2. Anxiety for outsourcing is often fed through the loss of operational control. You no longer handpick customer service personnel, and you are much more limited in directing the service. Also, you may have to fit in the standard approach of the service provider.

Advent of offshoring:

With the advent of off shoring, a lot of vendors are now operating the market. Although the cultural differences can be enormous, especially when outsourcing to India. Looking at both the benefits and pitfalls of outsourcing call centers and customer service, it is clear that there are clear opportunities for reducing the level of costs for organizations, however with its own risks.

We'll see resistance to BPO: Kiran Karmik

"We'll see some resistance to BPO, even though America knows the benefits of outsourcing, it is I wouldn't say resigned to outsourcing", Mr.Kiran Karmik, NASSCOM president and the, 'Forbes face of the year', said. About Mr.Kiran Karmik, it is said that he is a 'man trying to direct the path of the off shoring tsunami'. India is at the moment having a blast with the BPO boom, but does America really has no other alternative? Even though American firms have realized that BPO adds value and does saves a ton of cash, but the negative backlash still lurks in the background.

But how well is the Indian BPO and it industry really doing? India does claim to be ahead of China, Malaysia and other Asian countries, but are we really up there?
Yes, says Mr.Karmik. 'India is ahead of countries like China in areas related to software development etc, but we do lack in infrastructure, where China is ahead'.
One other question that needs some answers is, how well are the small BPO players coping up with this negative backlash? For which he replied that, 'of course they are the ones who get hurt the most in such a scenario. While the bigger companies have the resources and know how to deal with such ups and down, the smaller players on the other hand could get hurt even with slightest changes in the policies'.

'The mood in the IT industry is definitely upbeat', he added.

Perot BPO arm to add 600 in Chennai

India continues to be a pretty happening destination, for the multinationals keep coming in huge numbers. Now the US based Perot Systems Corporation's, 100 per cent subsidiary and BPO arm, Vision would be adding 600 seats to its already existing 500 strong workforce in India's southern cosmopolitan, Chennai.

David Cohen, Managing Director, Pert Systems Europe Ltd said that, "while Bangalore and Noida would be our application and infrastructure management centers, Chennai though would be our geographical location for our BPO operations in India".
Texas based Perot has made a move in to India through a joint venture with HCL, by the name of HCL-Perot Systems (HPS). Perot has acquired the stake of HCL technologies for a sum of $105 million cash. This move has been made with a strategy to make a direct presence and to leverage from Indian outsourcing capabilities.
India by the way happens to be the largest BPO workforce for the company and plans to become bigger. BPO contributes roughly 10 per cent to the company's $1.3 billion revenue posted during the last fiscal.

BPO backlash will hound IT firms

Although the year 2003 was a boom period for the Indian IT industry, analysts are not fully confident in predicting a bright future. Y2K3 showed clear signs of revival, for the globally recognized Indian IT industry. Analysts and even industry representatives are backing off from predicting the business to be as bullish if not more in 2004 as it was in 2003.

Their fears arise from the ever-increasing protests from the west, coupled with complaints on lack of quality of service. Indian firms have shown their resilience in 2003 and proved that they are the most attractive outsourcing destination. And even though the protests will continue and be a cause for worry, but the year 2004 does look relatively good for the Indian IT Industry.

India's main strength in projecting itself as an extremely capable outsourcing superpower has been its vast pool of English speaking manpower, its education system and training programmes. The fast growing BPO industry has almost turned the country into an electronic home-keeper to the world, taking care of a host of routine back office operations for the multinational giants.

IT and BPO to remain hot. Around 2.8 lakh jobs in 2003-04.

Even though major multinationals like Dell and Lehmann Brothers are starting up to go against off shoring to India, It is not something to get worried about. For this industry is here to stay.

The sprawling 50-acre, training center of Infosys in Bangalore is overflowing beyond capacity. Over 1,000 young and fresh recruits are busy readying themselves to take on the software projects at the Bangalore center.

But this hiring at a breakneck speed is not just an Infosys phenomenon. The whole industry is in that, recruitment mood. That's because IT off shoring has hit big time in India. Both local and multinational IT firms are scaling up their operations here for IT services and Business Process Outsourcing (BPO). The industry estimates a phenomenal 2.8 lakh IT jobs in 2003-04 adding up to the already strong base of 6.5 lakh IT professionals in India.

Infosys, Wipro, Accenture, IBM global services India, Transworks, Vertex, Microsoft, Aviva, HSBC Bank, Lloyds TSB, Prudential, National Rail Inquiries of UK, Siemens and Bank of America etc are moving thousands of jobs to India. According to Boston Consulting Group vice-president and director K James Abraham, India has the potential to generate 30 million jobs on incremental basis in outsourcing business by 2020.

The tremendous impact of this booming job market is clearly visible. The high demand for skilled and literate manpower has increased the salary levels. According to the recent Nasscom-Hewitt study, the average salary in a BPO company rose by 15.4 per cent in 2003, and by 14.5 per cent in an IT company. The road ahead will see the industry mature overall.

Chennai Call Center Executives to be trained by British Institute

The Sunderland Supersight Academy, A British Academy, is all set to train individuals and employees from call centers. The training will be for a total period of 4 months. The training will basically comprise of "neutralization" of accent, and " cultural sensitization" to their customers. If the need arises, some students could also be sent to Britain, to learn more about their firms' customers, officials of the institute said. Mr. Mark Nicholas, general manager of the academy, announced its launch on Thursday, saying that, "After the industries like shipping and manufacturing, it is now the turn of the services sector to plateau in Britain. I don't see Britain averse to outsourcing".

This academy is being set up by Foresight group, a conglomerate, with varied interests in areas like shipping, oil exploration and leisure, with Sunderland college, which is the fifth largest college in the U.K. Around 1,500 resource people are expected to be produced every year. Foresight's Indian subsidiary will be known by the name of Supersight.
Supersight's executive director said, that, "By the year 2010, a mind boggling, one million professionals will be needed to cater to the outsourcing that is going to flood the sub continent".

"When a country provides around 60-70 percent reduction in costs to companies, it is but natural to outsource your operations there. So in this regard India does have a strong case. India is a country with tremendous potential for BPO, as companies get cheap and skilled, english speaking manpower at almost half the cost," he added. "Though the only glitch now seems to be the localized accents, which is not a very tough ask to change, since the urban populace is well exposed to American and U.K. kind of English through English movie channels and sitcoms. This problem could well be solved with some training", said Nanban. Although it is a known fact that India boasts of a rich and literate pool of talent, one thing that needs to be checked out is, whether this arrangement will suit the end customer", he pointed out.

The half a dozen specialty teachers of the academy from both, Britain and India, will impart to the students, training in skill sets, such as, listening skills, customer care know-how, telemarketing capabilities, call handling and stress management techniques. Apart from this the teachers will also visit each other's countries, on a regular basis.

"In our course module, we haven't gone for any particular accent, say, an American accent or an UK accent, but we have focused on a "neutral accent module", Nicholas told IANS. He also said that, "It is difficult to pick up a foreign accent, even after months of training, and is almost impossible to do so in a matter of 4 months, and hence the course structure".
In this way, the academy hopes to solve the challenges that the Indian call centers are facing today, i.e. trying to copy American accents and finding it difficult to be understood by the customer. This he hoped will help to, "fill in the gaps in the Indian customer care industry AND MAKING IT MORE COMPETITIVE in the process".

Call Centers and back office operations (BPO) blooming in India

Five years ago, the concept of BPO was somewhat awful, strange and challenging for the companies who were willing to start with outsourcing as well as in sourcing operations from India itself. Today, however the overall scenario of the BPO companies in India is altogether different. What seemed to be a difficult job has now turned out to be the most lucrative job for about thousands of young bachelors who otherwise would have suffered the bitter fruits of unemployment.

India, has now become the favorite 'spot' for prospective call center companies that wish to open their back office operations (BPO). Zenta group, which is backed by the Hiranandanis, is planning to expand its BPO Operations by establishing a second set up in Powai, Mumbai. The first set-up, which is also in Powai, Mumbai is presently recruiting 1500 Customer-care representatives. The company today announced its strategic acquisition of business process technologies for $12 million. The company would be providing services that are based on the global mortgage business.

Priya Hiranandani who is the CEO and founder of the company said that from the consumer finance business in the US, global mortgage business is the largest growing area. "If one buys a home in the US, one has to sign 40,000 pages to get through and eventually buy the home. So, the scale of opportunity in terms of processing paper is huge” she further added.

The company, which is in the process of acquiring the Indian operations of Nasdaq-listed software development firm Sanchez Computer Associates, is also looking to set up operations in another Indian city.

BPO flood to India likely from UK

A flood of
outsourcing contracts -- especially from banks and insurers -- is likely to come India's way from the United Kingdom, reveals the pre-budget report presented on Thursday by UK Chancellor Gordon Brown.

The report proposes to clamp down on a method of avoiding paying value added tax, said The Guardian.

Companies are thus likely to shun British outsourcing businesses and choose foreign firms -- especially those in India and other low-cost Asian destinations -- to provide services such as call centres and back-office processing, if proposals to close a tax loophole are introduced, The Guardian said.

India, feel experts, might benefit the most from Brown's proposal when it is implemented.

"Companies who outsource their services are exploiting VAT regulations on grouping to avoid paying the tax. Customs & Excise has been trying to stop the practice, but the government is poised to start consulting industry about legislation to make it tougher to avoid VAT through this route," said The Guardian.

"India is attractive for other reasons apart from VAT, such as the lower labour costs. But it is another reason for banks and insurers to look offshore when they are considering outsourcing," the Financial Times quoted Kendra Hann, head of London VAT at Deloitte, as saying.

This will drive more companies to India because outsourcing to another country does not incur VAT. The measure takes away the loophole that was there for companies to mitigate VAT costs on outsourcing, said FT.

"It may drive the move to India and other cheaper countries further, if the UK outsourcing sector has to charge VAT. Or they may choose not to outsource at all," Hann was quoted as saying.

The pre-budget report said that 15.7% of VAT revenues due did not come in last year. However the VAT receipts this year are £2bn ahead of forecasts, leading the government to hail the VAT strategy a success.

It will add a further 450 staff to the VAT compliance department over the next two years to target those who routinely avoid tax and to chase tax owed to the Treasury coffers.

Hann said the change could affect outsourcing companies including recruitment agencies, IT companies and logistic and support services firms, reported FT.

A spokesman for the Treasury rebutted the argument, said FT. "The government has looked carefully at least twice at the issue, and could find no evidence that VAT is a critical factor in outsourcing decisions," he said. "When we take action to stop blatant VAT avoidance, we do not expect this to affect the market for outsourcing," the FT quoted him as saying.

On top of the extra tax income from clamping down on VAT, the government is raising extra revenues through increasing tax on trusts used by high income individuals, tackling avoidance of duty on spirits and targeting the construction industry, FT said.

It will use the additional revenue to pay for increasing the child tax credit and other measures, the newspaper added.

Accenture on hiring spree in India

Information technology consulting company Accenture on Wednesday announced that it would double its staff strength in India to 10,000.

Marty Cole, managing partner of outsourcing business, said that new additions would occur over the next 12 to 14 months. The company currently has 4,300 staff located in Bangalore and Mumbai.

The outsourcing business in India is booming with more and more American and European companies moving their backroom operations as well as software development centers to India, where they can tap the country's skilled but low-cost labor force.

In July Oracle said it intends to double its work force at two research centers in India to 6,000. Storage maker EMC in November said it plans to invest $100 million in its development center in India over the next five years.

Siemens software arm likely to bag Rs 250 crore order

Siemens Information Systems (SISL), the Rs 300 crore software development arm of Siemens India, is set take off with a mega Rs 250 crore order, expected within a week from an European government.

Also, the German conglomerate, having decided to consolidate its global software business into SISL, has placed four directors from parent Siemens AG on SISL board.

SISL has also picked up a 49 per cent stake in a Siemens group BPO outfit—Siemens Shared Services Pvt Ltd, a subsidiary of the US-based Siemens Shared Services, for Rs 3 crore. The acquisition is aimed enhancing SISL’s presence in the upcoming BPO space. The company is also scouting for inorganic growth opportunities and is open to acquiring banking and finance services sector units.

Anil Laud, managing director of SISL, said, “We have been growing at steady rate of 17 per cent. Now with our new plan of action in place, our growth rate from the current year onwards would easily be in the range of 30-50 per cent. We are in talks with software companies specialising in banking and finance for acquisition.”

SISL’s order book (unexecuted order value) as on September 31 stood at Rs 159.2 crore.

Laud refused to comment on the new Rs 250 crore order but sources close to the development said that SISL is close to bagging the mega deal from an European country and the deal is expected to be signed within a week.

Around 15 per cent of SISL’s turnover comes from domestic market while export market accounts for around 85 per cent. “Most of our exports are in Euro and we are well positioned to capture the benefit of Euro appreciation,” Laud explained.

Siemens AG top guns to join SISL board include Erich Reinhardt—group president Siemens medical solutions, Friedrich Froeschl—head corporate information and operations, Anton Huber—vice president and member of the board (automation and drives) and Brend Regendantz—vice president and member of the board (Siemens Business Services). They are, however, not members on the board of Siemens India.

The group’s global sofware operation is structured under Siemens Business Services which reported a revenue of around euros 5.77 billion (around Rs 29,000 crore).

Govt to sell BPO as a career
The government is coming out with a communication campaign to position business process outsourcing (BPO) as a career of choice.

Officials said such a move was being taken to ensure that the fast-growing sector did not face a manpower shortage. According to estimates by the National Association of Software and Service Companies (Nasscom), the Indian business process outsourcing sector will generate 1.1 million jobs by 2008, against 170,000 now.

But studies by human resources consultants have revealed that people do not look at business process outsourcing as a long-term career option.

The proposed campaign, which would include advertisements, road shows and seminars, would help to change this, officials pointed out. They also said the government was roping in industry associations like Nasscom and the Confederation of Indian Industry (CII) in this project.

The campaign, which will take off after the Assembly election process is over, will be co-ordinated by the ministries of information technology and human resources.

The programme will address areas like the employment and growth potential in the business process outsourcing sector. “There is a need to project the employment potential in the sector and promote it as a career of choice,” said an official.

The promotional campaign will target smaller towns and rural areas. “Business process outsourcing is an accepted profession in urban areas and big cities. People in smaller towns and rural areas do not know about the job opportunities in this sector. The campaign will aim at creating awareness about this profession in such areas,” said the official.

The official said the government felt that the country needed to have an overall game plan to beat competition and increase its share in the global market. “One of the biggest issue that the domestic business process outsourcing sector needs to tackle is the availability of quality professionals,” said the official.

The officials also said the government was of the view that state governments should take steps to include business process outsourcing in college and school curriculums. “Education being a state subject, it is the responsibility of the state government to ensure training,” the official said.