China eyes Indian outsourcing cos for software solutions

As top Chinese enterprises such as Bank of China and China Telecom seek to globalise their operations, they are increasingly turning to multinational and Indian outsourcing firms, including IBM and TCS, for deploying and maintaining standard software solutions, giving them an edge over local service providers.

In many ways, Chinese customers’ shift towards global and Indian vendors is reminiscent of how top Indian customers such as Bharti Airtel preferred an IBM over domestic suppliers around two decades ago for modernising their IT and business systems.

While state-owned and local Chinese software services suppliers, such as Digital China Holdings and Neusoft, continue to work with the country’s large customers, IBM along with TCS and others are being preferred for large, complex outsourcing contracts by customers such as China Telecom and Bank of China.

“A fragmented local vendor landscape and a domestic market dominated by wholly foreign-owned enterprise customers means that it will be the major western and Indian outsourcing vendors that will reap the rewards,” said Patrick O’Brien, senior analyst at the UK-based research firm Ovum. “Apart from scale, local service providers also lack experience in handling large outsourcing contracts, something global and Indian firms are really good at,” he added.

While IBM earned nearly $690 million from China’s almost $10-billion IT services market last year, both TCS and Wipro have started making progress as well. TCS on its part, has recently won several large contracts beating local Chinese rivals, including over $100-million deal for implementing a core banking software at Bank of China.

Until recently, most companies in China were running homegrown ERP and other systems, however, many of them are now planning to deploy standardised solutions from SAP and Oracle, this is where we have better expertise,” said Girija Pande, head of TCS’ Asia business.

Chinese banks have not yet made significant technology investments, compared with their US counterparts. While only 10% of the country’s banks offer online banking, there is only one ATM machine in China for every 10,400 citizens, compared with one ATM for every 735 citizens in the US.

A core banking software based on modern platforms from TCS or Infosys will help these Chinese banks centralise their retail and wholesale banking operations, and also enable them to cope up with increased lending activities, as required by their government.

“Banking and telecom customers in China want vendors with global expertise, we recently advised one of the top three phone firms in China to go with IBM and TCS,” said an outsourcing expert, who consults Chinese customers on their outsourcing strategies. He requested anonymity because he is not authorised to speak about his engagement with these clients.

For Indian tech firms, such as Infosys and TCS, the past experience of working with large customers in the US and Europe is paying rich dividends. “Local Chinese outsourcing providers have not been providing services across the IT/BPO services spectrum, but are gradually trying to move up and address multiple market needs,” said Srinath Batni, who is a board member of Infosys’ Chinese subsidiary.

Apart from local Chinese customers, Infosys is also able to serve its global customers rolling out their operations in the country. For instance, Infosys’ core banking software Finacle has made some progress in China with significant wins at China Bank and ABN Amro’s operations in Greater China. Companies such as IBM, TCS and Infosys are also able to bring their project management experience to serve large Chinese customers.

Tata Comm, Infosys & four others in deal with US cos

Six Indian companies, including Tata Communications, Infosys Technologies and Apollo Hospitals, have signed separate collaboration agreements with US-based firms for joint business development at Washington on Monday.

The agreement signing ceremony, organised by industry body CII, coincides with the state visit of Prime Minister Manmohan Singh to the US.

Data services provider Tata Communications has inked a Memorandum of Understanding (MoU) with Tyco Electronics to work together in providing additional connectivity and transmission, using dark fibers on the submarine cable system.

Indian IT major Infosys Technologies has signed a multi-year enterprise agreement with Microsoft, to work together in areas like databases, besides infrastructure and application software.

Apollo Hospitals has signed an MoU with stem cell therapeutics company StemCyte to establish a cord blood bank facility at its Ahmedabad-based hospital.

Drugmaker Cadila has joined hands with biotech firm Novavax to support production of key vaccines in India, including the recently-developed H1N1 Pandemic Vaccine. Jubilant Organosys also entered into a joint venture with two US institutes — University of Alabama and Southern Research Institute.

Europe is still distant for Indian IT

Indian IT firms have been beefing up their focus on the European market in the wake of the US downturn. While this potential market, especially continental Europe, is large, it won’t generate proportionate opportunity in the next three years, according to Forrester Research.

Sudin Apte, principal analyst, Forrester Research, said that at present Europe appears to be a lucrative opportunity which is not achieving its targets vis-à-vis the traditional offshore sales story. “It is a huge challenge and only providers who are culturally fit have a better chance to succeed,’’ the analyst added.

A study conducted by the analyst firm — Continental Europe: Growth opportunity or never ending sales cycle — highlights the fact that for Indian service providers European business is difficult to realise. The issues they face include highly federated decision making in European firms, complex procurement processes and contracting terms, language barriers and political relations with India, including the visa policy.

Apte said that there are possibilities of work alliances coming from Europe, but the business is dominated by the UK, which is more like the US market. Offshoring from continental Europe is still in a stage of infancy with only companies with global operations willing to pursue it.

India’s IT/BPO export figures with Europe is presently about $14 billion with UK accounting for $9 billion and continental and nordic regions contributing $5 billion. It has a small base and the deal sizes are very small, said Apte.

According to him, the advantage that US majors like IBM, Accenture and HP have over Indian firms is that they have been in Europe for a longer time and have invested heavily in setting up development centres offering broad-based solutions in several countries.

“Indian firms have started to set up near-shore and local centres, but most have capabilities in particular services or verticals,’’ said Apte. He argued that Indian companies and their sales model will have to redefine the cost structure, their value proposition, and cultural affinities to become successful.

Wipro bags Australian univ deal

Australia's University of Canberra, which awarded an outsourcing contract to Wipro in May earlier this year, plans to bring down its operational costs by up to 40 per cent over next three to four years, and focus better on its core business of teaching and research.

The University of Canberra, along with other Australian educational institutes are expected to spend around $650 million on different IT initiatives in order to modernise their processes, bring down operational costs and compete better in the global education market.

“There is a real competitiveness happening in education and I want every spare dollar to go into teaching and research”, said professor Stephen Parker, vice-chancellor and president of the university.

The university decided to outsource when it felt its IT support was expensive and not as effective as it should be. “It was a new world to me and we linked to the people in India who can do such things,” said Mr Parker.

Bruce Lines, registrar of the university added that offshoring of services was not an easy choice because of anti-offshoring sentiments in Australia.

However, the university decided to go ahead with outsourcing in order to save 30-40 per cent in operational costs, and manage different applications and data records of almost 10,000 students better.

“I almost fell off my chair when somebody mentioned the term offshoring, but gradually we realised that it is more about efficiency gains beyond pure cost savings,” he said.

Universities in Australia are also expected to use some $350 million infrastructure grant from the government towards modernisation of their processes and administrative systems.

“Education is Australia’s third biggest export market. There is a huge potential to tap this unexplored market, where universities need huge IT support not only to maintain administration, but also for high end research and development,” said Kannan Natarajan, general manager at Wipro for Australia, Asean and Middle East Markets.

Meanwhile, the university did face backlash when it announced its contract with Wipro. “We realised that it makes sense not only for cost benefits, but also because there are people who can do a job better than us,” said Mr Parker. “We are living in globalisation which is about exchange and it is not one way,” he added.

As educational institutes prepare to address a growing market, their investments in modernisation of different systems is likely to increase.

Syntel rated top IT outsourcer on Forbes "200 best small companies" list

Syntel, a global information technology services and Knowledge Process Outsourcing (KPO) company, announced on Friday that it is the top-ranked IT outsourcing company on Forbes Magazine's "200 Best Small Companies" list for 2009.

Syntel jumped more than 60 spots on this year's list, which ranks the fastest-growing companies in America with annual revenues between $5 million and $750 million.

In order to be named one of Forbes' "200 Best Small Companies," firms are evaluated based on a number of criteria looking at both short and longer-term performance, including sales, profit, and earnings-per-share (EPS) growth rates, return on equity, and stock price.

Syntel, which has been named to the list for three consecutive years, jumped more than 60 spots to rank 27th overall. Syntel's ascent was attributable to strong growth in EPS and return on equity, as well as stock performance that ranked in the top 10 relative to the industry.

"It's an honour to receive this recognition from Forbes," said Keshav Murugesh, CEO and president of Syntel. "Syntel's performance over the last year has been very strong despite a difficult economic environment, which is a testament to the passion, talent and dedication of our employees worldwide. We will continue to focus on our core strengths of delivering flexible, innovative solutions to help our customers increase efficiency and maximise their technology investments."

India is morphing into a global R&D hub, but can it ever take on Silicon Valley?

When Americans think of the Indian technology sector, they still perceive a nation of call center workers and low-level computer programmers administering databases and updating websites. But while the West was sleeping, Indian IT morphed into a giant R&D machine.

Indian companies that started out doing call center and low-level IT work have climbed the value chain to become outsourced providers of critical R&D in sophisticated areas such as semiconductor design, aerospace, automotive, network equipment and medical devices.
Continue reading on TechCrunch.com

Wipro sees strong deal pipeline

Wipro, India's No. 3 software services exporter, sees robust deal pipeline on the back of improving IT demand worldwide, a senior official said on Tuesday.

"The deal pipeline is good ... the demand environment is building up. The IT demand situation is improving," Suresh Vaswani, joint chief executive of the company's IT business, told reporters on the sidelines of the World Economic Forum.

The company last month reported a 18.76 per cent increase in its consolidated net profit at Rs 1,161.7 crore for the second quarter ended September 30, 2009.

The IT exporter had a net profit of Rs 978.2 crore in the September quarter of last fiscal.

Total income of the company rose to Rs 7,057.4 crore during the July-September quarter of the current fiscal, from Rs 6,664.8 crore in the year-ago period, as per the Indian accounting norms.

"We see more stability in volumes and pricing as well as an improving demand environment. Our broad portfolio of services and strong delivery excellence continues to position us as a partner of choice with customers, as they focus on capital conservation and cost transformation," Wipro Chairman Azim Premji said.

The country's third largest software exporter's revenue from IT services in rupee terms grew by 5 per cent to Rs 4,996 crore from the year-ago period. However, in dollar terms, the revenue fell by 4 per cent to $1,065.2 million.

"Looking ahead for the quarter ending December 31, 2009, we expect revenues from our IT Services business to be in the range of $1,092 million to $1,113 million," Premji said.

In the reported quarter, the firm added 37 new clients to its IT services business, which accounted for 72 per cent of its total revenue.

Capgemini, Logica, AT&T, BT now eye local IT services

The domestic information technology (IT) services market is no more a lowprofit option and entry of global players in this segment is a testimony to its growing maturity and lucrativeness.

Earlier, the domestic IT services market was characterised as ‘where you would pay for the hardware but get the services for free’. This has changed over the last few years with the profit margins in some segments comparable to the developed markets.

Says Seepij Gupta, analyst, software and services research, IDC India: “In some segments of the domestic IT services markets — application management and managed services, for example — the profit margins range between 25-30 % and 16-32 %, respectively. This kind of profitability makes the India market almost at par with the developed economies.”

Rising profits also reveal the growing maturity of the local market where corporates and governments are willing to spend a larger amount on technology. Sudip Saha, analyst, services research, Springboard Research, says the maturity curve is getting sharper in the domestic market reflected in the larger size of IT outsourcing deals as well as longer-term contracts. “Corporates are realising that having internal IT departments is expensive and it better to outsource,” he added.

European IT services majors like Capgemini, Logica, Groupe Steria and Atos Origin have already planned their local market moves. Segment-specific players like AT&T and BT too have made their foray into the telecom technology services market in India.

Anand Sankaran, chief executive, Wipro Infotech, said domestic IT services market is reasonably attractive and has steadily seen more vendors getting in: while the market was dominated by the likes of IBM, TCS, Wipro, Hewlett-Packard and HCL Infosystems, it is now seeing aggressive pitches by Infosys Technologies and Accenture.

Springboard Research says the domestic IT services market size was $5.7 billion in 2008 and is expected to touch $6.6 billion this calendar. According to Mr Saha, there are sectors in India like utilities and infrastructure which are actively looking at outsourcing their IT requirements and in the process expanding the market.

The domestic IT services market has already set certain global benchmarks which are either being very closely studied or even getting emulated. A classic example of this is the Bharti-IBM IT outsourcing deal, which set a benchmark for the global telecom industry.

Indian engineers becoming backbone of Japan's IT industry

Indian system engineers have emerged as the backbone of Japan's IT industry and more are flocking to the country which is witnessing a steep decline in its work force.

Indian system engineers are making their presence felt in Japan's information technology industry. Around 22,000 Indians are living in Japan at the end of 2008, nearly double the number a decade ago.

"India is already the international standard in the IT world," said Kenichi Yoshida, a director of Softbridge Solutions Japan Co., a staffing company. Its founder is an Indian-American, who set up the Japanese company in 2002.

Indian engineers are sent out to Japan after studying Japanese language for five months. In addition to operation and maintenance of financial information systems, they are in charge of systems development for computers and mobile phones, Kyodo news agency reported.

"While the number of working people is decreasing in Japan, in India the number will continue to increase until 2040. Education levels are also high. It's important for Japanese industry to work together with India," Yoshida said.

His company is also providing opportunities for Japanese engineers to undergo training in India for two to four months, and major Japanese enterprises are taking advantage of the service.

"Everything is in English there. They eat curry from same bowl and return home a lot tougher," he said.

Tokyo's Edogawa Ward has the highest number of Indian residents, at about 2,200. After visa requirements for engineers working in Japan were eased in 2001, Indians flocked to the ward because it is close to the centre of Tokyo and prices are lower than in other wards.

"Until several years ago, there were only men in their 20s whose families were back home, but recently, the number of Indians accompanied by their families is increasing," said Jagmohan Chandrani, 57, a company president who came to Japan about 30 years ago.

Chandrani imports and sells black tea, runs a guest house and also serves as leader of the Indian society in the ward, assisting his countrymen in their day-to-day lives.

Many new residents are from Bangalore, known as India's Silicon Valley. Given that tandoori chicken and nan, which are popular in Japan, are northern Indian dishes, Chandrani has opened a southern Indian restaurant and a food store for engineers yearning for the taste of home.

He also participates in local events and holds an Indian festival twice a year, inviting Japanese from neighboring areas.

Chandrani says he hopes the ward will become not an 'India town' but a place serving as bridge between the two countries.

Take on folks in Beijing & Bangalore: Obama

President Barack Obama has hit the road to push a new $4.35 billion grant programme to encourage American schools to develop internationally competitive standards to let its students take on "folks in Beijing and Bangalore."

The "Race to the Top" fund is one of the largest federal investments in school reform in US history, Obama said on a trip to Wisconsin. It is being financed with money made available through the economic stimulus plan enacted in February.

"We're putting over $4 billion on the table ... but we're not just handing it out to states because they want it," Obama told an audience at a Wisconsin public charter school making it clear that the grants will go to only those "committed to real change in the way you educate your kids."

"So, a race to the top has begun in our schools, but the real competition will begin when states apply for the actual Race to the Top grants," he said outlining four key reform measures that will be used to help determine a state's eligibility for grant money.

"The first measure is whether a state is committed to setting higher standards and better assessments that prepare our children to succeed in the 21st century," Obama said noting that 48 US states are now working to develop internationally competitive standards.

"...Internationally competitive standards because these young people are going to be growing up in an international environment where they're competing not just against kids in Chicago or Los Angeles for jobs, but they're competing against folks in Beijing and Bangalore," he said.

Second, the state will need to demonstrate a commitment to policies designed to encourage the recruitment and retention of effective teachers and principals. Conversely, teachers that fail to adequately perform need to be removed, he said.

Third, it will need to design systems to measure student success. Finally, federal officials will examine whether a state is taking steps to overhaul its lowest-performing schools.

"We'll look at whether they're willing to remake a school from top to bottom, with new leaders and a new way of teaching," Obama said. The process of doing so may include replacing a school's staff or even closing a school and sending its students to a better one nearby, he noted.

TCS, Wipro eye $400 mn Target outsourcing deal

India’s top tech firms Tata Consultancy Services (TCS), Wipro and several others are pursuing Target’s captive technology centre for a potential acquisition, in what could be a transaction bundled with a long-term outsourcing contract worth $300-400 million. America’s second-biggest discount retailer Target has around 1,500 staff employed at its Bangalore centre, currently doing software development and maintenance work.

“We have been in discussions with them for the past few months and the dialogue is still open,” a senior executive at one of the tech firms exploring this transaction told ET on conditions of anonymity. “There is no conclusion yet about how this transaction can be structured, and it’s very early days,” he added. Both TCS and Wipro count Target as one of their top retail customers.

Some of the world’s top retailers, including UK’s Tesco and America’s speciality retailer Home Depot, have been outsourcing projects to Indian third-party service providers, including TCS and Infosys, apart from their own captive centres in order to support their existing IT systems and also develop newer applications. Tesco, for instance, saves over $100 million every year by outsourcing its IT projects to India, and primarily drives projects from its own captive in Bangalore.

“Target’s India centre could be doing at least $100 million worth of projects (revenues) every year,” another person familiar with the retailer’s India operations told ET on conditions of anonymity. Officials at Target did not reply to an email query sent by ET. TCS, Infosys and Wipro also declined to comment. Few years ago, many retailers started with an Indian captive operation as there were not many service providers who could understand their core operations better. Target entered India in 2004 through a JV with ANSRSource, a Texas-based BPO outsourcing company.

“There is a certain equity in building up the operations (captive) initially, but over the course of time, there is the objective of monetising the operations,” said Avinash Vashistha, CEO, Tholons, an offshore advisory firm.

“Once a particular process becomes commoditised, then any adding of additional resources is not justified as it adds up to the costs.”

TCS, one of Target’s Indian suppliers, supports the retailer’s operations from its delivery centres in Uruguay and Chile, apart from India. Target, which competes with Walmart Stores, reported quarterly revenues of $14.6 billion for the second quarter ended August this year.

Over the past few months, many companies have sold their technology captives in India. Divesting non-core captive operations is a strategy adopted by banks such as Citigroup and UBS for focusing better on their core operations, and also gain better outsourcing rates by bundling such transactions with a multi-year contract.

An upfront payment also helps them unlock value from non-core assets. Citibank sold its Indian back-office business to TCS for around $505 million in October last year, and Citi Technology Services for around $127 million to Wipro in December last year. Both these transactions came with assured outsourcing business of around $3 billion together for these vendors.

TCS bags multi-million Cardiff deal

India's Tata Consultancy Services' contract with Cardiff City Council for technology services is a multi-million dollar deal that will run over 15 years, a company source said on Tuesday.

Under the deal signed last week, Tata Consultancy will provide a host of IT services for faster and efficient delivery of services in Cardiff.

Tata Consultancy and its rivals such as Infosys Technologies and Wipro are aggressively vying for deals in markets such as Europe and Asia Pacific to cut their dependence on the US, which brings in more than half the sector's revenue.

According to Ovum's Straight Talk service, the deal is reportedly worth £150 million, spanning 15-years.

Under the deal, TCS will help drive the council's mission-critical Strategic Transformational Change Programme.

Tata Consultancy, a part of the diversified Tata Group that spans commodities autos and services businesses, last month beat forecasts with a 29 percent rise in quarterly net profit helped by demand from recession-hit financial customers.

Mid-tier tech cos eye $2 bn local deals

With larger rivals already chasing the lucrative domestic market, mid-tier tech firms such as Patni Computer Systems and Hexaware are attempting to enter the market by jointly bidding with experienced bidders. India’s government departments and other state-owned firms are set to spend around $2 billion on IT during the next 12 months. Hexaware, MindTree and Patni are among the many mid-tier Indian tech firms seeking to explore new business with an experienced partner.

Hexaware, for instance, is pursuing 2-3 large deals as part of a consortium and several smaller ones on its own. The company’s strategy for the Indian market will be different from its strategy for overseas markets, said Hexaware’s vice-chairman and chief executive officer, PR Chandrasekar.

“If we treat India as just another location for our services, it will not work. It will need fairly dedicated focus and some innovation on how we source talent and price our offerings. You also need to leverage your niche capabilities, especially if you are not one of the big players,” said Mr Chandrasekar, who was earlier with Wipro, India’s third-biggest IT company.

In order to focus better on the Indian market, companies such as Hexaware and Patni have recently formed focused business units. While Narendra Upasani heads Hexaware’s India business, Deepak Khosla is responsible for growing Patni’s revenues from the country.

For large contracts in the government and public sector, Hexaware will work as part of a consortium because these projects usually require the bidder to have a prior track record in executing similar projects.

Experts such as Guru Malladi, partner at Ernst & Young said it will be challenging for mid-tier tech firms to take on bigger rivals. “A Rs 5,000-crore project, for example, can never be delivered by a single player. But I do see an element of challenge for mid-size players who have so far not operated in the domestic market. Large players have to sometimes rely on small players but they may not see value in mid-size players in terms of cost or efficiency arbitrage,” said Mr Malladi.

“Globally, this kind of scale is not available anywhere, even if it may not be the largest in revenues,” pointed out Jeya Kumar, CEO, Patni Computer.

Like Hexaware, Patni is chasing 3-4 contracts in the domestic market as part of a consortium. “With the kind of large deal sizes we are seeing, you have to have a multi-vendor strategy,” added Mr Kumar. Apart from the government, Hexaware will focus on sectors such as travel and transport, insurance, hospitality and logistics, and technology offerings across sectors.

According to Mr Malladi, mid-size players have to be more strategic in their outlook using their niche skills to enter the market. Hexaware, along with others like Patni and Mindtree are turning towards India, drawn by the large opportunity and significant growth potential.

China planning to build 'Little India' to attract outsourcing industry

Wuxi, a picturesque city that lies along the Taihu Lake resort of the Jiangsu province, is planning to build a "little India" in years to come in order to become a major service outsourcing center.

Wuxi is traditionally a manufacturing city, but with a focus on environmental protection, and especially after a serious blue-green algae outbreak in Taihu Lake, city leaders started to study how to transform the city's development.

Wuxi decided to replace manufacturing with the service outsourcing industry, which has far less pollution and consumes much less energy, the China Daily reports.

The city is expected to attract 30 to 40 billion dollars in service outsourcing business and help create jobs for one million people by 2020, equivalent to that of India as a whole in 2007. The advancement of the service outsourcing industry cannot survive without a large talent pool. But the city three years ago learned that fewer than 2,000 students in the city were studying software and information technology fields.

As a result, Wuxi established a goal to build a total area of six million sq m for software service outsourcing within three years, and encouraged enterprises to cultivate and import skilled workers.

The local government joined India's National Institute of Information Technologies (NIIT), the world's second-largest educational institution, to establish the NIIT (China) Outsourcing College in Wuxi as a training base for the city's outsourcing businesses.

While the domestic macro-economy continues to be affected by the global financial crisis, outsourcing is maintaining robust growth in Wuxi.

The city signed 1.14 billion dollars in contracts from January to July, up 110 percent year-on-year.

After India became world's largest service-outsourcing base, many East Asian countries including Philippines, Singapore and Vietnam began competing for more market share.

Shifting staff offshore better than rate cuts: Forrester

Firms’ ability to shift more staff offshore drives more savings than the 5 per cent to 10 per cent rate reductions they have been seeking from their IT vendors, according to the latest Forrester report on IT offshoring.

The report notes that more and more firms are now looking to shift away from the traditional offshore pricing approach of an hourly rate to a fixed price model.

The Forrester report titled “Assessing your onshore/offshore staffing ratios” by its vice president and principal analyst John McCarthy, states that the economic downturn has hit IT budgets full force, and as a result, firms are scrambling to react and optimise their offshore spend.

“Our recent Enterprise IT Services Survey (North America & Europe, Q2 2009) shows that renegotiating IT services rates is the top priority of these firms. 80 per cent of the 931 respondents list it as their critical priority. And on an average, we see clients getting actual reductions in the range of 4 per cent to 7 per cent based on current rates, type of work, and volume of spend” says McCarthy.

The report advises such firms to move beyond short term strategies and invest in better specifications and change management processes, which will enable them to move more work offshore and recognise the associated savings.

Forrester notes that clients move through four distinct stages in their offshore maturity namely Bystanders, Experimenters, Committeds, and Full Exploiters.

During this evolution, clients not only build up trust with their IT vendors, but more importantly for the offshore mix, they also mature and add more rigor to their specifications, incident management, and governance processes.

“This improved process acumen on the part of the client, coupled with the domain and tool investments of IT vendors, has increased the amount of work that can be sent offshore by 10 per cent to 20 per cent over the past three years,” says McCarthy.

After the rate renegotiation, the second primary strategy firms are adopting in the short term is transition to fixed price model from time and materials (T&M) pricing model.

“They want the certainty of a fixed price,” notes the report. The report also reveals that the budget crunch has encouraged firms to look at more than just rates.

“Over the past four to six months, we have seen a dramatic rise in the number of inquiries related to IT services governance best practices, specifically around the most cost-effective mix of onshore and offshore staff from IT suppliers. And our research demonstrates that adjusting Onshore/Offshore ratios is the best way to increase savings,” adds McCarthy.

IBM, HP shortlisted for $700 million Microsoft deal

Multinational outsourcing firms IBM and HP have been shortlisted for around $700-million contract for managing Microsoft’s global network of desktops, servers and other IT infrastructure, as the world’s biggest software maker seeks to lower its operational costs and focus better on its core business.

India’s top outsourcing vendors had also bid for this contract, but they lost out to the multinational rivals who have better global footprints and are even ready to take over assets, including Microsoft’s staff.

“This was one contract where most of us were bidding hard, especially given the kind of customer we are talking about, but global service providers seem to have taken a lead,” said a senior executive at one of the tech firms involved during the early-stage of bidding.

Another person based in the US and familiar with this contract said, Microsoft had issued a global request for proposal (RFP) few months ago for this contract. Officials at Microsoft India did not respond to an e-mail query sent by ET.

The global IT infrastructure market has been growing exponentially over the past few years. The top-15 vendors, analysed by Forrester in a recent report, provided remote and onsite services for about 16.7 million desktops, 1.7 million servers and 23.4 million users globally. These vendors, including IBM, HP-EDS, CSC and some Indian tech firms, delivered $83.9 billion worth of infrastructure services past year.

“Some clients clearly will require the scope only an IBM or HP can deliver, but many don’t,” said Paul Roehrig, principal analyst at Forrester Research. “All of the India-centric firms, included in the study — Cognizant, HCL Technologies, Infosys, TCS, and Wipro — have excellent forward-looking strategies for the infrastructure business,” he added.

On their part, Indian tech firms, such as TCS, Infosys and Wipro, have made substantial progress in gaining market share when it comes to application development, maintenance and back-office outsourcing, however, outsourcing of computer hardware maintenance is an area where multinational rivals still lead.

“In areas where infrastructure can be managed remotely, Indian vendors are as good as anybody else, however, there are certain pieces of infrastructure management, such as end user computing, where they do not have enough global resources,” said Siddharth Pai, managing director of outsourcing advisory firm TPI India. Indeed, when HCL recently won over $350 million infrastructure from Reader’s Digest Association in March this year, it involved remote management of the publisher’s desktops and servers.

Apart from having substantial onshore resources, some infrastructure outsourcing contracts also involve financing, which is readily offered by vendors such as IBM and HP. India’s pure software vendors do not have hardware products to be bundled with such contracts. Moreover, because of asset transfer, most infrastructure deals offer lower operating margins when compared with application development and maintenance contracts.

“In a $500-million contract, involving only people, the margins can be $100 million, but when it includes asset transfer, the margins can hit $55 million,” argued Mr Pai. While lower margins may be making it less attractive for Indian companies to pursue large infrastructure outsourcing contract, they are ready to execute projects, involving remote delivery, which helps them retain their margins.

“Although dwarfed in size by the legacy global service provider firms, India-centric firms, including Cognizant, HCL Technologies, Infosys, and TCS, also landed among the leaders by showing good delivery capability and generally strong forward-looking strategies for the global infrastructure services business,” added Mr Roehrig of Forrester.

Australian telco to offshore 150 jobs to Mumbai

Australian mobile phone retailer Crazy John's is reportedly offshoring about 150 jobs to Mumbai where its parent company Vodafone Hutchison Australia (VHA) operates a call centre.

According to 'The Australian', around 200 employees of Crazy John's will face redundancy as part of its restructuring programme in the first half of 2010, when over 150 jobs will be shifted to Mumbai.

The remaining staff of Crazy John's that will be made redundant later would initially come from finance, credit management and customer relations departments, sources said.

"Their tasks would be absorbed by VHA," sources said.

Crazy John's unit and mobile virtual network operator GRLmobile is a prepaid service aimed at the female youth market.

In August, company executives dismissed talk of GRLmobile's impending demise describing it as pure rumour.

Crazy John's Chief Executive Brendan Fleiter had said GRLmobile's sales channels -- Australia Post, Kmart, Target, Dick Smith and Crazy John's -- would increase over the next few months.

Crazy John's employees fear that VHA's Sydney-centric management is intent on wiping the slate clean and consolidating its operations under one roof.

A VHA spokesman declined to comment on possible retrenchments, saying "it's business as usual at Crazy John's".

Wipro bags 10-yr IGI deal

IT major Wipro said it has entered into a 10-year IT outsourcing agreement with Delhi International Airport Ltd (DIAL) for providing IT infrastructure and services for IGI Airport here.

As part of the agreement, both the companies will form a joint venture (JV), to be named as Wipro Airport IT Services Ltd, with Wipro holding 74 per cent stake in the JV and DIAL the remaining 26 per cent stake, Wipro said in a statement.

The JV would be the innovation partner for DIAL and focus on emerging business models and technologies for airports as well as build competencies in airport specific applications, it added.

DIAL is a joint venture, comprising infrastructure major GMR Group, Airports Authority of India, Fraport and Malaysian Airports.

As per the agreement, Wipro would be responsible for end-to-end IT management in the IGI airport's new integrated terminal (T3), which will be one of the largest terminals in the world, for 10 years.

"We are delighted to have a strong partner like Wipro with proven capabilities in delivering superior business value as our partner in realising that vision for us," GMR Group Chairman (Airports) Kiran Kumar Grandhi said.

Wipro Joint CEO and member of the board Suresh Vaswani said, "This partnership will create new industry standards in modern airport management based on world class IT and business processes powered by innovation."

6 Indian cities among 8 top global destinations for outsourcing

Six Indian cities - Bangalore, Delhi NCR, Mumbai, Chennai, Hyderabad, Pune - are among the eight top global destinations for outsourcing of services, according to a new survey released Tuesday.

The other two are the Philippines' Manila NCR and Ireland's Dublin city, according to the 4th Global Services-Tholons Top 50 emerging outsourcing destinations survey, jointly done by Global Services from CyberMedia and Tholons, a services globalisation advisory firm.

The Next 10 Outsourcing Destinations considered to be 'Top 10 Aspirants' from a total of 68 destinations is dominated by China's Shanghai, Beijing and Shenzhen, Vietnam's Ho Chi Minh City and Hanoi, Poland's Krakow, Argentina's Buenos Aires, Egypt's Cairo and Brazil's Sao Paulo.

Avinash Vashistha, CEO of Tholons says: "For a CIO today, finding a Centre of Excellence is more than just lower cost. It must consider location, risk mitigation for business, cultural affinity and scalability of the skilled workforce."

"The service providers need to think through their offerings so as to differentiate as the competitive advantage is rapidly vanishing due to cut throat competition and market saturation," adds Vashishtha.

India continues to top the list with revenues of $40 billion in IT-BPO export services in 2008. Indian IT-BPO export services posted 35 percent year on year growth rates in the last five years.

Interestingly India's FDI inflows posted the largest increase globally at 46 percent in 2008 -- from $25 billion to $46 billion even as global FDI flows decreased from $1.9 trillion to $1.7 trillion and several developing economies struggled to acquire investments from client nations.

Compared to the previous year's rankings, this year's study reveals minimal shifts in rankings because of the overall slowdown in the pace of outsourcing activity in the face of global recession.

Seven Chinese cities - Shanghai, Beijing, Shenzhen, Dalian, Guangzhou, Chengdu and Tianjin - and six Indian cities - Chandigarh, Kolkata, Coimbatore, Jaipur, Bhubaneswar, Thiruvananthapuram - make it to the list of next 60 outsourcing destinations.

The study lists India, Philippines, Ireland, China and Brazil among Top 5 Offshore Nations "with a high degree of maturity and record of successful delivery capabilities."

Canada, Russia, Mexico, Vietnam, Poland are listed as Top 5 Emerging Nations. The difference between the Top 5 and the Next 5 offshore nations is most pronounced in the service level maturity, the study said.

Brazil's CBD In 5-Yr Outsourcing Pact With IBM

Brazilian supermarket chain Companhia Brasileira de Distribuicao (CBD, PCAR5.BR), or CBD, signed a partnership with International Business Machines Corp. (IBM) to outsource its information technology, IBM said late Wednesday in a press release.

"The deal, worth about $115 million, was designed by IBM and CBD to meet current business needs and to support the expansion planned for the next years," said IBM.

The five year agreement will transfer two data centers of the retail chain to an IBM Global Delivery Center, based in Hortolandia, Sao Paulo.

CBD is jointly controlled by the Diniz family of Sao Paulo, the chain's founders, and by French retail company Casino Guichard-Perrachon SA (CO.FR). Its main competitors in Brazil include U.S. retail giant Wal-Mart Stores Inc. (WMT) and France's Carrefour SA (CRERY, CA.FR).
Source: WallStreetJournal