Outsourcing Blog

Newsletter - January, 2005 - Issue Four

Indian BPO Firms target the European Union
Sify.com

Citing an effort to diversify the risks of their US-centric business, Indian BPO firms are targeting the previously untapped market of the European Union.

A recent IDC study suggests the EU is embracing outsourcing: noting a 150 percent rise in outsourcing deals in 2003 compared to 2002.

Meanwhile, revenues for many Indian BPO companies that provide services to the UK, have risen dramatically from five percent in 2003 to 30 percent in 2004. Industry sources also believe that companies in the UK feel more comfortable outsourcing to India. They further add that since UK has full employment, they will find it difficult to recruit professionals locally, and more work will be outsourced to India.

BPO industry insiders say that Indian companies are aggressively marketing firms in the UK and other European countries. While UK is an established market, opportunities in Germany, France, and Spain are emerging as potential markets. However, with language being a major challenge in some EU nations, UK is expected to remain the preferred destination.

Established BPO player eMR, which currently derives all its revenue from the US, is working to establish a presence in the UK by the end of the year. Rohit Arora, Chairman of eMR, suggested that BPO companies that wish to overcome the EU language barrier could do so by first establishing presences in East Europe (Poland and Czech Republic), a cheaper base with the required skill sets.

Tunisia also presents another attractive alternative with multilingual skills in European languages like French, German and Italian and qualified human resources. According to a top diplomat of the Tunisian Embassy, Tunisia can be a strategic location for Indian IT & BPO companies to penetrate non-English speaking countries in Europe.

Top BPO trends for 2005: Fragmentation & Consolidation
Contact-Center-Today.com

William Martorelli, principal analyst for Forrester’s Industry Economics & Data group sees some profound trends emerging in the developing field of BPO.

According to Martorelli, one issue that will continue to affect the BPO industry is fragmentation. Explaining his prediction, he observes that since the processes outsourcers seek to take over are complex, the market itself remains fragmented.

For example, business processes of human resource services remain highly divergent. Some companies are seeking to transform their HR operations, while others simply want to outsource their payroll. Vendors, therefore, will continue to provide a wide range of services to meet the differing demands.

Martorelli added that 2004 saw a good deal of consolidation in the BPO industry along with expansion of some major players. He predicts this trend will continue. In addition to making acquisitions to expand their offerings, he believes BPO vendors will continue to ally with other types of providers s to give both firms greater shared capabilities needed for them to meet client demands.

However, he notes that BPO providers have yet to establish sales momentum. This challenge should likely continue in 2005. Martorelli observes that even though some vendors have landed large clients, they have not been able to leverage those deals into substantially increased sales.

Some companies that had established their own offshore units for particular processes are beginning to learn why in-house operations cannot achieve the results that freestanding ones offer. The anticipated spin-off of these internal operations into independent entities will fuel additional evolution of the BPO market in the coming year, predicts Martorelli.

Global Outsourcing benefits US Economy
The Economic Times

A report by the US Chamber of Commerce reveals that the US economy is benefiting from global outsourcing. It says that such outsourcing deals bring multiple benefits to the US including: cost savings for consumers and tax payers, a comparatively small cut in the number of jobs lost, and the creation of various jobs that foreign companies support in the US.

The report adds that specifically, the US enjoys a $60B annual surplus in services trade and six million direct jobs. Additionally, several indirect jobs are created by foreign owned companies compared to only 220,000 jobs lost, a comparatively small fraction of the total 140 million jobs in the US.

It goes on to state that it is hard to confirm the extent of outsourcing and its impact on jobs. Citing examples of a companion report by the Government Accountability Office (GAO)’s - a bipartisan congressional agency, which reveals that countries like India ranked as low as eighth in 2002, among countries that are destinations for US business, professional, and technical service tasks.

The Chamber report also found among the various legislative measures that were introduced in many US states and in Congress to close markets and block outsourcing, most were rejected. According to the Chamber, out of the 196 legislative proposals that were introduced up to mid-September 2004, in 40 states, only four bills were signed by governors and became law.

CSC to sign IT outsourcing contract with General Dynamics for $1.6B
CNET News.com

Computer Sciences Corporation (CSC) has signed a Memorandum of Understanding (MoU) to extend CSC’s IT outsourcing contracts with General Dynamics business units for a period of 7.25 years. Although the companies did not specify the nature of the projects, CSC estimates the value of the extensions to be approximately $1.6B.

The General Dynamics deal follows other major contracts that CSC has signed in recent months. They include a 10-year, $1.35B outsourcing contract with Ascension Health and another with Chicago-based insurer Aon for $600 million.

Airline Industry turning to Outsourcing
CNN

Local needs and travel infrastructure typically require local people on the ground in the airline industry. Even so, outsourcing is affecting some aspects of the business, as airlines look to cut costs and aggressively compete with low-budget carriers.

Some American air carriers such as Northwest, Continental and U.S. Airways, already send heavy maintenance work to Asia where labor is cheaper. But, another area that is now moving overseas is the airline call-center.

United Airlines, operating under bankruptcy protection since 2002, opened a telephone reservations center in India. This follows the lead of Delta Air Lines, which already has up to 1,000 people in India who are taking U.S. telephone reservations. Outsourcing this function has saved the struggling airline up to $25 million a year. There have been a minimal number of complaints, which have been isolated to a single center.

Customers of the German airline Lufthansa may get patched through to Turkey when making telephone flight reservations. The 150-person office in Istanbul, the country's main commercial hub, contains many well-educated, German speakers. Citing such success, Lufthansa expects to increase the number of Turkish call center employees to 400 in the future.

GE sells majority stake in India-based GECIS
Reuters

General Electric has completed its deal with two US-based private equity firms to buy a majority stake in GE’s India-based back-office unit. GE confirmed that it received about $500 million in cash from General Atlantic Partners and Oak Hill Capital Partners in the deal, while retaining a 40 percent stake in GE Capital International Services (GECIS).

As part of the deal, GECIS will continue to serve GE under a multiyear contract. GECIS, which currently employs more than 17,000 staff and plans to offer its services to companies in the Americas, Europe, and Asia, where it already has operations. Serving clients in the automotive, energy, retail, pharmaceutical and IT industries, the company has already signed several new contracts in the 4Q and has increased hiring in preparation for a targeted 25 percent growth in revenues for 2005.

GECIS is often cited as the biggest outsourcing success story in India. The sale marks the largest deal in the continuing consolidation of India’s $3.6B back-office industry.