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February 2009 Quick Hits - News, Trends & Analysis

Can India Offer Transformational Outsourcing?
Over the last ten years the majority, of offshoring deals have focused on labour arbitrage. The Lift and Shift model meant companies would tackle low hanging fruit of basic transactional processes and move it offshore. This is one of the primary reasons for failed projects as many processes were outsourced before being fixed. In a recent article on offshoring times, "The findings of Hacketts research shows that while the potential for companies to reduce costs by offshoring back office operations is dramatic, companies can potentially increase these savings by over 50 per cent by selectively integrating process improvement capabilities into their globalisation initiatives". They also predict that Indian outsourcers will find the going tough in this market place. I entirely disagree with that statement. The Indian providers have been leveraging six sigma, ITIL, Prince 2, CMMI, & ISO 20000 frameworks for years, and often they will fix the customers process before adopting it. In most cases of helpdesk, application management, and infrastructure management most suppliers are a lot more effective at transformation than the clients who lack expertise and scalability. Due to the rapidly increasing cost base, offshore providers have been investing heavily in transformation, and I think many are in a better position to offer value creation than local outsourcers.  
Europe Delivers Healthy Revenue For Offshore Providers
The top Indian IT Providers are deriving 25% of their revenue from the European market, mostly from project services. However, most of IBM, Accenture, Cap Gemini & BT's revenue is derived from long-term multi-year outsourcing contracts. During this downturn, projects are being cancelled so the top Indian IT companies like TCS, Infosys and Wipro will have to shift focus on long-term outsourcing. Overall revenue from Europe is expected to remain the same, but the Indian providers will need to make big investments in Europe to compete with the traditional players. Whether or not they have the appetite for a big spending spree during a downturn remains to be seen.  
Satyam Doing OK Post-Scandal
The Indian offshore industry lost a little credibility last month as the $1bn fraud at Satyam unfolded. Financial stability is an important consideration when choosing an outsourcing partner to support mission-critical systems and processes. However, on initial review, it looks like Satyam will retain most of their major customers, albeit occasionally with reduced rates. But I can understand why clients are not rushing for the exits. Most people can easily acquit the sales managers and engineers on the ground working directly with clients, and if the service remains strong, there's little reason to move.  

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