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November 2009 Quick Hits - News, Trends & Analysis

Africa To Compete In Outsourcing
Countries like Egypt, Ghana, Nigeria, Senegal and South Africa are all becoming increasingly aggressive in their push to compete with India in outsourcing. I was at a NOA event recently where several companies from Kenya had a compelling business case. Unlike India, Africa does not suffer from high attrition rates, they are only offset an hour or two from their European Customers, and the cost base is essentially flat in comparison to India. In many ways, Africa is akin to 1990's India - there are still significant challenges around infrastructure, transport and legislative uncertainties, but if African can learn from prior experience, it will continue to become an attractive offshore destination.

Scandinavian Defence Contractor Goes Offshore
If there is one industry vertical that has not fully embraced offshoring due to security fears it is the defence sector. Yet they have huge opportunities for IT cost reduction once they find their way around both internal and external regulatory pressure. Saab aerospace took a firm step in this direction as they recently signed a 5 year 300 MM USD contract with Mahindra Satyam. The contract encompasses engineering services and technology maintenance, and probably signifies a growing trend.

Perhaps more importantly, it is great to see a defence firm sign with a company (Satyam) that prior to its merger with Tech Mahindra, was considered a mini-Enron. I think that this sends a strong message that a company truly is stronger than the actions of any one individual.

Indian Firms Face Tough Times In Europe
The Indian IT Outsourcers have definitely won their fair share of deals in the US and UK, but the growing Continental European market has remained in grip of traditional outsourcers like EDS, IBM, Accenture, Cap Gemini and CSC. According to a recent survey of the industry in Europe conducted by Forrester Research "Although Europe offers a lucrative opportunity, the success rate for Indian companies has been low and ramp-up of operations has been slow, Indian companies have to ready for the long haul, and be prepared to face increased pressure on their margins." The Forrester study pointed out that the complex decision making and procurement processes of European companies, in addition to and the obvious language barriers, are significant obstructions to the growth of Indian offshoring. Furthermore, it was mentioned that many Indian IT companies confuse cultural compatibility with local presence. Still, these barriers are not appreciably different to those felt in the U.S. and U.K. a decade ago, so the question seems to be "when" rather than "if" Indian outsourcers make big gains on the continent.

 

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