Monday, January 29, 2007

Pharma Firms to Expand Outsourcing Scope : EquaTerra

According to a report, ‘Outsourcing trends in the pharmaceutical industry’ by EquaTerra, about 44 percent of the pharmaceutical companies that have already outsourced one or more IT or BPO services are likely to outsource a few more functions, including HR and finance, during 2007. While the primary reason for IT outsourcing is cost reduction, BPO services also help to improve costs as well as processes.

Among the key findings, while about 39 percent of the pharmaceutical companies are planning to outsource their activities to new geographies or business units and about 22 percent are likely to expand their existing outsourcing activities. The firm also reported that none of the companies are planning to reduce their outsourcing activities.

The organization also confirmed that IT is the most common process that is being outsourced by pharma companies. About 72 percent of the pharmaceutical firms are already outsourcing their IT services, while the others are either planning to or have no intention to outsource. In addition, the survey claimed that business process functions, such as call centers, finance, and human resources in the pharma industry are still in the nascent stage and are expected to mature gradually.

In the BPO domain, the most common processes which are outsourced in the pharma domain include call center or CRM services. The report also highlighted the increase in outsourcing activities in clinical trials, R&D of new drug, and developing drugs in the future.

Thursday, January 25, 2007

Indian IT-ITeS ‘07 Export Revenues Expected to Increase 32.6% to $31Bn – NASSCOM

According to a study by NASSCOM, an Indian IT and BPO industry trade lobby, export revenues of the Indian IT- ITeS industry for FY 2007 are predicted to increase at a rate of 32.6 percent to reach USD 31.3 billion as compared to USD 23.6 billion (an increase of 33.3 percent) in FY 2006. In addition, the total IT industry, including hardware sales, is predicted to reach about USD 47.8 billion in FY 2007 and USD 100 billion by FY 2010.

The IT industry is forecasted to contribute about 5.4 percent to the GDP of the country in FY 2007 as compared to 4.8 percent in FY 2006. A recent study of India’s IT and BPO sector, conducted by NASSCOM and McKinsey, predicted that the industry to be worth USD 60 billion by 2010. The current NASSCOM estimates are in line with the prediction. NASSCOM also predicts that the software exports will be required to grow at a CAGR of 24.2 percent for the next four years in order to achieve the target.

In addition, NASSCOM expects that the employment level in India’s software and services sector will reach the 1.6 million mark in FY 2007, representing a growth of 26 percent over the previous year. The export services contributing to the growth of the IT industry are expected to account for USD 18.1 billion in the FY 2007. The UK and the US were the largest market for exports in FY 2006. The Americas accounted for about 67 percent, Europe for 25 percent, and rest of the world for 7.7 percent.

Among other key findings, the domestic IT industry is anticipated to grow by 21 percent to generate revenues worth USD 15.9 billion in the fiscal year, with the software and services segment accounting for majority of the growth. The domestic hardware will contribute USD 7.6 billion, while USD 5.6 billion is expected to be attributed by services, followed by USD 1.6 billion from software and USD 1.2 billion by the BPO sector. MNC investments over the next few years are expected to exceed USD 10 billion for FY 2007.
Outsourcing grows up

Many outsourcing deals are tantamount to strategic divestitures and joint ventures. Executives should start treating them that way.

Read the McKinsey Quarterly article, Pretty OLD, but interesting

Monday, January 22, 2007

About 3.3% US IT Budgets to be Spent on Offshoring in ‘07 – SIM

According to a study by the Society for Information Management (SIM), a Chicago-based professional society of IT executives, about 3.3 percent of the IT budget will be spent on offshore projects in 2007 in the US, while about 9.3 percent of the IT budget is expected to be spent on domestic outsourcing.

In addition, about 66 percent of the respondents stated that they will not spend their IT budgets for outsourcing in 2007. Many companies are planning to establish in-house IT support infrastructure and are expected to spend about 33 percent of their IT budgets for training IT staff. Most of the IT professionals favored domestic outsourcing over offshoring. The companies providing IT support to various firms located in London are expected to gain more business, including outsourcing of IT infrastructure and applications, from the capital.

Thursday, January 18, 2007

Demand for Outsourcing Growing Slowly – EquaTerra

According to EquaTerra 4Q 2006 Outsourcing Pulse Surveys, the demand for outsourcing in the BPO and ITO market is growing at a slower pace as compared to the growing rate of earlier years. The organization reported that there has been a decrease of about 13 percent in the last quarter of 2006 as compared to 3Q 2006 and 4Q 2005.

Among the key findings, the non-traditional functions, such as document and imaging services, legal processing, knowledge process, and logistics services outsourcing increasingly depends on both supply and demand. Also, there has been an increase in the multi-provider outsourcing that allows the client to have the best for each of its process. However, the multiple services provider model can be ranked as complicated as well as expensive as compared to outsourcing services to the single services provider.

In addition, most of the clients outsourcing their processes underestimate the cost and complexity related issues while performing Outsourcing Management and Governance (OM/G) activities, including the governance organization’s staffing, the costs related to the third-party services, such as lawyers, advisors, etc., and the costs related to the software support for OM/G activities. The above mentioned reasons are often considered as one of the root causes for problems related to outsourcing.

According to Stan Lepeak, Managing Director – Research, EquaTerra, most of the outsourcing contracts awarded during the late 1990s and early 2000s were not structured properly, which used to create problems either for the service providers or clients.

Wednesday, January 17, 2007

Everest Research Institute Study Predicts 30% Finance & Accounting Outsourcing Growth in 2007
Finance & Accounting Outsourcing Market Surpasses $2 Billion in Expenditure in 2006 with 45% Annual Growth

The global Finance and Accounting Outsourcing (FAO) market is predicted to grow in excess of 30 percent in 2007 as the global infrastructure matures to enable F&A solutions that take advantage of low-cost offshore talent and robust supplier process offerings underpinned by F&A technology, according to a new report released today by the Everest Research Institute.

The global FAO market has grown by more than 45 percent since the beginning of 2005 and reached $2 billion in expenditures in the United States last year, according to the Institute’s Finance & Accounting Outsourcing (FAO) Annual Report 2006. The study reports North America-based contracts continue to account for over half of FAO revenues, with increasingly rapid growth in Continental Europe. Among the industry verticals, manufacturing and energy and utilities are leading the FAO adoption, capturing nearly 50 percent of the market. Retail and financial services are the most under-penetrated sectors with high untapped demand.

“Our analysis reveals that the number of multi-process FAO contracts signed doubled between 2004 and 2006,”
said Phil Fersht, vice president, BPO Research Group at the Everest Research Institute.
“We expect that existing buyer success stories, suppliers’ investments in further developing F&A process capabilities and a global footprint will drive growth in the near future.”
The FAO annual report for 2006 activity examines the global FAO market and provides insights, detailed analyses and implications for stakeholders along three key dimensions:
(1) market size and buyer adoption,
(2) transaction characteristics and value proposition and
(3) supplier landscape.

The report found that offshoring is now established as the key value lever in FAO with more than 80 percent of all contracts including an offshore component. While India has emerged as the premier offshore destination with the largest number of scaled FAO centers, Eastern European locations are also becoming an integral part of supplier strategy to support European operations.

Regarding supplier activity, the report suggests that the FAO industry is witnessing an increasingly level playing field. In 2006, Genpact, HP, Infosys BPO, and Xansa significantly increased their market share. Accenture, IBM, ACS, and Genpact currently lead the market on a capability market success matrix, but there is still an intense battle for overall market share.
“The leading suppliers are looking to expand their global delivery capabilities through the acquisition of both captives and existing shared-service centers,”
said Fersht.
“Moreover, we expect further acquisitions of smaller FAO suppliers from the global leaders, and increased partnering with niche suppliers to fill out capability gaps. Several leading FAO suppliers are also looking to broaden their offerings with increased bundling across ITO and procurement services.”

The Institute also reported that despite the phenomenal growth over the past few years, the FAO market is grossly under-penetrated across all regions and verticals, and there is still substantial opportunity for growth.
“The market is now experiencing an aggressive growth phase fueled by cost reduction from offshoring and the adoption of multiple accounting processes integrated within a single outsourcing provider,”
said Saurabh Gupta, senior analyst, and co-author of the report.
“Innovation in F&A is taking center stage as FAO is creating incremental value for new and existing buyers by creating both a business and strategic impact, supported by a streamlined, low-cost sourcing infrastructure.”

For additional information and samples from the report, please visit and select the link, FAO Annual Report 2006.

Monday, January 08, 2007

Convergys has acquired AOL contact center in Albuquerque, New Mexico, from Time Warner. The call center employs about 800 employees. Convergys has already started its operations from the facility in New Mexico. The company aims to recruit more employees for the center from Albuquerque city and is also planning to expand its presence in the US by opening new call centers in the country. AOL has been planning to close the center as a part of restructuring. The company's business has been affected by losing most of its clients; and also helpdesk calls have been reduced to about half the number.
Yahoo! has announced its plans to open a research lab at Bangalore, India. The company plans to have R&D centers globally to deliver next generation of businesses. It also has centers in other locations, including four facilities in the US, one in Spain and in Chile. The company has already initiated the recruitment process to acquire scientists from diversified fields, including computers, sociology, economics, and other related fields, for the new center. In addition, it also operates an R&D center in Bangalore employing about 700 professionals, including developers and researchers.