Thursday, November 20, 2008
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| The Indian IT-BPO industry is celebrating Barrack Obama's victory at the 44th US presidential election brushing aside concerns that with Obama at the helm of affairs, outsourcing might be curbed. According to Ganesh Natarajan, chairman of National Association of Software and Service Companies or Nasscom, the consortium that serves as the apex body of the Indian IT software and BPO industry, the present gloom in the IT-BPO industry is due to economic slowdown and has nothing to do with concerns that Obama might cut down on outsourcing. During his election rally, Obama gave hints of a protectionist regime if he is voted to power and promised tax breaks to "companies that hire in the United States and end tax breaks for companies that ship US jobs overseas," triggering concerns in India that fall in outsourcing orders could lead to reduced profits and massive job cuts. However, Natarajan said Obama's win the presidential election would not mean death of outsourcing business for India. His triumph, Natarajan said, would in fact spur the growth in outsourcing business as a strong US economy would result in huge opportunities for India. "Barrack Obama's plans to cut down on outsourcing does not pose a threat to the Indian IT-BPO industry. Our expertise in several areas of outsourcing will always attract new projects from the US," Natarajan said, adding that US companies will be under too much pressure to cut costs, and offshore outsourcing will be one way to do it. "We should not worry about any ban on outsourcing. It is just not going to happen. If at all, he might give incentives to job creation in America which we support and I don't think that is going to add any adverse impact on Indian outsourcing. After all, Obama administration at present have far more important issues to tackle with, like that of the current financial crisis. America will charter a new course for itself in history which will give opportunities for all of us in India," he said. "As the winds of change sweep across the American economy there will be multiple opportunities for Indian IT to engage in the rebuilding of the economy. Indian IT and business services firms have already entrenched their services in the heart of American value chains and can continue to provide truly transformational solutions to American corporations and the Government itself," he added. According to Natarajan, Obama is keen on putting the US economy back on track by creating more jobs but that does not necessarily mean stopping the trend of outsourcing because the main thrust is to revive the economy. "Most of us are working for Fortune 500 companies and are very integral to the value chain. So its not like shutting down a factory somewhere. So he (Obama) will do nothing that will disturb the success of these companies. At the same time, all of us have to realize that job creation must happen in United States and there will be different measures to take that up. I do not think anybody sensible like Obama will come in the way of current outsourcing," Natarajan said. Nonetheless, a high-profile Nasscom delegation will be meeting top officials of Obama administration in March next year to ensure that no nasty surprises greet the Indian IT-BPO industry on the outsourcing issue, he added. N.R. Narayana Murthy, chairman of India's IT bellwether Infosys Technologies, shares the same view. "We believe president-elect Obama to be a pragmatic leader who understands that American industry needs to be competitive not just in America but in third countries as well," Murthy said. Agrees Samir Chopra, president of Business Process Industry Association of India (BPIAI). "My belief is that the election of Senator Obama does not in any way pose a threat for the Indian IT/ITES industry. Indian industry today is deeply entrenched in business critical work for global customers and in his efforts to bring the economy back in shape he is unlikely to take actions which will impact the global competitiveness of US companies," Chopra said. "I think that this (Obama's victory) will lead to a new era of greater cooperation between India and US. In the current context it is even more important for the two countries to find ways to partner together to spur innovation, foster economic growth, develop an educated work force and skilled workforce, and create jobs for the global market place," he said. "As long as the work we do is high-skilled and provide qualified talent, there is no way we can be replaced overnight. From where will the US bring so many engineers," said M. Narasimha Rao, president of Hyderabad Software Exporters Association. Agrees Kaustubh Dhavse, deputy director, ICT practice at Frost & Sullivan. "Outsourcing has benefited the American economy more than it has taken away, resulting in strong margins for the US companies which have been passed on to their shareholders who are predominantly American. The story will not be any different now and that's something Obama cannot overlook," Dhavse said. "I do not believe that Obama's presidency will spell doom for the Indian IT industry. Offshoring to India enhances the cost competitiveness of US industries and is a net creator of jobs. Obama is a new generation leader. He has an excellent grasp of economic issues and is unlikely to take measures that will hurt the US economy," said Roopen Roy, managing director, Deloitte & Touche Consulting India. "US companies outsource to India not for tax incentives but to remain competitive. My bet is that under Obama, the US and India will actually scale new heights in economic cooperation," Roy said. Meanwhile, attempting to infuse confidence among Indian techies, Nasscom said the financial crisis that has hit global markets and the economic downturn in the US are "temporary" and the IT-BPO sector in India would remain untouched by the meltdown. However, the IT-BPO lobby group has cut its hiring forecast for the current fiscal year, saying IT services companies and BPOs are expected to hire about 200,000 people by next March, instead of the 276,000 that it originally projected. The revised figure represents a significant decrease from the 250,000 new hires recorded for the previous fiscal year. To survive the global economic crisis which is likely to last for another 12-15 months, Nasscom noted IT services companies are also boosting their staff utilization rates and letting go of those who fail to live up to expectations. With the Indian software business growing by 21 to 24 percent every year, Natarajan said that by 2020, India can fulfill the need of technical talent of the whole world. "As far as IT or BPOs are concerned there is nothing to worry. By that time the whole world would need 43 billion technocrats while India will have 47 billion surplus technocrats," he said. However, Natarajan added that a huge investment was required to groom the available talent pool and urged IT firms to focus on non-US markets like Latin America, Japan, China, Europe and Africa to diversify their client base. While the US market accounts for over 60 percent of India's software exports, the UK has grown to become India's second biggest market. | |||||||||
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India optimistic about outsourcing, despite global financial crisis
With America's economy in crisis, it would seem that India has a lot to worry about. The country's annual revenues from outsourcing exceed $40 billion, and a downturn in the U.S. economy could damage India's outsourcing industry.
But at the India Economic Summit in New Delhi this week, Indian officials and corporate executives remained optimistic about the future of outsourcing.
Montek Ahluwalia, Deputy Chairman of India's Planning Commission, predicted that India's economic growth for 2008-2009 will be between seven and nine percent. That's good for the country, Ahluwalia said in a press release.
"Even if you take growth at 7%, it is 2% less than what we have had but still higher than what we had four years ago," he said in the statement. "This is not an Indian crisis. We are being impacted by a global crisis."
Indian media has also written a great deal about President-elect Obama's stance on outsourcing. One quote in particular has been repeatedly cited by Indian newspapers as an anti-outsourcing sentiment. During a debate with Sen. Hillary Clinton (D-NY) during the primaries, Obama said, "We have to stop providing tax breaks for companies that are shipping jobs overseas and give those tax breaks to companies that are investing here in the United States of America."
However, Indian officials remain optimistic -- at least in public -- about the country's outsourcing future.
"Barack Obama's plans to cut down on outsourcing does not pose a threat to the Indian IT-BPO [business process outsourcing] industry," said Ganesh Natarajan, chairman of the National Association of Software and Service Companies, in an article in the International Business Times. "Our expertise in several areas of outsourcing will always attract new projects from the US."
Infosys, one of India's outsourcing titans, is predicting a 13-15 percent growth next year, according to the Financial Times. The company has no plans to scale back, and is committed to keeping the 25,000 new hires it made this year, adding to its workforce of 100,000, said S. Gopalakrishnan, the chief executive officer of Infosys in the Financial Times report.
Still, he admitted that times were tough. This downturn is far worse than the 2001 dot-com bubble burst, he told the Times.
"It is different, it is probably worse. It is not restricted to one segment or one sector or one region," he said in the article. "It impacts all sectors and the uncertainty is prolonged."
Wednesday, November 19, 2008
Egypt: The New IT Outsourcing Destination
| Mirror Image: Can outsourcing be stopped? |  |
| Opinion | |||
| Written by Reynaldo C. Lugtu Jr. | |||
| Tuesday, 18 November 2008 23:49 | |||
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Now that President-elect Barack Obama will be inaugurated on January 20, 2009, many are holding their breath, especially the business-process outsourcing companies in India, the Philippines and others, as to how he can turn around the outsourcing of jobs from the United States. In debates and on the road, Obama repeatedly said that if elected, he would discourage companies from "shipping jobs overseas" by taking away tax breaks, or by giving benefit to those corporations that keep jobs domestically. "We can keep giving tax breaks to companies that ship jobs overseas, or we can give tax benefits to companies that invest right here in New Hampshire," Senator Obama said at a joint appearance with Sen. Hillary Clinton in Unity, New Hampshire. According to CIO magazine, economists and legal advisers contacted about those comments said they are unaware of any specific tax breaks aimed at offshoring or outsourcing tech jobs. Instead, they said, Obama may be targeting broader tax-deferment strategies, such as the ability of multinational firms to avoid taxes on profits by moving money overseas. But can corporate tax policy alone really do much in stopping the offshoring of US jobs? Some analysts don't believe so. "Any plans for a Tax Code change are like trying to plug a hole in a leaky dam with your finger—to believe the US government Tax Code promotes outsourcing is a major misconception of the fiery debate around outsourcing offshore," according to Joe Greco, director of California State University-Fullerton's Center for the Study of Emerging Markets. Also, according to a Computerworld report, Nielsen Co., the media company known for audience measurement, has given up tens of thousands of dollars in local tax breaks this year after signing up with an outsourcing provider based in India. Back in 2004, John Kerry was, likewise, criticized for using the same tax-policy argument against offshoring. Factcheck.org, a political-analyst group, pointed out that taxes "are a very small part" of companies' decisions to move jobs offshore. Those at a 2005 Brookings Institution summit on trade also said taxes had little to do with outsourcing. In addition, Joel Slemrod, a tax expert at the University of Michigan's business school, said that, "For those who see [offshoring] as a problem, this is not a solution." And so US companies continue to outsource. One glaring reason is the huge cost differential between the United States and offshore providers. A programmer can be hired in China for $12 an hour while the same goes for $56 in the United States. Depending on the skill and location of the offshore vendor, the international wage ratio can reach 100:1 as corporations outsource to where they can reduce costs and maximize profits. Experts predict that the significant cost differential between the United States and other countries will continue for 30 years. Although cost reduction is the major reason US companies do offshoring, there are a number of others why firms do it. According to a 2004 Outsourcing World Summit report, of the Western firms that do offshoring, 9 percent want to gain access to skills and 3 percent require innovation from the outsourcing vendor, and the number is growing. And why not? China and India graduate a combined half a million engineers and scientists a year, versus 60,000 in the United States; India and the Philippines are already recognized globally as the hotbed of information-technology innovation and creativity in the areas of programming, animation and design. Many of the outsourcing professionals and executives in India and the Philippines are not bothered by the pronouncements of Obama during the campaign. Outsourcing will continue to flourish in the coming years as corporations find ways to stay competitive. As India's Finance Minister P. Chidambaram commented, "Once Obama is in office, he will realize that it is an interconnected world, and countries have to work together."
"Mirror Image" is a rotating column featuring writers from the DLSU Professional Schools Inc. Reynaldo C. Lugtu Jr. teaches management and marketing courses in the MBA program of De La Salle Uiniversity Graduate School of Business. He may be e-mailed at rlugtu2002@yahoo.com or visit his blog at http://rlugtu.blogspot.com.
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Indian outsourcing groups prepare to stage comeback
By Andrew Hill, Joe Leahy and Richard Milne
Published: November 19 2008 02:00 | Last updated: November 19 2008 02:00
The clouds of global recession may be just gathering for many Indian industries. But one sector that has already been in the line of fire for more than a year is the country's information technology outsourcing sector.
Last year, the industry leaders, such as Tata Consultancy Services, Infosys Technologies and Wipro, were blasted by an appreciation of the rupee against the dollar, as foreign investors rode a wave of cheap liquidity to buy Indian stocks.
The stronger rupee made it more costly for Indian outsourcers to provide services to offshore clients, eroding margins that are among the highest in the IT industry.
This year, the rupee has depreciated nearly 20 per cent, restoring their foreign exchange advantage. But the collapse of some of the industry's largest clients in the developed world is hurting the prospects of the leading outsourcers.
This has been reflected in their stock prices, which are down by more than half from their 12-month highs, compounding losses last year. But Indian outsourcers such as Infosys are holding tight. There are no mass lay-offs and many are using the opportunity to train their young workforces.
They know that if they can survive the initial wave of the downturn, clients will once again turn to them to cut costs. (If concerns are only about turning a profit, perhaps they should consider outsourcing to China, or the Philippines. There is cheaper labor out there....)
It's easier to get a job in the US, than it is right at home.
| By Prachi Pinglay BBC News, Mumbai |
The government of the western Indian state of Maharashtra has asked businesses to give preference to "locals" when recruiting staff.
It says that priority for jobs should be given to anyone who has lived for at least 15 years in the state.
Officials say that the policy to employ more locals in Maharashtra has existed since 1968 but was never implemented.
Critics say the move comes ahead of general elections next year and could be an attempt to win votes.
Instigating violence
Some 37% of the 18 million population in the state capital, Mumbai (Bombay), are migrants - mainly from northern India - drawn to the city in search of work.
Right wing parties have over the last six months been at the forefront of sometimes violent protests against the migrants in Mumbai and other towns in Maharashtra.
The leader of the right wing opposition Maharashtra Navnirman Sena (MNS) party, Raj Thackeray, was recently arrested and given bail for allegedly instigating violence against the migrants.
He has consistently denied his involvement in violence but wants local people to receive preferential treatment for state employment opportunities.
The state government led by the Congress party has announced that all businesses - small, medium and large - must now ensure that at least half the workforce for supervisory jobs must not be migrants.
For non-supervisory jobs it has stipulated that at least 80% of the workforce must be made up of non-migrant labourers.
The state government directive says that monitoring committees will be set up which will report back to it three times a year.
It says that any citizen, Marathi-speaking or not, will qualify as long as he or she produces a certificate stating domicile status of at least 15 years in Maharashtra.
The MNS has been accused of several attacks on migrant workers in recent months.
It claims that they are taking jobs from local people.
There have been protests in the northern state of Bihar, which borders Uttar Pradesh, over the violence in the Mumbai area against migrants.
Indian Prime Minister Manmohan Singh has reportedly spoken to the chief minister of Maharashtra state, of which Mumbai is the capital, to ensure the security of migrant workers.
This Offshoring Patent Services to India Report is Now Available
Research and MarketsCopyright Business Wire 2008
Laura Wood
Senior Manager
press@researchandmarkets.com
Fax from USA: 646-607-1907
Fax from rest of the world: +353-1-481-1716
Tuesday, November 18, 2008
Transition Watch: Obama will cut outsourcing
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President Obama will reduce the number of contracts that outsource government work to private firms, according to a Washington Post report.
That goal was included in statements Obama made in campaign letters sent to employees at seven federal agencies in an effort to garner their votes in the election. The letters were sent in response to a request from John Gage, president of the American Federation of Government Employees.
Other promises made in the letter included paid family leave, flexible work schedules, more opportunities for teleworking and improved bargaining rights. Defense was the only agency he made promises about that didn't include extra spending, the Post said.
Monday, November 17, 2008
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 Date:17/11/2008 Satyam bets big on business in Europe
Any European company would like to start its business in a modest way and expand in future.
 Drs Peter M Heij, Head, Continental Europe
Satyam Computer Services, India's fourth largest software exporter, is eyeing to tap a large portion of the European market. The company is targeting 30 per cent of its total global revenue from Europe by financial year 2010. The IT major had been investing carefully and at the right places. It aimed at providing the preferred near-shore option for European companies. The company wanted to leverage strategic initiatives such as nurturing global accounts in the region, consultative and solution-based selling and forming alliances with local technology and business partners, according to Keshub Panda, Head of Europe Operations. Mr. Panda told Indian journalists who visited Satyam's development centres in the U.K and Germany recently that the company hoped to see a higher IT spend in areas such as application outsourcing, project shared services, business process outsourcing and infrastructure-related outsourcing in Europe by 2010. The main aim of Satyam in the U.K. and Europe was to have deeper engagement with the major accounts and increase the revenue growth above the market trend. With the current U.S. recession, customers were having less money to spend. But business activity would neither reduce substantially nor would come to a complete standstill, added Mr. Panda. Risk-and-reward model
He said the European region, which accounted for 21 per cent of Satyam's revenue, had an addressable IT outsourcing market opportunity of $168 billion. The company had adopted the "risk-and-reward" model for scaling up the future outsourcing deals and turn into a partner rather than pure service provider to clients. Earlier, the companies used to adopt time and material model and fixed bid model. With risk and reward model, the companies take a calculated risk anticipating higher returns from the customers. Mr. Panda said Satyam already deriving a certain per cent of revenue from the risk and reward deal structure. It intended to get into business transformation models instead of plain vanilla ones to increase its margins. Today, the companies are undergoing business transformation and it became necessary for any IT company to take part in the decision-making of other companies business strategies. It also became important for the IT companies to influence decision making processes of the chief executive officers and chief financial officers in their respective businesses, which was a tough process. This led to the growth of consultancy business vertical. The Head of Satyam's Continental Europe, Drs Peter M Heij, said that there was a significant market in Continental Europe that was still untapped. Market behaviour
On the market behaviour, he said the purchasing behaviour of any European company varies from that of a U.S. company. Any company in this part of the world would like to start its business in a modest way and expand in future. The local content was large when compared to the U.S. It had a protective environment and the companies wanted a blended model in the business. At present, Satyam had 25 per cent local content in its European business. That means, the local companies wanted 25 per cent of their local people to work in the onsite and rest offshore, he added. According to Satyam penetrating into the European countries, would be done by tapping the small and medium sized companies. It was hoped that nearly 10 to 15 per cent of the small and medium companies in the European market would be tapped by Satyam. It would be providing complete end-to-end solutions to all these SMEs, said Mr. Heij. Similarly, he said to market their product, the model would also have to be different such as "pay as you use" and 'end-to-end solutions". Under the pay as you use model Satyam will pay for the IT systems based on the usage. Similarly for end-to-end solutions, the company will provide services from installation to maintenance. He hoped with these strategies, Satyam would be in position to acquire two very large accounts worth $ 100 million and 30 other accounts worth $ 10 million by 2010. Satyam Central Europe Head Aloke Palsikar, said despite the global financial meltdown, the outsourcing market, in Europe and particularly in Germany and France, was expected to increase. In the present market scenario, the company saw more opportunities than challenges in the European markets, he added. Mr. Palsikar said though the U.K. market continued to dominate, there was every probability to have change in the ratio. It was hoped that its share together with Ireland would come down from 52 per cent to 40 per cent, while that of continental Europe would increase from 48 per cent to 60 per cent over the next two years. In Q2 of current fiscal, revenue from Europe was 20.60 per cent of Satyam's total revenue of $ 652 million. The U.S. market had contributed 62.03 per cent of Satyam's revenue in the quarter. Satyam's operation in European countries commenced in 1997 and at present has branch operations in 15 countries and presence in more than 20. Its three development centres in the U.K., Germany and Hungary serve over 160 active customers in Europe.
SHANTHI KANNAN
(Recently in London and Germany) © Copyright 2000 - 2008 The Hindu |
Thursday, November 13, 2008
Business Week Online
08/16/08 4:00 AM PT
India's engineers are gaining in skill and experience, leading many
companies to grant autonomy to their Indian divisions. Some are
responsible for entire product lines, from engineering to profits and
losses. All this being done despite the rising wages and overcrowding
that plague modern India.
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Given its skyrocketing wages, tightening labor market, and worsening
infrastructure bottlenecks, one might think India is starting to lose
steam as an offshore research and development haven.
Not a chance. According to a study by Zinnov, a consulting firm that
helps multinationals craft global product-development strategies,
India's R&D scene is not only still gaining momentum, it's also
becoming more strategically important. This is happening even though
the average cost per employee rose 16.2 percent annually in the past
three years.
Offshore R&D has mushroomed into a US$9.35 billion annual industry,
Zinnov reports, and is growing at a 23 percent annual clip. By 2012,
the firm predicts, this business will reach $21.4 billion. The
findings are based on interviews with senior managers of 120
India-based R&D centers of foreign companies.
The key drivers are multinationals. Roughly two-thirds of the work is
done at R&D centers owned by tech giants such as Cisco (Nasdaq: CSCO)
, Motorola (NYSE: MOT) , General Electric (NYSE: GE) , and HP (NYSE:
HPQ) , as well as a growing number of small- and midsize U.S.
companies. The number of such foreign-owned centers has surged from
180 in 2000 to 594 this year.
What's more, the India R&D bases of multinationals increasingly are
becoming the leading sites for developing particular products sold
globally, whether they be new chips, software packages, or telecom
devices. That means they often are responsible for all of the
engineering, strategic direction, and even the profits and losses of a
product line. Currently, 10 percent of offshore centers have "full
ownership" of product lines, Zinnov estimates. By 2012, that will
reach 30 percent.
Affordable Quality and Experience
Why is such Indian offshoring continuing to rise despite higher costs?
One reason, of course, is that despite all the wage inflation, India
remains a lot cheaper than the U.S. The total cost of employing a
full-time Indian engineer -- including wages and benefits, facilities,
telecom, travel, and administrative support -- ranges from $35,000 to
$55,000. The U.S. average is at least three times that, Zinnov says. A
lead engineer in India still averages just $30,000 a year in salary,
while a raw recruit classified as an "associate engineer" draws a mere
$4,440 a year. The growth of Indian engineering wages, meanwhile, is
starting to slow, meaning the gap with the U.S. won't close anytime
soon.
But a bigger reason, asserts Zinnov Managing Principal Vamsee
Tirukkala, is that the growing quality and experience of India's huge
technical workforce is offsetting escalating wages. Some of the
estimated 250,000 Indian engineers working on global R&D, especially
those who have been employed by big Indian software-services providers
including Infosys, Tata Consulting Services and Wipro, now have 10
years of experience working for international corporations, Tirukkala
says. Countless others have received heavy training by their Indian
employers. "The reason to go to India no longer is just about cost,"
he says. "It's about the quality of talent."
That's a big reason Bangalore -- even with its horrible traffic
congestion and soaring costs -- remains by far the most important R&D
base. Of the city's 80,500 engineers working in foreign-owned R&D
centers, according to Zinnov's statistics, about two-thirds have four
to seven years of experience. One-third have seven to 15 years, enough
to qualify as a lead architect for many products. No other city in
India comes close, Tirukkala says.
An influx of returnees from the U.S., Britain, and Australia, many
boasting years of managerial and R&D experience at Western
corporations, is supplementing India's technical workforce. Expatriate
Indians now account for 10 percent to 15 percent of the staff in
offshore R&D centers, Zinnov estimates. The software industry alone
has benefited from the return of 30,000 expatriate professionals,
according to Nasscom, India's information technology trade
association. "The immigrants have brought the high-end talent that
India needs," says Tirukkala.
Up the Innovation Ladder
This greater experience is enabling India to move up the innovation
ladder, Tirukkala argues. More companies are making India the main R&D
base for certain products because they are finding it harder than
expected to control offshore engineers out of the U.S. "Chief
technology officers are finding that globally distributed innovation
is not working," he says. Some companies have decided to move
engineering back to the U.S. But others have shifted top managers to
India to run development work entirely from there. The India country
head of software giant Adobe Systems, (Nasdaq: ADBE) for example, is
also senior vice-president for its global printing and publishing
system product business.
Not all analysts are convinced Indian R&D operations are ready to
assume the lead in innovation, however. Martin Kenney, a University of
California at Davis economist who has studied offshore R&D in India
and China, agrees the trend is still growing in India and that its
workforce is becoming more experienced and innovative. Since 2000, he
notes, U.S. patents awarded to inventors filing from India rose more
than fivefold, to around 550 a year.
But the number of India patents remains very small in the scheme of
things: Last year the U.S. issued nearly 94,000 patents. And Kenney
suspects the vast bulk of India's engineering hordes still is far too
green to do complex design and innovation work. "Bangalore is not like
Silicon Valley, where in a couple of weeks you can round up 10 people
who have already designed chips at three different startups," he says.
"We don't really yet know much about the true quality of the work done
there. There are company anecdotes going both ways. Some of it may not
be what it is cracked up to be."
Kenney believes low cost is still the primary reason U.S. companies
are shifting work to India. "My guess is that if the Indian engineer
cost the same as our engineer, nobody would go to India," he says.
Kenney does agree, however, that India's R&D workforce is steadily
gaining the experience to produce innovation. The debate is whether
that time is another five years away -- or has already arrived.
Indian giant Tata to launch UK design agency
Tata Group, the Indian steel giant, is to launch a branch of its Indian design consultancy Tata Elxsi in the UK and is planning more international expansion, Packaging News can reveal.
The industrial giant, which owns companies including steel maker Corus, Jaguar Land Rover, and Tetley tea, hopes to open a global network of design studios that would connect back to its central hub in Bangalore.
Tata's UK studio in Milton Keynes will focus initially on design work for the FMCG and home appliances markets, and already has projects for major clients in these markets underway.
The consultancy will offer packaging design, product design, graphic design and product realisation, and is holding a launch event tonight at the Design Council in London.
Tata Elxsi was established in Bangalore in 1989 and has more than 3,000 staff offering product design, R&D and technology development, across industries including FMCG, electronics, automotive, media and communications.
In October, Tata Group was forced to look for a new location to manufacture the Nano, which it is promoting as the world's cheapest car, after a row over the land for the factory in West Bengal.
Tuesday, November 11, 2008
Tata drill for crunch hour 6-point plan for 96 bosses | |
| PIYA SINGH | |
Mumbai, Nov. 11: Ratan Naval Tata, chairman of the $62.5-billion Tata group, is in crisis mode. The feisty 70-year-old chairman of one of the oldest business houses in the country has ordered the chief executives of his 96 group companies to put off acquisition plans unless these are strategic in nature, soft-pedal capacity expansion plans, tap into all available credit lines, pare costs and improve operational efficiencies. In short, batten down the hatches — as the group tries to cope with the rumbling effects of the worldwide financial turmoil. Last week, Tata wrote to the CEOs of all his group companies warning them about the far-reaching implications of the credit crisis that has roiled businesses across all geographies. He asked his head honchos to kick off a critical review of business plans and strategies. Tata outlined a six-point action plan that each company should consider in the backdrop of the deepening credit crisis. Besides ordering a complete review of all buyouts and expansions, the action plan directs the CEOs to look at ways to conserve cash, tap into existing funding agreements, and cut operational expenses, it is learnt. Tata, who took over the group's reins in 1991 and turned it into a conglomerate straddling six continents, is altering the roadmap for the 96 operating companies to help them deal with the global credit crunch. Some of these guidelines could spell a strategic shift from the way the group has carried out business over the past decade. The Tata group had been well on its way to realising the chairman's ambitions of becoming "an Indian business conglomerate that is at home in the world". Over the past eight years, it has notched up overseas acquisitions worth $18 billion, including deals like Tata Motors' $2.3-billion buyout of Jaguar Land Rover, and Tata Steel's $12.1-billion takeover of Anglo-Dutch steel maker Corus in early 2007 — the biggest overseas acquisition by an Indian company — that turned it into the world's sixth largest steel producer. There were other acquisitions as well: Tata Chemicals bought Brunner Mond of the UK, Tata Motors took the wheel at Daewoo Commercial Vehicles of South Korea, Tata Steel snapped up Singapore-based Nat Steel, VSNL (now Tata Communications) locked into Tyco Global Network, and Tata Chemicals acquired the US-based General Chemicals. Some of these deals, however, have faced pressure to refinance their debt obligations. At present, the group has 263 projects under various stages of implementation (including some that have just been completed). The big-ticket project investments are currently being made by Tata Steel, Tata Power, Tata Teleservices, Tata Motors, Tata Chemicals and Tata Communications (see chart). High-profile projects like the Nano small car venture, which has just been relocated from Singur to Sanand in Gujarat, and the Mundra ultra-mega power project will not be impacted by Tata's directive, said an analyst on the condition of anonymity. The CEOs of companies that operate in sectors that are facing cyclical pressures may, however, review some of their plans, he added. Tata has reportedly expressed concern about the ability of the companies to access credit and raise equity in the current scenario. He does not expect the state of affairs to improve over the next year or so. Tata group companies have seen a spurt in borrowings as a result of their aggressive acquisitions. Data collated by CMIE show that Tata Steel saw an 84 per cent year-on-year growth in borrowings. Tata Motors reported a 57 per cent rise in borrowings during the year ended March 2008. Tata has said the current crisis calls for immediate action. The global exposure of the group — revenues from international operations amounted to $38.3 billion, or 61 per cent of its total revenues in 2007-08 — has probably made Tata more sensitive to the implications of the financial meltdown. The Tata directive could now serve as a cue to other business houses and conglomerates in the country. |
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Thursday, November 6, 2008
- Information Security: Data drains and how to prevent loss
Do you know where your confidential data is, where it is going, and how to prevent it from leaving your organization? Former Gartner analyst, Rich Mogull, discusses the importance of avoiding "data drains" within companies, and offers some key considerations for implementing a DLP solution.
- Data Loss Prevention: Keeping sensitive data out of the wrong hands
It is critical for companies to reduce the risk of data security breaches. Learn what the thought-leaders at PricewaterhouseCoopers have to say on the risks associated with data security and best practices you can use to protect your business.
Indian outsourcing industry jittery after Obama win
November 5, 2008 (IDG News Service) BANGALORE, India -- India's outsourcing industry is privately a little jittery after Sen. Barack Obama's victory in the U.S. presidential election. But there is the expectation in industry circles that in the end, economic pragmatism will prevail.
Obama, in his speech accepting the Democratic Party's presidential nomination, said he would stop giving tax breaks to companies that ship jobs overseas and would start giving them to companies that create jobs in the U.S.
That could spell trouble for India's outsourcers, which get most of their revenue from the U.S.
There are fears that in the current protectionist mood, U.S. companies, already battling an economic crisis, will cut costs by reducing discretionary work sent offshore to countries like India, according to an analyst who declined to be quoted.
Congratulating Obama on his victory, the National Association of Software and Service Companies (Nasscom) said today that it supports expanding the H-1B visa program to allow more skilled workers from abroad. As it helps meet skills shortages in the U.S., the H-1B visa program can help U.S. companies lead the way on innovation and contribute additional jobs and economic growth in the country, a Nasscom spokeswoman said. (About H-1B visa's. As I was training a gentlemen from India for my position, I noticed that he was looking for another position in the US. Not only was I loosing my position, his plans were to compete with me in the US for my next position. My thoughts, he could afford to work for considerably less since his housing and transportation costs were provided for by the sponsoring organization. What a great deal. How do I get one of those H-1B's?)
The H-1B visa program has previously come in for criticism from some U.S. senators who said it was being used to displace qualified U.S. workers with foreign employees. But many technology companies in the U.S. say the program provides skilled workers that they can't find easily in the U.S.
The uncertainty in India about the impact of Obama's presidency on Indian outsourcing was also reflected in comments by P. Chidambaram, the country's finance minister, referring to Obama's comments on outsourcing. "A comment here or a comment there should not bother us," Chidambaram told reporters today. "Once Obama is in office, he will realize that it is an interconnected world, and countries have to work together."
Some analysts hold that the fears may be exaggerated because an U.S. economic recovery will depend largely on cutting costs, which offshore outsourcing offers.
Obama's comments about bringing jobs to the U.S. were primarily in the context of manufacturing jobs, according to research firm Gartner Inc. "In a specialized field like IT, it is not just a matter of 'choosing' to outsource overseas or not, but the issue of skills availability locally," said Partha Iyengar, a vice president at Gartner.
There is usually a lot of rhetoric in the run-up to an election, said Siddharth Pai, a partner at outsourcing consultancy firm Technology Partners International Inc. Before pushing through any protectionist legislation, any president will have to seriously consider that outsourcing and offshoring offer direct cost benefits to U.S. companies and will keep the country competitive, he added.
This story appeared on Network World at
http://www.networkworld.com/news/2008/110508-offshore-outsourcing-quantifying.html
Offshore Outsourcing: Quantifying ROI
Read any case study and you'll probably encounter overblown statistics that say offshore outsourcing reduced costs by 50 percent, reduced number of defects in production by 25 percent, reduced time to launch application by 40 percent and so on. Some even go a step further and extrapolate these figures to 'business value'. Example: launch time reduced by 10 weeks implies 10 weeks of additional revenue or reduced costs. So 10 divided by 52, then multiplied by annual revenues or IT annual spend equals business value from reduced launch time. Lo and behold--suddenly you have a number in tens of millions. Add up all the other sources of value and you may reach hundreds of millions and even billions as the business value. Sounds good, right? Especially in this time of recession woes.
But if this was accurate, customers would not be so unsure about whether offshore outsourcing has delivered value. Numerous surveys indicate that anywhere from 17 percent to 53 percent of customers have not realized business value/return on investment from offshore outsourcing. Yes, yes, statistics can prove just about anything, but whatever the number, there are customers who have not realized tangible business value from offshore outsourcing. And this article is for you folks.
When quantifying the business value of offshore outsourcing, customers must consider three important aspects that are often ignored: the appropriate comparisons, the hidden costs and the distinction between theory and reality.
Appropriate comparisons
While building the business case for offshore outsourcing, the most common comparison is between onshore and offshore, apparently in answer to the question "if we had to do the project in any other way apart from offshore, how much would that cost?"
Many assumptions end up wrongly overestimating the onshore cost. Most common is using the same headcount number in both cases. When a project is done onshore, fewer people are required because of reduced activity level in areas like knowledge capture, knowledge transfer, project coordination and environment support. Then there is the productivity factor.
"Sath" Sathyanarayan, author of Offshore Development and Technical Support: Proven Strategies and Tactics for Success, says that even if offshore personnel are as competent as the local staff--which is your best case scenario and unlikely to be the case when you are getting started--there will a productivity loss because of systemic issues.
Also, the assumption that all the onshore work will be done by newly hired internal employees may not be the right one to make; customers almost always leverage contractors and existing employees. For the former, use the relevant contractor rates that are likely to get negotiated and the appropriate loading factor (you don't pay pensions, holiday allowances etc. to them). For the latter, consider if they can be treated differently: it could be a sunk cost for a period of time or a partially apportioned cost. Finally, internal employee costs are excessively padded by something called "an overloading factor"--to account for pensions, holidays, desk space, corporate overheads and so on. A figure of anywhere from 20 percent to 50 percent is normally used--choose the figure that reflects reality, and take into account that you can't recover any of those costs anyway.
Hidden costs
The straightforward costs are fairly easy to see--costs related to personnel, communication, IT infrastructure and tools/licenses (though sometimes the uplift required for converting single site to multisite licenses can be hidden).
Many cost elements are not obvious. In Hidden Costs Impact Value in Outsourcing, authors Whitfield and Joslin state that potential outsourcers in all industries commonly assume that outsourcing can be plug and play, that the company will only have to absorb limited up-front costs before large savings can be realized, and that offshoring for labor arbitrage will ensure more than 60 percent cost savings. In reality, 10 percent to 15 percent savings is more realistic for highly commoditized service areas, and 40 percent to 50 percent savings can be achieved only in optimal circumstances.
Travel of a customer's onshore staff first comes to mind as a hidden expense: A leading European software provider indicated that it takes 40 trips per annum to manage its offshore product testing program.
Equaterra, an outsourcing consultancy, points out a couple of interesting examples of hidden costs:
-- Hidden cost of work retained onshore, internally.
One retailer had outsourced the work of 1,100 employees, but held onto 50 percent of the work for 200 of those employees. As a result, the company overstated its business case by US$24 million.
-- Hidden cost of internal, transitional headcount.
Companies usually don't account for the costs of employees who help in the transition. For example, one pharmaceutical company kept about 20 percent of its staff for six months after the go-live date, which added $1.5 million in cost. Overambitious headcount estimates can cut projected savings by 10 percent to 20 percent.
-- Other examples of hidden costs are setting up (initial knowledge transfer, training, retraining et al) and managing the offshore outsourcing engagement (governance system, additional personnel, management time).
A McKinsey study indicates a figure of 10 percent for additional transactional costs and 10 percent for additional monitoring costs, though particular cost elements were not specified.
Theoretical versus actual impact
A recent whitepaper by a leading offshore outsourcer in collaboration with a top tier industry analyst, reported that their return on outsourcing model takes into account benefits from cost savings, efficiency gains and revenue improvement. But the bulk of the benefit actually comes from revenue improvement rather than tangible cost savings.
Assumptions on revenue impact are open to theoretical debate, and seldom evidenced in financial statements. It's not that there is no revenue impact for offshore outsourcing, but customers should make the distinction between what benefits will actually hit the books versus benefits that are more theoretical in nature.
Statistics can prove just about anything. You need to exercise diligence and your own prudent judgment in the quantification process, otherwise you will end up building unrealistic, unseen and infeasible expectations of business value from offshore outsourcing.
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