Wednesday, October 15, 2008

Wed, Oct 15, 2008 6:11 EDT

The Key Drivers Behind Knowledge Process Outsourcing

Posted by: ExecutiveBrief in Best Practices

Topic: Enterprise Management

Current Rating: Comments: 0

Knowledge Process Outsourcing (KPO) has become an offshoot of business process outsourcing over the years. While BPO focuses on basic back-office services, such as data entry, transaction processing, or customer service, KPO requires higher level of specialization in practically all aspects of outsourcing management, such as organizational communication, information analysis, and systems design and integration to name a few.

The shift from business process outsourcing to knowledge process outsourcing did not happen by accident. Instead, the ongoing change is a natural outcome as players in the BPO gain the necessary expertise needed to provide higher-level outsourcing services. The key drivers cover hardware/software advances, human capital, process maturity, and "soft skills" management. Let us look at some of the key drivers of KPO.

Improvements in technology infrastructure
Technology is the backbone of business process outsourcing. Through the years, infrastructure improved and acquisition of hardware and software became more affordable. Fiber optic cables and satellite communication became widely available, allowing vendors and clients to transmit data and enjoy instantaneous communication from different parts of the globe. Clients and service providers no longer have to be in the same location. In most large corporations, people and knowledge are just a few clicks away, no matter the time zone.

BPO experience
KPO is important in the success of an organization for it deals with the management of a large body of critical organizational knowledge. In the era of knowledge economy, companies that take information—in every form—have a competitive advantage over their peers. They exploit the knowledge gained from R&D, customer service, and research and analysis to attain their key business objectives. Over time, the experience and expertise that they earned in these efforts are reinvested to provide more complex services.

Human capital
As the outsourcing industry became more competitive, companies sought to hire only the best talents that vendors could provide. In turn, vendors made sure that the consultants that entered their payrolls had the right tools to provide the services that their clients demanded. Millions of dollars are being spent yearly on updating workers' knowledge in application development, project and team management, business and data analysis, and soft skills. College degree alone is not enough to gauge a candidate's aptitude for the job; post-graduate degrees and certifications are some of the key selling points for talents. At the start of the decade, Eastern Europe's oversupply of engineers fueled its IT outsourcing industry, thanks to its educational and economic model's--and history's--emphasis on courses in the sciences.

Moreover, surveys have often pointed to the fact that "soft skills" are among the top competencies that companies look for, in addition to technical aptitude. Outsource workers eventually graduate from "sweatshop jobs" to highly analytical specializations. This development resulted not only in performing tasks, but delivering results.

Lower Cost
As in BPO, cost is a key driving force behind the growth in KPO. It allowed companies to access more and promising talents located in different territories without having to shell out as much as they would have on onshore knowledge workers. Even with the valuable knowledge they bring on the table, offshore outsource talents still command competitive salaries compared to their onshore counterparts.

By ExecutiveBrief
Technology Management Resource for Business Leaders
www.executivebrief.com

MexicoIT Honored with "Outsourcing Marketing Excellence" Award in the US IT Market

Last update: 2:15 p.m. EDT Oct. 15, 2008

MEXICO CITY, Oct 15, 2008 (BUSINESS WIRE) -- MexicoIT was honored with the "Outsourcing Marketing Excellence" Award at the Midsize Enterprise Summit 2008 recently held in Dallas, Texas, for successfully promoting the Mexican IT industry and helping it to effectively penetrate the US IT market. The Summit was organized by United Business Media (UBM) with the participation of key Gartner Research analysts.

"This award reflects our commitment to the IT industry in Mexico and demonstrates that MexicoIT is achieving its goal of positioning Mexico as the ideal destination for IT outsourcing and investments by US companies," said Rogelio Garza, General Director of the National Chamber of Electronics, Telecommunications, and Information Technologies (CANIETI) and head of Mexico IT. "This award is an achievement shared by the entire MexicoIT family - its companies and member states, industrial chambers, associations, and the Federal Government through PROSOFT. It urges us to continue driving this campaign towards new frontiers," Garza concluded.

The award highlights MexicoIT's effectiveness in creating in a short time a strong awareness in the global marketplace about Mexico's unique advantages as an IT sourcing country. This awareness positions Mexico as the preferred outsourcing destination in the America's for US companies. The advantages include the true nearshoring benefits derived from Mexico's, proximity to the US, cultural affinity, and similar time zones, and also the strong support of the Federal Government to the country's IT industry's growth.

Rogelio Garza received the award from Nancy Hammervick, UBM's Executive Vice-President. In her speech she recognized the efforts of CANIETI and the support of the Mexican Ministry of Economy to the promotion of the Mexican IT industry provided through the Software Industry Development Program (PROSOFT). The award ceremony was attended by executives of Mexican IT firms, UBM, CANIETI and MexicoIT.

About MexicoIT

MexicoIT is the first program in Mexico with the mission to promote the Mexican IT (Information Technology) services industry abroad. MexicoIT is operated by the National Chamber of Electronics, Telecommunications and Information Technologies (CANIETI), an industry association of leading IT companies in Mexico. The Mexican Ministry of Economy supports MexicoIT through the Software Industry Development Program (PROSOFT). The MexicoIT team includes: Monica Senderos, Elisa MuAoz and Horacio Frias. Daniel Tkach, CEO of PartnersMarket Consulting, is MexicoIT's marketing consultant.

SOURCE: MexicoIT

For MexicoIT 
Burson-Marsteller 
Sonia Diaz, 305-347-4396 
sonia.diaz@bm.com

Tuesday, October 14, 2008

At Indian Call Centers, Another View of U.S.
As Economy Falters, Debt Collectors Hear Sobering Stories From the Land of Plenty

By Emily Wax
Washington Post Foreign Service
Tuesday, October 14, 2008; A08

GURGAON, India -- With her flowing, hot-pink Indian suit, jangly silver bangles and perky voice, Bhumika Chaturvedi, 24, doesn't fit the stereotype of a thuggish, heard-it-all-before debt collector. But lately, she has had no problem making American debtors cry.

For the past three years, Chaturvedi has been a top collection agent at her call center, phoning hundreds of Americans a day and politely asking them to pay up. As the U.S. financial crisis plunges Americans into debt, her business is one of the fastest-growing sectors in Indian outsourcing. It is also one of the few sectors of outsourcing in India that is still hiring aggressively.

Sitting in a narrow cubicle, her head-set switched on, Chaturvedi listens every night to increasingly disturbing tales of woe from the other side of the globe.

"My mortgage payments are just too high, honey. I just can't make the payment this month," a weeping woman with a Southern accent recently told her in response to a call for a $200 credit card payment. "I'm sure y'all heard about the credit crunch and gas prices. I'm flat broke."

"Ma'am, I am here to help you," Chaturvedi calmly said. "Ma'am, maybe you could make a small payment, $100 or $50, anything that you can."

Few places in India absorb and imitate American culture as much as call centers, where ambitious young Indians with fake American accents and American noms de phone spend hours calling people in Indiana or Maine to help navigate software glitches, plan vacations or sell products. The subculture of call centers tends to foster a cult of America, an over-the-top fantasy where hopes and dreams are easily accomplished by people who live in a brand-name wonderland of high-paying jobs, big houses and luxury getaways.

But collection agents at this call center outside New Delhi are starting to see the flip side of that vision: a country hobbled by debt and filled with people scared of losing their jobs, their houses and their cars.

"Lately, 25-year-old Americans are telling me that they are declaring themselves bankrupt," said Chaturvedi, raising her eyebrows in shock. "These days the situation is so emotional, so fragile. We have to have so much empathy and patience."

"It's like people are totally drowning," said Omkar Gadgil, 24, who goes by the alias Richard Rudy and was a math major in college. He is brainy and considered the office expert on the intricacies of debt collection. "There has just been years of overspending and now: the crash."

In the past, debt-saddled customers were often annoyed by Chaturvedi's calls from the open-air office at Aegis BPO Services. But now they seem depressed, defeated. Even the men sob into the phone, several agents said.

Under the pseudonym Carol Miller, Chaturvedi's ability to deftly work around the standard line, "The check is in the mail," is now being challenged by clients throwing out new responses: "How do you expect me to pay? This is the worst crisis since the Great Depression."

Chaturvedi said she has never seen it so bad. Many of the young employees say they are flabbergasted at just how widespread the financial ruin appears to be.

Talking to so many anguished Americans has taught these agents an important lesson: Live within your means. Agents with credit cards are vowing to pay them off every month, even during the upcoming holiday shopping season, when malls feature neon signs advertising flat-screen TVs and air conditioners.

Managers of this call center say they have recently added a seminar on the economic crisis, with PowerPoint slides that graph the financial mess as well as updates on other events that could affect the ability of U.S. debtors to pay their bills, including natural disasters such as Hurricane Ike. The presentation is intended to enable collection agents to bond with their clients, and possibly deflect their excuses.

Since the crisis began, agents have seen call times shoot up dramatically because late payers often want to talk more. More callers have moved. More phones have been disconnected. Clients have started bargaining with agents for discounts on their debts "as if they were haggling at an Indian vegetable market," said Rhoit Chug, assistant vice president of training for Aegis.

India handles an estimated $16 billion -- or about 5 percent -- of delinquent U.S. accounts. More complicated health insurance bills and mortgage payments are still largely handled inside the United States, industry executives say.

But the debt collection business will continue to grow as debt rises and companies look to cut costs, industry experts said. Aegis, which handles nearly a fourth of debt collection outsourced from the United States, is undergoing a rapid expansion. The company is erecting a second office building for 5,000 employees, many of them to be hired over the next few years. Most employees are college-educated and in their 20s. They earn about $5,000 a year, a competitive starting salary in India, but less than a fourth of what their American counterparts make.

Inside the Aegis call center, there is a clean, colorful cafeteria with round tables and darts to relieve stress. Because New Delhi is about 10 hours ahead of the eastern United States, there is an espresso machine and candy counter to keep the young workers awake while calling through India's night.

Aparup Sengupta, global chief executive officer and managing director of Aegis, encourages his debt collectors to use a "hospitable Indian touch," meaning less arm-twisting and more emotional therapy.

"This business is a performing art," Sengupta said. "We are part therapists because the core of the issue is that every human being wants to be honorable in life. We don't just push someone into a bad situation. We try to create a real solution."

Decorating the office are dozens of yellow smiley faces with the words, "Happy People. Happy Customers. Happy Investors," along with other posters that read: "Connect and Collect."

"How is the car running?" asked Parul Malhotra, 25, who goes by the alias Michelle Jones.

"It's a real piece of junk," the customer shot back, his voice registering more depression than anger. "It was in the shop. The electric's all messed up. And I have no money now. Plus, we have an illness in the family."

"Times are hard. I wish for everyone a speedy recovery," said Malhotra, trying to be cheerful. After a pause, she got back to business: "But let's try to work out a payment."

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Monday, October 13, 2008

China Claims Outsourcing Boost

By Gary Bowerman, on Monday, 13 October 2008

Published in : The News, News October 2008

As China seeks to diversify its economy away from its traditional manufacturing base, Chinese companies have won outsourced service contracts worth USD1.9 bn in the first eight months. This figure is up 17 per cent from the same 2007 period, according to the Ministry of Commerce.

By the end of August, China had around 1,800 outsourcing companies, with about 330,000 employees. In 2007, total contracts abroad for outsourced services accounted for USD2.09 billion.

The Chinese government plans to develop 10 outsourcing base cities by 2010, in an effort to build up outsourcing services and utilise the nation's large population of unemployed university graduates. The cities include Shanghai, Dalian, Xi'an, Hangzhou, Nanjing, Shenzhen and Chengdu.

Friday, October 10, 2008

Outsourcing industry needs to evolve to high-skill services

The Philippines will have to improve training for engineers, programmers, and other high-skill professions and expand broadband facilities to further strengthen the local busines process outsourcing (BPO) industry, amid the ongoing global economic slowdown, the Economist Intelligence Unit (EIU) said yesterday.

EIU pointed out that even as the country enjoys a "real competitive advantage" in its outsourcing sector due to an English-proficient workforce and good telecommunications infrastructure, the said sector is extremely vulnerable in the face of a slowdown and even a recession among the world's major markets.

"One of the reasons it has been successful is because the BPO sector does not need a lot of capital requirements. [It is] a footloose industry. If it all goes wrong, [investors] can quickly [leave]," EIU corporate network director and Southeast Asia expert Justin Wood said at the Economist Conferences' Business Roundtable with the Philippine government yesterday.

The sector, he said, needs to move up the value-added ladder by going more into outsourced operations for animation and engineering design.

Nokia Siemens Networks Asia Pacific region head Christian Fredrikson, for his part, said at the conference that the country needs to expand broadband access to the internet to rural areas.

But the Philippines' infrastructure for the BPO industry is in place, especially as the country has increased "redundancy" or created back-up internet lines with new landing stations in La Union and Cagayan, President Gloria M. Arroyo said at the conference.

The Education department is also integrating information and communication technology in public schools' curriculum, the President added.

Aside from the BPO industry, EIU also gave prescriptions for other sectors.

The Philippines needs to shift to the manufacturing industry and away from the lower-growth agriculture sector, Mr. Wood said.

Perceptions of corruption and the complicated business regulations need to be dealt with to prop up the investment climate, especially as Vietnam is gaining more ground in export-based production.

Mining also has a huge potential as the country is highly mineralized. The sector accounted for just 1.5% of gross domestic product last year, a figure far too low compared with other countries, Mr. Wood said.

Security issues, particularly the conflict in Mindanao, need to be resolved while more infrastructure outside of Metro Manila must be built to boost the promising tourism industry, he added.

Ms. Arroyo, however, side-stepped the security problem and said that the poor performance of the tourism industry is due to the weak carrying capacity of existing transportation networks. — Jessica Anne D. Hermosa

From: www.itworld.com

Offshore outsourcing: what role will recession play?

by Arpit Kaushik

October 10, 2008 —

The ongoing credit crisis is a concern for everyone in nearly every industry-fear of lost jobs, foreclosed homes and bankrupt businesses. But those lost jobs are likely to further bolster the booming offshore outsourcing market -- so the experts predicted. (Also read How to Save Your Job During a Recession and 10 Secrets for Searching for a Job During a Recession.)

Fast-forward two months: it's time for them to eat their words. Neither are customers outsourcing more nor is the industry growing any faster. In fact each day service providers only revise their growth estimates in the downward direction.

Some brave analysts are finally coming out with the truth. Days after Wall Street's collapse, vice-president and principal analyst with US research firm Forrester, John McCarthy, said the scale of the crisis had rendered all previous studies including Forrester's own survey, released earlier this month, redundant, and that Indian IT providers should prepare for slower growth and lower profits. "It is naive to say an economic slowdown is good because cost-cutting will lead to higher offshoring. This is no longer a recession, it is fundamental restructuring of financial services that is taking place," says McCarthy.

What the hell happened in these two months?

Multiple factors are at play here-some recent developments and some historic issues that have been building over time.

About 20 percent to 40 percent of the revenues of offshore outsourcing firms are tied to the financial services industry. With its collapse, companies have been forced to look to other vertical markets. In normal circumstances, that should have been enough to offset the revenue erosion. But the problem is, that everyone is in the same boat and those other industries are also impacted by the crisis, fading consumer demand and reduction in spend.

For example, the travel vertical has started seeing a rise in ticket cancellations and refunds, which has led service providers like WNS to greater conservatism on revised guidance. Hexaware stated that delayed decision-making is spreading out from BFSI to travel, and it has now reduced its annual growth estimate from 24 percent to 7 or 9 percent. Sasken is now cautious about telecom handset segment as all the top-five handset customers are seeing a slowdown in sales (a u-turn from Sasken's bullish stand on this segment a couple of months ago).

So, suddenly all players are chasing a smaller market, in which there was little differentiation amongst players anyway, and it will lead to pricing pressure, reduced profitability and less growth.

It will also become difficult to generate new business (unless driven by price), which will result in generic and inefficient players rightfully getting wiped out of the market. Rather than getting upset about it, I think it's an exciting opportunity for service providers to innovate and build their differentiators. Customers, I would say, have never had it so good-they can finally be in the driver's seat.

It's also difficult to accurately quantify the business value of offshore outsourcing. At a theoretical level, it does make sense. At a headcount level, it also makes sense. But at a business outcome level, the real and hidden costs are often ignored and many companies are left thinking "hey wait a minute, I offshored hundreds of my staff...why isn't my profitability increasing?" And despite share of offshoring rising, why haven't we ever seen a reduction in IT spend? That's because offshore outsourcing has so far focused on headcount as the currency, not the business value generated. That is about to, thankfully, come to an end.

The more I think about the full value chain, the more intrigued, and sometimes scared, I get about the full impact. TCS has reduced its annual hiring estimate by about 30 percent, Wipro already reduced headcount in IT services last quarter, Polaris has resorted to just-in-time hiring, Infosys is visiting fewer campuses...what does it mean for the employment market in offshore outsourcing countries? Will wage inflations ease off? Will attritions finally come to manageable levels? Will being skilled come back in fashion compared to just having an IT diploma/degree? We'll have to wait and see...
It is the end of the golden age of offshore outsourcing, but it also heralds a new dawn-the age of truth and rationality. Where offshore outsourcing delivers real, tangible business value, and service providers are focused on making things work for customers in unique and innovative ways.

Here's to the new age...cheers!

CIO.com

India October 10, 2008, 7:36AM EST text size: T T

India's Tata Wins Big Citi Outsourcing Deal

TCS acquires Citigroup Global Services—and bags a giant contract to provide outsourcing services to Citi for the next nine-and-a-half years

by Nandini Lakshman

It's festival time in India, and Tata Consultancy Services, the country's largest IT software and services provider, is celebrating with gusto. After months of speculation, TCS acquired Citigroup's (C) India-based outsourcing unit, Citigroup Global Services, for $505 million in an all-cash deal announced on Oct. 8. That's the largest-ever purchase for TCS. What's more, the company bagged a $2.5 billion contract to provide process outsourcing services, application development, and infrastructure support to Citigroup and its affiliates over nine-and-a-half years. "This transaction will complement our domain expertise and bring new capabilities to TCS that will help drive growth," says S. Ramadorai, chief executive officer of TCS.

At a time when stock prices of India's outsourcing powers are crumbling (BusinessWeek, 10/2/08) amid fears of a deep global recession, the TCS deal shows executives are nonetheless confident Indian software service providers will remain competitive in tough times. The Citi contract is the biggest win ever for an Indian company. TCS edged out contenders such as IBM (IBM) and French IT company Capgemini, and the promise of steady business from the deal encourages some analysts. "The revenue visibility in the TCS contract is a big plus in this tumultuous market," says Abhiram Elaswarupu, IT analyst at BNP Paribas in Mumbai.

The Citi deal helps TCS go up against its big foreign competitors directly. Unlike IBM, Accenture and EDS, all big players in India, homegrown companies typically have operated with smaller-scale deals, lasting two to three years and worth $50 million to $200 million. Just last October, TCS had crossed the $1 billion threshold (BusinessWeek.com, 10/18/07) when it signed a 10-year, $1.2 billion contract with Dutch group Nielsen, which owns ratings major ACNielsen.

Expanding Exposure

Acquiring Citi's unit brings 12,000 new employees into the TCS fold and is expected to generate revenues of $280 million this year. Currently, TCS, which has over 10,000 employees in its outsourcing units across the world, makes more than $150 million providing services to Citi alone.

TCS has been providing IT services to Citi since 1992, catering to the bank's operations in North America, Europe, India, Singapore, and the rest of Asia Pacific. As with most big Indian software providers, banking and financial services form a big chunk of TCS's business, accounting for 43% of revenues. The new outsourcing contract will nudge it a percentage point ahead, says a TCS manager.

With the world's financial industry in turmoil, this isn't the best time for an Indian outsourcer to be expanding its exposure to the sector. However, analysts say they are more concerned about TCS overpaying to acquire Citiglobal. TCS should have negotiated a better deal, given the fall in company valuations that has accompanied market meltdowns around the globe, they say. TCS claims the price is justified and argues the acquisition will help the company serve not only Citi but other customers as well.

Still, some analysts are skeptical. On Oct. 8, the day TCS announced the deal, its shares closed down 5%. Year to date, it's off 49%, compared with a 35% drop for the benchmark Sensex index. John McCarthy, a vice-president at research firm Forrester Research, warns the track record for Indian companies using acquisitions to expand their customer base is not great. "The BPO industry is littered with deals like this one that have not led to large-scale work beyond the individual clients," he says.

McCarthy believes TCS's latest buy is a long-term play. "This is about ensuring that when the dust settles [after the Wall Street crisis], TCS is well positioned to help the client clean up their mess of systems and do new projects," he says. "Anything beyond that is wishful thinking."

The TCS buy is the latest example of Indian software majors aggressively expanding to other geographies to reduce their reliance on the U.S. Over the past three years, TCS has made purchases in Switzerland, Chile, and Australia. Last year rival Infosys Technology (INFY) bought out the outsourcing business of Dutch electronics major Philips, and Wipro (WIT) acquired U.S.-based, Nasdaq-listed outsourcing outfit Infocrossing. Infosys and New Delhi-based HCL Technologies have been battling for SAP's consulting company Axon; on Oct. 10, Infosys announced it was backing away from the deal, giving the win to HCL.

Lakshman covers India business for BusinessWeek.

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