Offshoring & outsourcing newsletter- April, 2008

Offshoring and Outsourcing market intelligence newsletter (April 2nd, 2008)
Recent news, upcoming events, competitor news, analysis, facts and trivia about offshoring and outsourcing industry

(click on the link to go the article)

15.Shell signs $4 billion outsourcing deal with AT&T,
EDS and T-Systems news

16.IIM-A student bags highest salary package 1. 2. 3. 4. 5. 6. 7. 8. 9.
Outsource Partners International Opens Office in Delhi, India to Support Research & Analytics Outsourcing KPMG signs BT with £62m five-year outsourcing contract ‘GE withdraws nominees from Genpact board, may hasten exit Equinitis India move sparks security fears ‘Change in employee demographics creates retention problems in Philippines firms HCL Tech’s infrastructure deal with Bear Stearns in trouble Financial Services captives stop/slow down hiring in India Indian offshoring firms raise rates; costs often hidden Philippines call centers reel from world’s highest turnover ($360K)

Upcoming outsourcing and offshoring events for April
April 7th – 9th - $$$ IACCM America’s conference – Phoenix, AZ April 8th - $$ Outsourcing Webinar – Destination Philippines April 16th - 17th – $$$$ HRO World conference, New York April 22nd - $$ IDC Outsourcing conference, Madrid, Spain April 21st – 22nd - $$ TPI Sourcing conference – Chicago, IL April 23rd - $$ Baker and Mckenzie outsourcing seminar - NY April 24th - $$ IDC Outsourcing conference, Barcelona, Spain

10.Infotech slowdown bites real estate hard 11.HP Beefs Up The Capabilities Of Big Outsourcing

12.Essar`s Aegis BPO acquires AOL arm 13.Contract to give TCS revenue boost in long term 14.SAP faces $100m fraud claim from Waste
Management Inc

Market trends


Offshoring & outsourcing newsletter- April, 2008

Bear Stearns deal with JP Morgan has had a direct impact on two large vendors in India – HCL for the infrastructure deal and Satyam for IT development. Financial services still continue to go slow on offshoring decision process and IT vendors continue to look at innovative ways to reduce cost of operations offshore Slow down in campus hiring in India with IT firms and a number of candidates continue to have extended joining dates. Hiring slowing down in IT captives Limited M&A activity in this period. Firms prefer to wait out the downturn. Smaller acquisition in the ERP package implementation at reduced valuations.

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Pictures from India
Gurgaon: 1992

Leela Palace Hotel - Bangalore Rental property rates in Bangalore – May 2007

Gurgaon: 2007

Mostly densely populated city in the world
Mumbai: 29,650 people per square kilometer People waiting at a local train station in rush hour


Offshoring & outsourcing newsletter- April, 2008

Interesting Links: •
Global Services Media news: /index.asp

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Business Research & Analytics Market Research & Analytics Procurement & Strategy Support Intellectual Property Research & Litigation Support

BPO opportunities in South Africa: stment/oppurtunities/bpo-overview.htm

Kishore Mirchandani, President of Outsource Partners International said, “The Delhi-Gurgaon area has grown to be the epicenter of India’s knowledge process outsourcing industry. Our new service center allows us the proximity to ensure access to talented R&A professionals, to nurture relationships with leading research partners and to best maintain pace with the rapidly growing industry.” Mr. Mirchandani goes on to say, “OPI’s R&A offerings have been developing for some time, driven by frequent client requests for advanced data modeling, market valuations and assorted business research. With the opening of our new Delhi service center, OPI now stands poised with the requisite bandwidth and focused skill-set to meet the growing demand for delivery of high-end, custom research and analytics.”

Outsource Partners International Opens Office in Delhi, India to Support Research & Analytics Outsourcing
SOURCE: Press Release DATE: March 25th, 2008 Outsource Partners International, Inc. (OPI), a leading provider of finance, accounting & tax business process outsourcing (BPO) and related services, today announced the growth of its business with the opening of a Delhi, India service center. The service center will house 200 professional staff dedicated to the delivery of high-end, finance related research and analytics (R&A) outsourcing. This expansion to Delhi-Gurgaon’s Unitech Cyber City represents a strategic opportunity for OPI to strengthen its R&A services. The area is known for its abundance of well qualified and experienced research professionals, and this location affords OPI the ability to recruit and retain staff with financial research expertise across a range of industries. OPI’s R&A offerings are a natural extension of its finance and accounting BPO services. Similar in its approach to BPO, OPI offers fully customized knowledge process outsourcing services to its global client base. OPI’s R&A offerings include:

KPMG signs BT with £62m five-year outsourcing contract
SOURCE: ComputerWeekly DATE: March 31st, 2008 ARTICLE KPMG is to outsource a significant chunk of its IT management to BT in a deal worth £62m over five years. If successful the contract, in the UK and Germany, may be extended to other countries in which KPMG has offices. No announcement has been made as to how this will affect jobs. KPMG said the deal would deliver significant operating cost savings. A statement from BT Global Services CEO Tim Smart suggested that IT is increasingly being seen as a utility, rather than a strategic tool. "Our clients are increasingly looking to us to run their non-core business processes and assets," he said. BT will run services such as the management and refreshment of both local and wide area networks, integrating KPMG's Microsoft Office Communications Server (OCS) platform with its Cisco IP Telephony, management of video and audio conferencing and management of fixed voice and Time-Division Multiplexing (TDM) telephony.

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Investment Research Financial Data Modeling


Offshoring & outsourcing newsletter- April, 2008

Central to this contract will be an obligation for BT to deliver a fully converged, IP-based, networked telephony infrastructure on time. This will then allow KPMG offices in other countries to follow suit and outsource their services. Initially, the agreement will be limited to the UK and Germany. This is an ambitious outsourcing programme, admitted Bryan Clark, the KPMG partner leading the IT infrastructure consolidation. He remained confident that it could bring about cost savings while improving service to clients. He also predicted the deal would help KPMG's future expansion. "Having a consistent infrastructure platform and service model will help the integration of new KPMG firms joining our newly created European firm," he said. Clark said he was happy with BT's track record as an outsourcing partner. "BT's deep expertise in network and IT services and experience in managing complex global contracts were key factors in making this investment decision."

an amendment in the BPO firm’s shareholders pact by which GE gave up board representation. GE, which is required to hold a minimum of 26.74 million Genpact shares till December 2009, will now have to hold the shares till March 20, 2009. GE had, in December 2007, sold 8 million shares in Genpact for about $100 million to an affiliate of a limited partner of another Genpact shareholder. GE now holds 39.94 million shares or 18.8% in Genpact. The changes announced today will allow GE additional flexibility in managing its equity portfolio. In the event of any future sales of Genpact shares by us, we expect to make them through managed offerings with Genpact’s other principal shareholders, or otherwise in an orderly fashion,” said Ron Herman, CEO of GE Commercial Finance- Equity. Analysts said the move was in line with similar steps taken by GE earlier to pare down its stake. “That GE does not want to run the operations (of Genpact) was also clear when they first divested their stake. So it was fairly obvious that at some point they would look at exiting the venture,” said Forrester India head Sudin Apte. The two former GE nominees on Genpact’s board will now join a new Commercial Council created by Genpact. “The Commercial Council will build upon Genpact’s unique and long-standing relationship with GE and provide a senior level forum for GE and Genpact to meet periodically for discussion of topics ranging from performance feedback, future avenues for Genpact to grow GE business, GE’s specific business goals and how Genpact can help them achieve those goals to an exchange of ideas and advice,” the BPO firm said in its SEC filing. On the MSA extension, Genpact president & CEO Pramod Bhasin said, “We are excited by this vote of confidence from our biggest client.” GE chief financial officer Keith Sherin said, “Given the value we place on Genpact’s service offerings, we expect our MSA revenues with Genpact to grow in 2008.” Genpact, a GE captive till 2004, got listed on NYSE in August 2007, raising $494.11 million. It sold 17% stake to the public, of which half was offloaded by GE and PE investors — General Atlantic and Oak Hill. The remaining was through issue of fresh shares. Genpact’s net proceeds from the IPO were about $247 million. While GE got about $95 million for its stake dilution from 28% to 23%, General Atlantic and Oak Hill’s 8% stake dilution fetched them $152 million. GE had sold a 62.63% stake in the BPO firm to the two PE players in 2005 for about $500 million.

BT's Smart concluded: "This deal demonstrates the expansion of BT's partnering approach in Europe and globally. With employees working across multiple sites across Europe including thousands in the UK and Germany, KPMG needs a fast and flexible communications network. Meeting these needs is our primary focus."

‘GE withdraws nominees from Genpact board, may hasten exit
SOURCE: EconomicTimes DATE: March 29th, 2008
ARTICLE Corporate conglomerate GE has moved out of the board of Genpact, India’s largest BPO firm that started out as a GE back-office 10 years ago. It has also brought forward by nine months the period till which it is required to hold a minimum of Genpact shares. While these moves seem to point towards plans of an early exit from the NYSE-listed BPO firm, GE has extended its client relationship with Genpact. The BPO firm’s biggest client has extended its master services agreement (MSA), guaranteeing a minimum annual volume with it, till December 2014. The two GE nominees on Genpact board, Gary Reiner and Ferdinando Beccalli-Falco, have resigned, following

Equinitis India move sparks security fears
SOURCE: DATE: March 31st, 2008


Offshoring & outsourcing newsletter- April, 2008

ARTICLE Britain’s biggest share-registration company, which handles details of investors in most FTSE 100 companies, plans to ship key parts of its business offshore, slashing hundreds of jobs and passing the handling of crucial data on millions of UK investors to offices in India. Equiniti, which employs 2,000 in Lancing, West Sussex, was formerly known as Lloyds TSB Registrars until it was bought from the High Street bank last year for £550m by Advent International. The American private equity group is looking for ways to cut costs and a move of key functions to sites in Delhi and Hyderabad is being considered, which could lead to the loss of 600 UK jobs. The move will also raise fears over security and service levels, concerns that have hit a number of groups to transfer business to India. Norwich Union last year closed a call centre in India amid concerns over service standards. And a Channel 4 investigation in 2006 found that some unscrupulous call centre staff in India were selling personal details of UK bank customers. Equiniti is the largest of three share registrars in the UK, with 58% of FTSE 100 companies as clients. The others, Capita and Computershare, both have offshore operations. Equiniti looks after 24m shareholder and employee records and acts as registrar to more than 700 companies. The company would not comment on any specific plans, but chief executive Bill Dye said: ‘Equiniti is a company with very exciting growth opportunities and we are reviewing options to grow the business. ‘It is not revolutionary for a financial services business to use offshoring to help growth.’ Equiniti handles the payment of dividends and posting important documents, such as takeover proposals, to shareholders as part of its share registration divisions.


Local companies are having problems in terms of keeping their employees in the organization as the demography of workers in the Asia-Pacific region changes, a human resource consulting firm recently said.

In a briefing, Watson Wyatt Worldwide, which has been providing Philippine companies compensation and benefits data and solutions, said that changes in terms of age group of work force in Asia have been proven to be a major factor in retaining employees within an organization. According to Andrew Heard, Watson Wyatt regional practice director, Asia generally has an ageing population as a result of falling fertility and rising longevity.

‘Change in employee demographics creates retention problems in Philippines firms
SOURCE: ManilaTimes DATE: March 30th, 2008

In Singapore, the proportion of population older than 50 years old is expected to increase from 23 percent to 50 percent over the next 25 years, and many firms in Asia Pacific are now facing a shortage of fresh skilled labor Since more affluent countries like Singapore lack a younger pool of workers, they turn to the younger Philippine population in recruiting more workers to fill their requirements, rendering local firms in short supply of talent. “For employers, hiring and retaining qualified employees is still a perennial task. More Filipinos are going abroad to seek work and better standards of living. Due to the increasing manpower demands especially from the business process outsourcing (BPO)-contact center industry, qualified new graduates are in short supply as well as other younger generation workers,” Watson Wyatt said in a research note. James G. Matti, Watson Wyatt managing consultant, said that 50 percent of those that leave their companies go abroad while the other half are pirated by competitors. To retain its employees, firms have to look into the factors that make employees stay and be flexible about it. The consulting firm found that the number one concern or factor for staying in a company among Filipino workers is the compensation package, followed by job security and third is employee benefits. The BPO or outsourcing and offshoring (O&O) industry has the highest average turnover rate among all other industries which is at 23 percent a year, particularly in the voice-related services which has about 46 to 53 percent turnover rate per annum. Matti said BPO firms have tried the cash-heavy route, like giving bonuses, to entice workers to stay. “However, that didn’t work. Now that things have moved on to a more predictable level, BPO firms are now moving on to offering more health and life insurance,” he said. Employers should also be responsive to the needs of employees in terms of giving them a choice in the type of benefits they receive. Since the Philippines moved from an older to a younger workforce in recent years, especially with the boom of the BPO industry, the choices of employee benefits have changed. Some companies now have given workers a choice of whether to monetize


Offshoring & outsourcing newsletter- April, 2008

their life insurance benefits, since younger people tend not to worry much about saving and retirement and instead they are more concerned about instant gratification like traveling, gym or spa benefits. Older workers, on the other hand, choose life insurance and medical benefits over tangible material things since they have their families and dependents in mind. “Benefits like iPods and laptops are now fading since it is too costly for companies to sustain,” Matti said. Instead, firms are being flexible with the insurance and medical benefits and the employees choose what is the best package for them. “The Philippines, second to Singapore, has the best medical and insurance programs among the Southeast Asian region. However the challenge is inflation, which pushes medical costs by 58 percent higher annually,” he said.

“Remote infrastructure management deals are typically less manpower-intensive and their size is about a few million dollars,” said offshore advisory firm Stradling Sourcing India president Pradeep Mukherjee.

At the end of the December 2007 quarter, about 15.3% of HCL Technologies’ revenue came from infrastructure services while financial services accounted for 29.2% in dollar terms. Analysts feel that the Indian outsourcing firms would not be affected in the short term by the crisis like Bear Stearns. Earlier this month, ET reported that Bear Stearns’ $10-million contract with Satyam Computer Services also faces uncertainty due to the client’s bankruptcy.

Mounting inflation aside, Watson Wyatt has been advising companies on how to implement total remuneration and flexible and benefits. By tailoring their benefits to suit their needs, companies have a better chance of retaining employees. The firm claims that 92 percent of firms that adopted the flexible benefits system reported an increase in employee retention

“The impact of these events (like the Bear Stearns crisis) on the balance sheets of Indian outsourcing firms won’t be visible at least for a year as the whole sale process will take time to complete. However, I do see rationalisation by such financial services firm of their service providers once this crisis is over,” said offshoring advisory firm Tholons chairman & CEO Avinash Vashistha.

HCL Tech’s infrastructure deal with Bear Stearns in trouble
SOURCE: EconomicTimes DATE: March 27th, 2008 The financial downturn on Wall Street and the real estate crisis in US has made many banks write down billions of dollars in losses. CIOs are cutting their IT budgets and maintaining only critical offshorable components on board. The downturn is also expected to affect tech hardware sales along with services as companies take time to restructure themselves. Most analysts say that the affect will be deep but last long only three quarters after which outsourcing may pick up.

In yet another fallout of US investment bank Bear Stearns’ bankruptcy , India’s fifth-largest technology firm HCL Technologies’ infrastructure management deal with the company faces an uncertain future. The company’s remote infrastructure management (RIM) arm – HCL Infrastructure Services Division (ISD)–was handling Bear Stearns’ data centre, network management and other related services.

According to analysts like Gartner, BPOs and IT companies should focus on other geographies as well to minimise risk. According to HCL ISD, the company is doing just that.

HCL ISD was handling work for Bear Stearns out of separate premises as clients are cagey about getting their critical operations like data centre management being shared with others. The headcount deployed in the operations are not known but according to company sources, it’s a small number.

When contacted, an HCL ISD spokesperson confirmed the company’s engagement with Bear Stearns but added that its bankruptcy will not have a significant impact on the company’s earnings. “Our engagement with Bear Stearns is fairly small and, hence, the impact on our business will be negligible,” the spokesperson added.

“The whole thrust of our adoption of the Blue Ocean strategy has been to go to new markets and geographies and provide new solutions in new verticals and microverticals. This strategy has over the years reduced our dependence on any one geography/economy and helped build credibility in focused micro-verticals,” an HCL official added.

The subprime crisis has seen Indian outsourcing firms lose some of their clients to bankruptcy. In August 2007, NYSE-listed WNS lost its client, First Magnus after it filed for bankruptcy. The second-largest privately-held US mortgage firm was expected to account for about 5% of


Offshoring & outsourcing newsletter- April, 2008

WNS’ revenue less repair payments for the period between July 1, 2007 and March 2008.

Bangalore-based iGate Global Solutions and Infosys BPO both serviced GreenPoint Mortgage, the mortgage arm of CapitalOne, that declared bankruptcy last year.

JP Morgan has closed its equity research operation in India. Now research is being coordinated from Hong Kong, according to sources close to JP Morgan. The US bank has also not been recruiting people for the last three-four months.

About 5.5% of iGate’s revenue in the quarter ended September 2007 came from US mortgage companies, down from 7% in the previous quarter. The impact on Infosys BPO was not much.

Citigroup is in the process of selling its Indian back-office operations, where it employs over 5,000 people. Spokespersons from Lehman Brothers, JP Morgan and Citigroup did not reply to e-mails sent on the subject.

Last year, ExlService Holdings also saw one of its clients, a non-prime mortgage lender that accounted for 2% of its revenue for the first half of 2007, reducing the volume of services provided to it by about 60%. It seems whenever a big Wall Street institution sneezes Indian IT majors are bound to catch cold. The way out could be to aggressively go to markets like Europe and Japan to reduce the overwhelming exposure to US businesses.

UBS may soon stop its recruitment at its India service centre, according to sources close to UBS. The Swiss bank employs 1,750 people at its India office in Hyderabad that provides financial research, business analytics, core investment, banking operations, finance, IT Infrastructure and risk operations. A UBS spokesperson said they have not stopped recruitment in the country. “Employee recruitment continues as planned,” said a UBS spokesperson. UBS had reported $18 billion in losses while trading in mortgage securities.

Financial Services captives stop/slow down hiring in India
SOURCE: HindustanTimes DATE: March 20th, 2008 ARTICLE The global meltdown is putting severe strains on India’s booming back-office industry. US investment banks have stopped recruitment and expansion in their Indian backoffice operations.

Panic is spreading among the employees of back-office units. US banks are holding assurance meetings for these employees. After the news of Bear Stearns sale to JP Morgan broke out on Monday, the US office of Lehman Brothers had organised a video-conference with employees of a third-party back-office unit in Mumbai.

Indian offshoring firms raise rates; costs often hidden

SOURCE: CIO DATE: March 19th, 2008 ARTICLE

JP Morgan, Lehman Brothers and Citigroup, which are bearing the brunt of the global financial turmoil, have put a freeze on fresh recruitments in Indian back-office units. “There were no fresh recruitments during the last 4-5 months,” said an executive working with a leading US bank’s Mumbai-based back-office operations for equity derivatives.

For years, Indian offshore providers have dealt with rising wages, talent wars and the escalating cost of real estate on their native soil. Despite the increasing cost of doing business, however, India’s offshoring industry has managed to hold the line on rates for its Western customers.

Lehman has decided to drop its plans for a back-office unit in Delhi. The proposed unit, designed as a support centre for market-related investment services, was scheduled to open in the last week of March. Lehman is also shutting down its mortgage capital division in India, where it employs over 100 people.

But that’s all changing, according to a report from analyst Stephanie Moore, who covers the offshore industry at Cambridge, Mass.-based Forrester Research Inc.


Offshoring & outsourcing newsletter- April, 2008

As the rupee appreciates against the dollar, the pound and the Euro, Indian providers are beginning to charge their customers more, Moore reports in “Understanding Indian Providers’ Margin Defense Tactics.” While hourly rates have increased only minimally, “important price increases are often embedded elsewhere,” Moore contends, advising CIOs to pay close attention to contracts as they come up for renewal. “Embedded” price hikes show up in the following areas: redefining what constitutes a workweek, relying more heavily on inflation clauses and higher-cost-of-living adjustments, including clauses allowing for currency inflation and charging more for travel and “substantially more” for on-site rates, which tends to get less scrutiny than the offshore rates. That last item can add up even when the worker ratio is 80% offshore to 20% onshore. Staff members sent by a provider to a customer site already command higher pay than the provider’s offshore workers. A week’s worth of work Kashyap Kompella, advisor, global service delivery at Technology Partners International Inc. (TPI), an independent sourcing advisory firm headquartered in The Woodlands, Texas, said his firm is definitely seeing more belt-tightening measures among the Indian providers. Service providers are “trimming the fat by eliminating nonperforming employees,” Kompella said. And he concurred with Moore that providers are also becoming more conscious of the number of hours an employee works. “They want to ensure that they are not giving away free hours like in the past.” So managers are being asked to keep track of all the unbillable hours their teams spend on client work. Some providers have always charged for 8.75 or 8.8 hours per day, Kompella said. Now, more and more are asking for the 10% extra. “By the way, it is not just the Indian providers who are doing this,” Kompella said. “The foreign IT services firms operating in India have also started doing the same.” All that said, TPI has not seen a clear trend emerging yet regarding rates for Western customers. “Some providers have been able to get some small price increases when the contracts come up for renewal, while others have not been able to get any increases,” Kompella said. The redefinition of the workweek represents an interesting shift in how Indian providers are valuing work. In the past, Indian providers customarily billed clients for a set number of hours per week (40-45 hours), regardless of how many hours their salaried staff worked, Moore said. Now, however, providers are starting to either increase the number of hours counted as a week (from 40 to as high as 50 hours) or simply charging for the actual number of hours salaried staff members work.

Indian providers are not standing still in the face of a U.S. meltdown. In the past, Indian providers have not focused on the opportunity in their own backyard, the local Indian market. “Mostly it was the multinational providers who were tapping the Indian market,” Kompella said. But that, too, is changing, as margins erode with U.S. customers. “India is back on the agenda,” he said, along with other parts of the globe. European markets, long resistant to offshoring, have warmed up to sending work overseas, but Europe “is still underpenetrated,” and represents potential growth for Indian providers, Kompella said. CIOs need to ask their providers point blank how they are dealing with inflationary pressures. “As sourcing and vendor management experts attempt to engage and negotiate with Indian service firms, it is important to make sure that these providers are at least trying to minimize the impact of inflationary pressures,” Moore said. The tactics used by the most adaptable of the Indian providers to minimize the impact of inflationary pressures include using tools to automate tasks that could be done manually by their billable employees; streamlining their methodologies in order to deliver value to the customer more quickly; investing millions of dollars in employee training to keep the pipeline of capable, efficient staff primed; building “reusable” code to cut development time; and offering outcome-based contracts, where customers hire the provider to deliver a service, for a price, instead of paying by the hour. G.K. Prasanna, senior vice president, technology infrastructure services at Wipro Ltd., said the impact of the U.S. slowdown was constrained for most of 2007. That may well change in a recession, but Wipro has taken steps to “rationalize costs,” including finding customers in new parts of the globe, such as Europe and Australia, and sending its work to cheaper cities in its own country and cheaper countries. Much of its business process outsourcing is done in the Philippines; Romania is a stronghold for infrastructure services, and Wipro has sent engineering work to China for a while, he said. Operating margins are under pressure on both sides of the oceans, Prasanna noted. “It’s not just India; the same applies to everybody else,” he said, which means that Indian pricing, even under inflationary pressure, remains an attractive option for companies looking to cut costs. “Pricing is an important point in companies choosing us, and we have no illusions about it. So as much as possible, we try to keep that part of the equation stable.”

Philippines call centers reel from world’s highest turnover

India, back on the agenda


Offshoring & outsourcing newsletter- April, 2008

SOURCE: Davao Today DATE: March 16th, 2008 ARTICLE Like zombies, they stumbled out of the elevator: haggard, red-eyed, and sleepy in shabby, crumpled clothes and disheveled hair. Some in sandals and pajamas, their hands gripping either a big coffee mug or a water bottle, they chatter away in English.This is a typical early morning scene in one of the Philippines’ biggest call center firms along Ayala Avenue in Makati City after a graveyard shift that starts at 10 p.m. and ends at 6 a.m. Despite efforts by the country’s call center companies to glamorize the industry, call center agents are resigning, job-hopping, transferring or being fired by the hundreds as fast as they are being hired. That image of a “successful call center executive making it in the business world” is lost to these call center agents who are just too glad to quit the industry. Turnover rate in the country’s call centers has gotten so worse that it has hit 60 to 80 percent, according to the Call Center Association of the Philippines (CCAP). This has given the Philippines the world’s highest turnover rate for call centers worldwide. Globally, it is an accepted norm in the industry to have a 30 to 40 per cent turnover. Both Australia and India call centers have turnover rates of only six to 10 percent. Top government officials are alarmed that an emerging industry that has generated around 2 billion US dollars in annual revenues is reeling from a worsening turnover crisis. “It’s like a zoo factory over there and we’re the new blue collar workers,” says Rommel Benitez, 32, who quit his call center job last week, his eyes still bulging from dark eyebags, from lack of sleep. “You can’t relax, we’re always in a hurry. We’re always being watched. Coffee break is barely 15 minutes and our lunch at midnight is under time pressure that we have a hard time swallowing our food.” Catriona Wallace, researcher and industry analyst with the Journal of Service Industry Management said the high turnover oftentimes is the result of a “deliberate strategy of frequent employee replacement “to provide enthusiastic and highly motivated customer service at low cost to the call center.

strategy is not consistent with giving good jobs to Filipinos and developing people for higher job responsibilities,” says Teehankee, who chairs the Human Resource Management Department of La Salle School of Business in Manila. Broken promises and misleading advertising by the country’s call centers were also blamed by call agents who quit or “requested to be fired” to avoid paying penalties for quitting too early. Many call center firms are still denying this is happening. The nation’s big dailies are filled with full-page ads with screaming headlines like: “Are you getting paid for your performance ?” “Ride your future with us!” “Great careers happen overnight!” “Entrust your dreams with us!” “Earn as much as P40,000 a month!” “Get our P10,000 signing bonus!” Most of the call centers which came out with these advertisements either ignored or neglected the promises they made, according to Marrisa Tiongko, 25, another call center agent who quit recently. “I was promised 15,000 pesos monthly salary and another 5,000 pesos for food and transport allowance during training—- but I got only 11,500 monthly with no training allowance. They lied. It wasn’t worth it,” says Tiongko, a masscom graduate from Legaspi City Most call canter agents, after they passed a two-week training, usually get only 11,500 to 13,000 monthly plus benefits like SSS coverage, health insurance, housing plan,etc—– which are deducted from the agent’s salary every month. This is equivalent to less than 300 US dollars monthly in the Philippines, a far-cry from the US call center agent average salary of 2,500 US dollars monthly. Many American call center companies made the Philippines their favorite choice for investments in business process outsourcing (BPO) precisely due to cheap labor from abundant, highly-skilled Englishspeaking Filipinos,” quips a human resource manager of People Support, Inc. Joji Ilagan-Bian, president of Six-Eleven Inc, a Davaobased call center firm, however remains very bullish about the future of the country’s call center industry. The Philippines, according to Bian, is a big player in the global market for BPO and has been cited one of the top countries worldwide for BPO investments. BPO services offered by call centers include marketing, sales, customer care, investor relations, bookings, etc. Although the Philippines and India have the most number of call centers in the world, ” it’s fascinating to note that Indian call centers are now moving to Philippine cities,” says Bian, who also runs a large training institute in Davao for call center agents with ready jobs waiting for them in Manila and Makati call center companies. Davao ranks third in English-speaking skills in a recent survey of 12 Philippines cities.

“What you see here is an industry-wide policy of firing and replacing employees to keep their workforce fresh and motivated.” Wallace said. Industry analyst Ben Teehankee lambasted this policy among call center firms to keep changing their employees to keep them fresh and enthusiastic.” This


Offshoring & outsourcing newsletter- April, 2008

As more and more call centers are cropping up in the major cities of Manila, Makati, Quezon, Cebu, Bacolod, Iloilo, Dumaguete, the number of qualified Englishspeaking applicants available nationwide is no longer keeping up with the fast-rising numbers of call centers seeking desperately for applicants. More than a hundred call centre companies in the country are scrambling over each other today, trying to entice any English-speaking applicant they can lay their hands on—- whether very young or very old, Filipino or foreigner, parttime or fulltime, retired or moonlighters, etc. —- as long as they can speak very good English. In one Makati-based call center, it’s not surprising to find young agents like 19 year old Sandy Tordessilllas, a student at Letran University, sitting side-by-side at the operations center with retired teacher Leonardo Manriquez, 64, from Pangasinan or even a foreigner like Maxim Motovsky, 52, a Russian trader who speaks good English and wants to earn extra money. “As long as they speak very good English, as long as they pass our one-month training, we’ll hire them and pay them well,” says a human resource manager at Convergys, one of the country’s biggest call centers with branches in Makati, Quezon, Pasig, Bacolod and Cebu cities. The high turnover rate in the industry is also blamed on call center training programs which failed to produce many good agents for the jobs. “Our training was a disaster. I was glad they fired me. We can’t focus and think during training at two in the morning. That kind of training doesn’t make sense to me.” says Jayson Ramirez, 34, an entrepreneur who needed extra income. At Convergys, training managers boast to new trainees that only one out of every 100 applicants they interviewed are actually hired. “So, you’re the best, the cream of the crop!” he tells a trainee. Eventually, only 3 to 5 out of every 20 trainees survive an intensive one-month training. Rejection and termination of thousands of Englishspeaking trainees in many call centers nationwide in their efforts ” to keep standards high in the industry” is costing the call center industry millions of pesos in wasted training costs, admits one training manager of Advanced Contact Solutions. Both ACS and Convergys have “exit interviews” for all call center agents resigning or getting fired, to find out the reasons and causes of the high turnover rate in the industry. A pattern is slowly emerging from these studies —- bad training design, oppressive trainors, too much stress, too much pressure, ‘prison-like’ condition, pay not worth the effort, etc.

It may take some time to really get to the bottom of the Philippine call center industry’s abnormally high turnover rate.

Infotech slowdown bites real estate hard
SOURCE: EconomicTimes DATE: March 16th, 2008 ARTICLE Real estate firms are beginning to feel the heat of the slowdown in IT/ITeS sectors. Leading IT companies are saying that lease of office space to software and BPO firms have fallen by over 30%. The trend is particularly bound to affect firms like DLF and Unitech which are building several software SEZs (special economic zones) across the country. Says an Unitech executive: Till just eighteen months ago, software firms booked additional space two years in advance. Now, they are not even occupying the space booked a year ago. A DLF excutive, in charge of selling space to IT firms says: The premium in lease rentals has evaporated and if the situation continues, rentals could actually weaken. Out of the 197 zones formally notified since the Sez Act, 2005, 120 are for IT/ITeS sector. Nearly half these zones were approved in the last nine months, when the first sign of slowdown emerged amidst a weakening dollar. According to SEZ rules, these zones can only be used for the earmarked purposes to avail of the economic benefit granted to them. In the past, a steady growth trajectory of software companies allowed to predict and plan their additional requirement for space. Between 2003-07, new hires by the top three software firms like TCS, Wipro and Infosys grew at over 20% each year. For 2008, analysts expect a drop in new hires. Says an analyst with a Mumbai-based broking firm: Hiring will continue to slow down in future if the dollar remains weak. A slowdown in the US economy will worsen things further for software companies in the short term. Industry experts expect that if the weak market continues to persist, companies may actually slow down their investment in the upcoming SEZs. Companies like Unitech and DLF say that work in all their new zones across the country are progressing on schedule and they are not pulling back yet. The DLF executive, however admits, We will be in no hurry to get approvals for new IT/ITeS zones in the near future. Software companies read the situation as a positive development. In the last two years, lease rentals in metros like Mumbai, Delhi and Bangalore have shot up nearly 50-60%, forcing firms to move to smaller cities like Pune, Bhubhaneshwar and Jaipur.


Offshoring & outsourcing newsletter- April, 2008

HP Beefs Up The Capabilities Of Big Outsourcing Business

Adamiak says the new data centers use the latest in servers, storage, networking and software. He wouldn’t say what the new program is costing HP to start and run. “(Customers) can get best-in-class infrastructure without having to custom-design it themselves,” Adamiak said. Services offered include extra computing power for bigtime software jobs, such as geothermal analysis or animation clips for movies. The service gives customers access to such software as Microsoft’s (NASDAQ:MSFT) MSFT Exchange Server and SAP SAP applications, and provides customization for other types of software. For example, if an HP customer wants to upgrade its European operations’ business software offerings, the customer can simply make that a part of a monthly bill under a three- to five-year contract. That means a customer doesn’t have to spend millions of dollars on a new data center to power the software — or put up with time delays. “What we provide is much faster and more adaptive,” Adamiak said. HP says its customers can now upgrade without a multimillion-dollar hit to their balance sheet. Companies can just make the new service part of its monthly expenses instead of taking a big one-time cost. Highly Competitive Market John Madden, an analyst at research firm Ovum, says HP can use the new tools to offer customers more choices in the competitive market. HP’s outsourcing rivals include IBM (NYSE:IBM) IBM and Electronic Data Systems EDS. “There are a lot of vendors (pursuing) a limited amount of customers’ attention,” he said. Madden says he couldn’t predict how much this outsourcing service might save potential customers, but adds that the savings could be real. He says HP has a reputation for taking costs out of its technology. The adaptive-infrastructure-as-a-service offering is, to a degree, part of a trend known as “cloud computing.” It entails letting customers access software and hardware remotely, any time and anyplace. But Adamiak says cloud computing is typically more focused on small and midsize businesses. HP is targeting larger corporations in need of more beefy and complex technology systems and software. Adamiak sees the new service as the third wave in tech outsourcing. He says the initial trend in the 1990s was to outsource pieces of the tech department, such as handling the service-desk inquiries. The second began earlier this decade and involved outsourcers taking over entire tech departments. HP’s big outsourcing contract with Procter & Gamble (NYSE:PG) PG was part of this trend.

SOURCE: CNN Money DATE: March 14th, 2008 ARTICLE Hewlett-Packard is building two new data centers for what it sees as the next chapter in outsourcing. The tech giant plans to announce Monday new offerings that will let companies easily add new software and hardware capabilities directly from HP’s (NYSE:HPQ) HPQ own data centers on a monthly basis, like any service contract. The company, which calls the offering “adaptive infrastructure as a service,” is targeting the largest global corporations. To handle the new demands, the company is building data centers, including one in Europe near completion and another in Asia later this year. It’s also using parts of two new data centers in the U.S. that handle HP’s internal technology systems. HP’s outsourcing services typically have involved HP taking over the customers’ data centers, but now customers can use HP’s centers. “Clients no longer have to build out infrastructure,” said Pat Adamiak, vice president of marketing for HP outsourcing services. “They can actually save a lot of time and money.” Adamiak says this is the biggest step in the evolution of outsourcing since the megadeals earlier this decade that saw companies shift entire tech departments over to HP and other outsourcers. Bringing the operation into HP’s center gives customers more flexibility and quicker access to cutting-edge software and computing equipment, HP executives say. This should fuel growth in HP’s outsourcing business, Adamiak says. “This gives us a powerful lever in the future,” he said. Unit’s Growth Outpaces Parent Companies around the world have increasingly used outsourcing to slash their spending on technology and business tasks. Outsourcing is a big part of HP’s services unit, which accounts for 15% of total HP revenue. In the quarter ended Jan. 31, HP said outsourcing services sales rose 15% from the year-earlier quarter, while overall services revenue rose 11%. Outsourcing also beat the company’s overall sales growth of 13%.


Offshoring & outsourcing newsletter- April, 2008

“This is kind of the start to chapter three,” he said. “It really is a better way to try to do chapter two.”

Essar`s Aegis BPO acquires AOL arm
SOURCE: Business Standard DATE: March 31st, 2008

SOURCE: The Hindu DATE: April 1st, 2008 TCS can look forward to several positives from the fiveyear multi-million dollar deal with ArvinMeritor, to be its global engineering partner. ArvinMeritor supplies components to commercial trucks, trailers and original equipment manufacturers.

Global internet firm AOL’s call centre facility in Bangalore has been acquired by Aegis BPO Services, an Essar group company. The value of the deal was not disclosed by the companies. However, industry sources peg it around $30 million (Rs 120 crore). Aegis will provide customer service and technical support to AOL customers, while the latter will transfer 1,000-plus of its employees. The acquisition is expected to be completed by April-end or in May. The decision by AOL to sell its captive BPO operations comes after a few global companies started this exercise to cut costs. The trend was started by GE, when it reduced its stake in its BPO operations in India by selling majority stake in the business to two private equity players. Another global financial institution, Citibank, is expected close a similar deal this year. Aviva Insurance is another firm which is planning to take this route. The acquisition comes as a shot in the arm for Aegis with an annual revenues of over $200 million and an employee strength of 19,000. Aegis CEO and Managing Director Aparup Sengupta said: “With AOL as a client, it gives a clear visibility to our portfolio and will strengthen our offshore customer management capabilities. AOL’s competence allows us to get into the tech-support area covering voice and nonvoice offerings.” At present, 85 per cent of Aegis’ operations are in the voice category and the rest in the non-voice category. Acquiring AOL’s call centre would aid the company in augmenting its operations and extending its horizontal services for new clients, Sengupta said. “We are already working with Fortune 500 companies in the banking and telecommunications sector.” AOL’s Executive Vice-President (international) Maneesh Dhir said AOL would continue to strengthen its local operations. AOL commenced call centre operations in July 2003.

Being a multi-year deal, it gives long-term revenue visibility.

The deal being in the product engineering services space, the realisations may be better compared with traditional application development and maintenance services.

Fast growing A chunk of the services are expected to be delivered offshore from Pune, which creates a low cost-structure for the company. This deal specifically will support ArvinMeritor’s product-line in the Asia-Pacific markets. This is a fast growing geography compared with the developed markets and this is a positive for TCS. Engineering and industrial services contribute only 5.3 per cent of TCS’ revenues currently. In this backdrop, the multi-million dollar deal, involving product engineering services, may help enhance the contribution from manufacturing and automotive clientele, to overall revenues, even as new pressure points emerge in the BFSI (banking, financial services and insurance) vertical.

SAP faces $100m fraud claim from Waste Management Inc
SOURCE: AccountingWeb DATE: April 1st, 2008 ARTICLE German enterprise software developer SAP has been hit with a $100m lawsuit in the Texas district court by Wast Management Inc over alleged fraud and misrepresentation of the US version of its waste management system. John Stokdyk reports. In the plaintiff's petition, helpfully posted on the web by's Larry Dignan, Waste Mangement's lawyers claim in paragraph 9: "In order to gain acceptance in the

Contract to give TCS revenue boost in long term

Offshoring & outsourcing newsletter- April, 2008

United States waste and recycling software market, and to obtain large monetary benefits from current and future licence and implementation fees, SAP fraudulently induced Waste Management to license an 'United States applicable' waste and recycling software solution. This software was represented to be a 'waste industry standard solution with no customisation required'. "SAP further represented that the software was an 'integrated end-to-end solution'. Unknown to Waste Management, this 'United States' version... was undeveloped, untested and defective." There are 50 more pages of similar schadenfreude for the German developer, including the revelation that at pre-contract product demonstrations, SAP presented mock-ups that it claimed were the actual waste and recycling system. Senior SAP US executives including president Bill McDermott participated in these demos, the writ claims.

"If this spat ever does get to court, it will highlight the enterprise software sales process, which really revolves around promises," noted Dignan, who uses the claim as the basis for a cautionary study of the client's shortcomings. "Typically, IT failures aren’t black or white. There are many shades of gray. Projects change, there’s scope creep and often the vendor and the customer share some of the blame." While viewing the case as having an outside chance because of all the other factors involved, Ben Worthen in the Wall Street Journal sees the case as an indictment of technology jargon. "We’re excited to see a judge decide the case. If only to have a legal definition of what 'integrated end-to-end out-of-the-box solution' means," he wrote. In a famous UK case during the 1990s, the claim of St Albans City & District Council against ICL for a botched poll tax system established the principle that software had to be fit for the purpose for which it was sold. The council won compensation of £1.3m. Central government has suffered a number of embarrassingly high-profile IT failures, but claims against the suppliers have negotiated out of court and or settled under penalty clauses within the government's IT outsourcing contracts.

The business case that SAP helped Waste Management to prepare estimated that the software would generate annual net benefits between $106m and $220m a year. "Based on SAP's fraud, Waste Management has invested $100m in a waste and recycling software project for a solution that does not work," concludes paragraph 44 of the original petition.

Shell signs $4 billion outsourcing deal with AT&T, EDS and T-Systems news

The blow-by-blow narrative of the claim is fascinating in itself, but almost as interesting is the context. SAP has refused to comment on the claim, which follows another case brought against it by Oracle over unauthorised access to customer records at SAP's TomorrowNow Waste Management itself was a TomorrowNow customer, according to Infoweek. An SAP press release confirms that Waste Management was signed up as a customer under SAP's Safe Passage programme, which was designed to lure disaffected PeopleSoft customers away when it was acquired by Oracle. Having grown through multiple acqusitions, Waste Management had a jumbled collection of legacy systems and turned to SAP to provide a consistent ERP environment.

SOURCE: DATE: April 1st, 2008 Oil powerhouse Royal Dutch Shell plc has announced the awarding of billion-dollar contracts as part of a $4 billion deal to outsource the bulk of its technology infrastructure. The figures The $1.6 billion telecommunication services contract has been awarded to AT&T while EDS has bagged the $1 billion information technology outsourcing services deal. German telecom major Deutsche Telekom has been awarded a contract worth $1.4 billion to assume responsibility for Shell's data centres worldwide, according to an announcement by its T-Systems corporate services unit. All of these contracts have been awarded for a period of five years.

SAP US president McDermott, named in Waste Management's claim, is quoted in the release saying, "We are committed to building a strong relationship to help Waste Management realize its strategic objectives... and are not distracted by the challenges of integrating multiple code bases and employee organisations." According to the Waste Management petition, SAP was distracted from integrating its own code by the opportunity it saw to move into the US waste market. The claim has given commentators and SAP customers an opportunity to discuss online the nature and quality of its ERP solutions, as well as Waste Management's chances of winning the case.

In a nutshell, from July the companies will serve Shell and its subsidiaries in more than 100 countries, with AT&T looking after network and telecommunications, TSystems hosting and storage, and EDS looking after end user computing services and operational integration of the infrastructure services.


Offshoring & outsourcing newsletter- April, 2008

The changes About 2,960 Shell information technology staff and contractors are expected to be transferred under the deal with AT&T, EDS and T-Systems, with Shell saying there will be ''20 to 30 redundancies at worst''. However, they will not retain their existing rights and redundancy packages under their new employers, which are expected to lapse after two years. This is a concern with employee unions, and Union Amicus had earlier threatened to block the deal through legal action. However, Shell management had tried to assuage fears by saying staff would be able to choose ''as much as possible'' whether they were transferred to a new employer, as well as retaining existing packages for the present. The oil multinational expects ''significant improvements in efficiency and productivity'' and to deliver ''important financial benefits to Shell'' during the five-year deal, it said in a statement.

The T-Systems deal T-Systems will take over the infrastructure and IT professionals of Shell's global data centres, including three centres in the Netherlands and one each in Malaysia and the US. In addition, most of Shell's SAP services will be transferred to T-Systems' Dynamic Services Platform. Approximately 900 Shell employees are expected to shift employment to T-Systems as part of this deal, which promises to boost the latter's foreign revenues by as much as 20 per cent. It said it had the option to extend the contract with Shell for global hosting and storage services after five years.

IIM-A student bags highest salary package

The AT&T deal Shell has its US headquarters in Houston, Texas, where 60 employees have been given the opportunity to transfer to San Antonio-based AT&T. A total of 560 networking professionals in the Netherlands, Malaysia, the United Kingdom and the United States have been given opportunities to transfer from Shell to AT&T offices in their respective countries. AT&T will provide managed network services to Shell and its subsidiary companies in more than 100 countries over the five years of the contract. It will develop wide area and local area networks (WANs and LANs), voice and Voice over Internet Protocol (VOIP) services, managed security and wireless services to connect 1,500 Shell offices and 150,000 Shell employees. It will also be responsible for 600 third-party contacts with 300 Shell vendors internationally, as well as managing cellular services contracts currently provided by other mobile operations. The EDS contract EDS, based in Plano, Texas, will manage Shell's enduser computing services including desktop, service desk, on-site services, back up and disaster recovery, mobile information protection and managed messaging services, for 150,000 users in more than 100 countries.

A student of the Indian Institute of Management at Ahmedabad (IIM-A) has bagged the highest salary package of Rs 1.44 crore (US$ 360K)

The IIM-A has remained unaffected by subprime crisis and the slowdown in the US economy. 'Our main concern this year was the subprime crisis. We are relieved that this has not affected the placement at all and the average salary offered has been about 30 per cent more in comparison to last year,'' IIM-A director Sameer Barua told reporters on Tuesday. ''The IIM-A enjoys a special status among the recruiters. That might be the reason they (companies) did not wish to break that relationships with us,'' Barua said. The highest international annual salary of Rs 1.44 crore was offered by a company in finance marketing sector, informed IIM-A officials. However, they refused to reveal the identity of either the company or the student, saying both have requested anonymity. ''Given the adverse market conditions, the salaries offered this year have exceeded all expectations. The average domestic salary amongst the accepted offers this year is Rs 17.85 lakh as against Rs 13.7 lakh last year,'' IIM-A officials informed. ''The students have preferred to stay in Asia-Pacific region as 87 per cent of them have chosen this destination, while just 11 per cent have preferred to go to the US and Europe and two per cent have chosen West Asia,'' Barua said.

The company will be the operational integrator for the three contracts, and oversee the work being done by AT&T and T-systems. Around 1,500 Shell staff and contractors are expected to shift operations to EDS offices under this deal.


Offshoring & outsourcing newsletter- April, 2008

The acceptance of Asia-Pacific region indicates the balance of economic power shifting from West to the East, Barua added.