Offshoring & outsourcing newsletter- mid march, 2008

Offshoring and Outsourcing market intelligence newsletter (March 16th, 2008)
Recent news, upcoming events, competitor news, analysis, facts and trivia about offshoring and outsourcing
industry msharma@corrystone.com

RECENT NEWS ARTICLES
(click on the link to go the article)

15 Training for commitment: new approach to curbing
churn rate

16 TCS feels US pinch 1 2 3 4 5 6 7 8 9
Copal Partners eyes LPO buyouts Evalueserve launches NOIDA center ‘CSO Forum’ set up to tackle cyber crimes in India Survey Shows OPI “Has the Happiest Customers” in Finance & Accounting Outsourcing Cognizant signs up AstraZeneca for $95 million KPO deal Australian organization cautious about BPO risk Gurgaon – the price of growth Businesses negotiate outsourcing price cuts amid recession fears Clients force IT companies to cut onsite teams

17 TCS in Cincinnati 18
Nokia Siemens, TCS sign outsourcing deal

19 Cognizant open new delivery center in Argentina

Upcoming outsourcing and offshoring events for March
March 16th – 19th - $$$ Duke University – Successful outsourcing and offshoring strategy, Durham,NC March 18th - 19th – $$$$ Financial Times Global outsourcing conference, New York March 25th - Webinar Onshore vs Offshore support: Why onshore is winning March 30th – April 3rd – $$$$ IQPC shared services week, Orlando,FL

10 Teradata Opens Global Consulting Centre in Pune,
India

11 3i a Private equity firm opens resource center in
Bangalore

12 Evalueserve appoints Nand Gangwani, IPO expert as
new CFO

13 Is it too late to set up a captive software center in
India ?

14 IT firms face retention clause

Market trends
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Offshoring & outsourcing newsletter- mid march, 2008

Indian IT/BPO firms continue to expand operational footprint outside of India to enable delivery centers closer to customers and to mitigate the risk of currency exchange rates Mid size and specialist vendors continue to face a rough market with slowing customer demand, reduced pricing structures and slowing IPO/M&A markets Business in driving seat for offshore contract renegotiations, vendor selection and pricing for services Mixed market messages on how US slowdown is affecting offshoring – overall a reduction in IT budget for firms has resulted in some firms accelerating outsourcing and others pulling in the reigns.

Competitor news
No update for this newsletter

Fact Box on India
Software Industry *The software sector saw a 33 percent rise in exports to $31.4 billion for the year to March 2007, according to the National Association of Software and Service Companies (Nasscom). It is expected to rise 24-27 percent to $49$50 billion in the year to March 2008. * Software and back office companies employ around 1.6 million, up from 1.3 million last year. Indirect employment is estimated at an additional 3 million. *Indian software services companies typically make more than 50 per cent of their revenue from the United States. Outsourcing industry * About four-fifths of the world's 500 largest companies already farm out some work to India, which churns out about 2.5 million graduates every year, though only about 15 per cent are suitable for employment in the sector. * The United States accounts for more than two-thirds of the outsourcing market, followed by Europe with 25 percent. * An average Indian graduate earns rupees 15,000 ($366) a month, but wages are rising 10-15 per cent a year. * As of March 2007, nearly 553,000 people were employed in more than 400 outsourcing or back-office firms in India.

Interesting Links:

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Offshoring & outsourcing newsletter- mid march, 2008

• • • • •

Indian apex body on IT/ITES offshoring: http://www.nasscom.in Phillipines apex body on BPO outsourcing: http://www.bpap.org Brazil outsourcing apex body: http://www.braziloutsourcing.com.br/ Finance and Accounting outsourcing mag: http://www.faotoday.com/ http://www.docstoc.com/docs/265997/Octobe r-News-Summary-for-Offshoring-andOutsourcing-to-India

http://www.scribd.com/doc/925804/Accentur e-First-Quarter-2008-results-analysis-andIndia-trends

How do they compare
Categories India China USA Australia

Area Population Median Age Capital GDP (PPP) GDP - real growth rate GDP per head (PPP) Inflation Exchange Rate Major Exports Major Imports

3,287,590 sq km 1.12 billion (est 2007) 24.8 New Delhi $2.965 trillion(est 2007) 8.5% (est. 2007) $2,521 4.5% 1 US$: 40.02 Rupee
Engineering goods, Petroleum products, Textiles, Gems & jewellery Petroleum,Electronic Goods, Gold & silver, Machinery

9,596,960 sq km 1.32 billion (est 2007) 33.2 Beijing $7.043 trillion (est 2007) 11.4% (est 2007) $ 4,772 1.5% 1 US$: 7.101 Yuan
Electrical machinery, Clothing, Yarn,Petroleum & products Electrical machinery, Petroleum, Industrial machinery,Textiles

9,826,630 sq km 301 million (est 2007) 36.6 Washington DC $13.86 trillion (est. 2007) 2.2% (est. 2007) $ 44,071 2.6% NA
Capital goods, Industrial supplies, Consumer goods, Auto vehicle and parts Industrial supplies, Consumer goods, Capital goods, Auto vehicles, supplies

7,686,850 sq km 20.4 million (est 2007) 37.1 Canberra $766.8 billion (est. 2007) 4% (est. 2007) $35, 607 2.9% 1 US$: 1.07 Aus $ Metalliferous ore & metal scrap, Coal,Coke,Non ferrous metals
Petroleum,Road vehicles,Telecom equip,Industrial machinery

Source: Economist, CIA Factbook

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Offshoring & outsourcing newsletter- mid march, 2008

DETAILED NEWS ARTICLES:
Copal Partners eyes LPO business
SOURCE: EconomicTimes DATE: March 14th, 2008 ARTICLE Knowledge process outsourcing (KPO) firm Copal Partners is planning to enter the legal process outsourcing (LPO) space through acquisition of existing LPO firms in India. “We are in discussions with 10 LPO firms in India whose revenues are in the range $5-75 million. We hope to close one or two acquisitions this year,” said Copal Partners president Joel Perlman. LPO includes outsourcing of functions like legal research, litigation support, contract drafting & review and paralegal services. Copal Partners, which specialises in equity and credit research and caters to investment banking firms, mutual funds and hedge funds, is also eyeing the market research market. “We have started some work in the area of market research in telecom and technology. We would like to expand that,” Mr Perlman said. The KPO firm employs about 500 people, mostly research and analytics staff in Gurgaon. It plans to nearly double its employee strength to 900-1000 people by the end of this year. Copal Partners posted revenue of $30 million last year and aims to close the current financial year with revenue of about $50 million. Deutsche Bank, Merrill Lynch and Citigroup together hold a 25% stake in the KPO firm, while the promoters and the management hold the rest. The company had planned an initial public offering (IPO) on the London Stock Exchange but postponed the decision due to adverse market conditions. “An IPO would give us a better positioning as people take listed companies more seriously. We can also use public stock as a currency for acquisitions,” Mr Perlman said. The firm could offer about 25% equity to the public when it finally lists on the LSE. The Indian LPO space, which has for long been the domain of various small and mid-size players, recently saw the entry of Infosys, India’s second-largest IT firm. Infosys LPO targets large and mid-size service firms and corporates in North America, Europe and the Middle East.

Other players in the LPO market are WNS (Holdings) Ltd, Mindcrest and Pangea3. A recent study by Value Notes forecast revenues from offshoring legal services in India to reach $640 million by the end of 2010.

Evalueserve launches NOIDA center
SOURCE: The Hindu DATE: March 11th, 2008 ARTICLE Research and analytics firm Evalueserve on Monday inaugurated a new operations centre in Noida, as part of efforts to reduce travel time for employees living in and around the satellite town. “This new office in Noida is aimed at reducing travel time for the employees living in this zone of the NCR and at increasing their work-life balance. It will also give us access to a wider talent pool considering the firm is growing at a very fast pace and hiring approximately 100 employees every month,” Mr Ashish Gupta, COO, said in a statement. - Our Bureau

‘CSO Forum’ set up to tackle cyber crimes in India
SOURCE: SIFY DATE: March 14th, 2008 ARTICLE A forum of Chief Security Officers of IT companies in Chennai has just been formed. Members of the forum will exchange notes and ideas on various measures to be taken to tackle cyber crimes This was revealed by the Tamil Nadu Secretary, Dr. C. Chandramouli, at ‘Nasscom Cyber Safe 2008’, a two-day seminar on cyber security organised here by the southern chapter of Nasscom. Dr. Chandramouli said thedid an exercise to find out how prepared IT companies were against any threats. “What will you do, if someone enters your office armed with a gun and threatens you? Or, whom will you call if there is a sudden fire break-out?” these were the kind of questions the department put to the companies. “No one had a proper answer,” Dr. Chandramouli said. He stressed it was necessary that regular drills be conducted in companies so that all employees know how to react in an emergency. Vulnerable sector Dr. Chandramouli observed that the IT sector is more prone to threats because it has become a national symbol of development. Cyber crimes are also becoming

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easier — a person could walk in and out of a company with all the data in his pen drive. The CSO Forum will seek to address such issues and perhaps evolve some guidelines on cyber safety. Incidentally, the Tamil Nadu Government itself will soon bring out a manual of good practices for IT companies, Dr. Chandramouli said. Speaking at the conference, R. Dhamodaran, Country Head of the IBM India Software Group, said that there is a need for strong private-public partnership to enforce methods to prevent cyber crime, else it will become difficult to foster business on the Internet. “While we encourage more people to use the Internet for their business transactions, it becomes necessary to ensure that this channel of reaching out to the public is secure,” he said. Low on priority He said it was not just the prerogative of the information provider to ensure safe distribution of data, but also that of other stakeholders to responsibly deliver it to the enduser. According to data from the Computer Security Institute, financial fraud in the US has overtaken virus attacks and amounts to losses of over $66 million for individuals and corporations. Satish Das, Chief Security Officer, Cognizant, urged the police to take cyber crime as seriously as any other crime. Email harassment for instance, is low priority among the police, which is understandable as the police is used to handling a more tangible form of crime, he said. “But we need legal help. IT companies can help the police locate the culprits and impart technical training to make them aware of cyber crime,” he said.

on the breadth of services provided and customer satisfaction rates. This is not the first time that OPI has been recognized for client satisfaction. Last year, OPI and Trinity Industries were commended for developing a full relationship that embodies outsourcing best practices. Together, they received the “Relationship of the Year" award as part of FAO Today Magazine's 2007 Global Executive Awards. Furthermore, a panel put together by FAO Research commended the OPI and Trinity Industries partnership with an Honorable Mention in the 2007 "Awards of Distinction." Clarence T. Schmitz, OPI’s Chairman and Chief Executive Officer, noted, “This ranking is a testament to our approach which places value creation – and thus customer satisfaction – as our top priority. We focus on developing a flexible and productive relationship, and fully customize our offerings so as to best meet the unique needs of each client. We work to develop relationships that extend beyond what is typical of a client and vendor, and instead seek to operate in the spirit of a true partnership.” The complete Enterprise FAO Bakers Dozen listing can be found in the January/February 2008 issue of FAO Today magazine, or online at http://www.faotoday.com/magazine.asp?artID=1952.

Cognizant signs up AstraZeneca for $95 million KPO deal
SOURCE: The Telegraph DATE: March 10th, 2008 ARTICLE Cognizant has bagged a five-year contract worth $95 million for data management from pharmaceutical firm AstraZeneca. This is one of the largest knowledge process outsourcing deals for an India company. Under the agreement, Cognizant will provide a spectrum of centralised data management services for AstraZeneca’s global clinical development programmes. “We will help AstraZeneca centralise and streamline its clinical data management operations through improved process standardisation, consistency of delivery, economies of scale and cost savings, which the company can reinvest to support its research and development programmes,” said Cognizant president and CEO Francisco D’Souza. Cognizant’s responsibilities include data management planning, clinical study set-up for electronic data capture, medical coding, adverse event reconciliation and clinical data management. AstraZeneca announced its plans to centralise these services last year as part of its effort to improve research and development.

Survey Shows OPI “Has the Happiest Customers” in Finance & Accounting Outsourcing
SOURCE: Press Release DATE: March 12, 2008 Outsource Partners International, Inc. (OPI), a leading provider of finance, accounting & tax business process outsourcing (BPO) and related services, today announced that it has ranked No. 1 in Customer Service and No. 2 Overall among finance and accounting outsourcing providers. This marks the fourth consecutive year that OPI has been included in FAO Today magazine’s annual listing of the top providers of FAO. FAO Today’s Enterprise FAO Bakers Dozen listing was based upon intelligence gathered from a survey conducted late last year. FAO buyers were asked to respond to a series of twenty-five quantitative and qualitative questions which sought to collect information

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According to a KPMG study, the knowledge process outsourcing (KPO) market is estimated to grow by anywhere between $10 billion and $17 billion in another two years. Financial services KPOs are expected to reach $5 billion by 2010, the study said. The study said gains from KPOs would be substantially higher than that from business process outsourcing units. However, current service contracts for KPOs are smaller in size than their BPO counterparts. Billing rates for KPOs range from $10 to $45 per hour, while BPO billing rates vary between $4 and $15 per hour. The KPO industry, however, faces a shortage of trained and skilled personnel. The typical resource cost per full-time equivalent in India is between $15,000 and $40,000. For BPOs it ranges between $4000 and $10,000. Cognizant’s healthcare and life sciences practice has 10,000 professionals, including doctors, pharmacologists, biomedical engineers, pharmacists, biostatisticians and medical writers. AstraZeneca had engaged Cognizant in business services across North America, Europe and Asia-Pacific in 2004.

In its report, Australia Customer Priorities for Business Process Outsourcing Services, IDC predicted that that during 2008 finance and accounting will be the drivers of BPO in Australia with processing of checks, credit cards and bills being the main forms of business. The research firm also sees human resources (HR) as another driver. More companies will thus embark on payroll outsourcing and will most likely combine that with the underlying implementation of the technology component. The complete report presents the perceptions and buying intentions of Australian buyers for business process outsourcing (BPO) services. In example of BPO’s role in Australia is the case of Aptara, a global provider of integrated content transformation solutions, which opened a new office in Sydney, Australia, in response to growing customer demand. Through the new office, Aptara will scale its business process outsourcing (BPO) services to a growing number of Australian customers. Gurvinder Batra, chief technologist and senior vice president of publishing for Aptara, noted that the opening of the Sydney office underscores the growing popularity of integrated publishing technologies.

Gurgaon – the price of growth
SOURCE: Business Standard DATE: March 6th, 2008

AUSTRALIAN Organizations cautious about BPO risk
SOURCE: TMCNet DATE: March 10th, 2008 ARTICLE In a recent research report, IDC said that, even though Australian organizations see business process outsourcing (BPO) as a vehicle for cutting back office costs and improving processes, they are nonetheless cautious about the considerable compliance risks associated with BPO—including privacy and data protection, intellectual property rights and executive accountability. Aprajita Sharma, an IDC analyst, explained that BPO pilots will drive more new deals in the Australian region and become an important inroad for a BPO go-to-market strategy, as clients are more receptive to pilots before signing long-term, full-scale BPO contracts. Sharma believes this will happen primarily in areas that are considered ripe for outsourcing, such as benefits administration or human capital management. Agreements are normally signed at the start in North America and Europe, the Middle East and Africa (EMEA) where BPO engagements tend to be more mid- to longterm (5-10 years). In Australia there is a shift toward trial/pilot BPO projects taking precedence.

ARTICLE CITIES The suburb is creaking under the weight of its own growth A 16-and-a-half-hour power switch-off! That’s what the power supplier to Gurgaon — Dakshin Haryana Bijli Vitran Nigam — announced for the industry as the year 2008 began. Other users were let off with a kindlier ninehour “cut”, but that is too dignified a word for what can only be described as a system breakdown in a city which was, at one time, being looked at as a model for the rest of the country. It is a city creaking under the weight of its own growth. And the appaling power situation is just one example of that. Clogged roads are another. The water table is fast depleting. Law and order is an area of concern. And then there is all the sub-city infrastructure — sewerage, water drains, waste management — which is far from model, if it exists at all. Realty rates have shot up reflecting the huge gap between supply and demand. Every new project in the city means an additional load on the already stretched, and scant, infrastructure of the city, leading to some rather extreme suggestions from those who have already got a foot into Gurgaon. “They should not allow any more investment for the next few years. The infrastructure cannot take it,” says an agitated Mohit Jain, the past president of the Gurgaon Chamber of Commerce and Industry and director of the Gurgaon based The Malt Company (India) Ltd. This attitude reflects quite a U-turn for a city which has thrived on the growth and population spillover from Delhi. Part of the National Capital Region (NCR), Gurgaon evolved from an

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old economy style manufacturing hub (think Maruti) to a new economy suburb, exporting garments, software and services around the world. It has become modern, younger and trendier (think malls), all thanks to private enterprise, and to realty developers like DLF, who have built islands of “excellence” for commercial and industrial users in an erstwhile village. But they are just that — islands! Despite the fact that developers have paid what are called external development charges to the state government, they are still waiting to see development beyond their immediate boundaries. “I see the city as a classic urban disaster,” says TCA Srinivasa-Raghavan, a Business Standard columnist who is also associated with the Asian Institute of Transport Development. POOR GOVERNANCE OR OVER-INVESTMENT? Most blame the disaster on poor governance, a claim which is vehemently denied by the state government. The crises, I am told, is a natural outcome of all the investment that has poured into the state — and Gurgaon city — since the Congress party took over the reins of government three years ago. “The state attracted Rs 60,000 crore worth of investment since it was formed in 1966. We have managed Rs 45,000 crore investment in the ground in the last three years…and further investment proposals of Rs 78,000 crore are in the pipeline,” says Haryana’s Power Minister Randeep Singh Surjewala. The increase in business activity is also one of the reasons for the power crises in the state, which is a part of a larger countrywide problem of shortage of power. “Haryana is facing a power crises, like the rest of the country,” says Surjewala. Ironically, Haryana was the second state in the country, after Orissa, to embark on the road to power reforms in the late 1990s. The problems are so acute that companies already in Gurgaon are expanding “out” of Gurgaon, attracted by the tax concessions given to the special category states like Uttarakhand, lower realty and labour rates in neighbouring states like Rajasthan or states which offer other competitive advantages. Leading apparel exporter Orient Craft for example is now setting up new units in Andhra Pradesh. “We are looking at cheaper locations,” admits Sudhir Dhingra, the managing director of the company. He is one of the many investors who end up paying about Rs 10 per unit of captive power against about Rs 4 for state generated power. This has dented margins, especially for power-intensive industries. Some companies, especially auto ancillaries, are looking at the option of “importing” power from other states by utilising open access regulations, according to Sambitosh Mohapatra of PricewaterhouseCoopers, but surplus power is hard to come by in the region. There is no intracity transport system and the connectivity with Delhi is also fairly limited for those without a private vehicle. Rajeev Talwar, group executive director at DLF, identifies connectivity and power as the two main bottlenecks which need immediate action. It, however, continues to draw people from across the world. Sample this call which was received in the city from Pennsylvania last week. THE CONTRA SIGNS “Hi. We are looking at setting up a base in Gurgaon. Can you guide us.” Kavita Nair, deputy director at the

Confederation of Indian Industry (CII) who is in charge of the Haryana cell, gets a few such calls every week. More people want a foot into Gurgaon rather than a step out, especially those associated with the services sector. Look at the good things that Gurgaon offers. It is more spaced out than Delhi. It is close to the airport. Residential and commercial spaces are modern and wellequipped. And then there is the TINA (There Is No Alternative) factor. Since minimum service standards for modern Indian cities are still-in-the-making, there is no clear benchmarking of cities that is possible today. Gurgaon supporters contend that there is hardly another city which compares with theirs. “Where are the choices? Can you tell me one city in the country where infrastructure is okay? I think Gurgaon is the best,” says RICO Industries managing director Arvind Kapur, who is also the chairman of CII’s Haryana state council. Agrees Mohapatra of PWC. “Urban infrastructure planning has been missing in most of the country. There are no better models as of now.” And the denizens of the city are trying to work on solutions themselves. About six months ago, CII, along with Gurgaon Industrial Association and RICO Auto approached the Haryana electricity regulator to propose a replication of the “Pune model” in Gurgaon urban area whereby all the captive power capacity available in the city can be fed into the grid to ensure uninterrupted power supply, albeit for a price. To address the declining availability of water, CII is also pushing for sops for construction of water harvesting structures, which it wants to make mandatory for every building. Connectivity has already improved with Delhi, thanks to the expressway though the toll continues to be an unwieldy Rs 16 or Rs 24 or Rs 49, depending on your vehicle type. Why the toll cannot be a rounded number, which does not involve a struggle for loose rupees, is foxing. The power problem is set to be resolved in the next two years, promises Surjewala: “We are adding 7,000 mw over the next four years (5,000 mw within the state and 2,000 mw to be secured through competitive bidding from other states) to wipe out the demand-supply gap. We are also investing an unprecedented Rs 14,000 crore to augment transmission and distribution systems.” The connectivity problem will be largely resolved with the metro coming in. As for intra-city transport, there are a few proposals floating around. “One change that we see is that projects are actually happening,” says CII’s Kapur. And if that trend continues, Gurgaon may yet offer nirvana to its residents by 2010.

Businesses negotiate outsourcing price cuts amid recession fears
SOURCE: ComputerWeekly DATE: March 7th, 2008 Global businesses are demanding large discounts from outsourcers amid fears over economic downturn. According to a 12-month study of global companies carried out by Compass Management Consulting of 120 outsourcing deals, businesses are requesting discounts of up to 23% from outsourcers in return for longer contracts

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But the renegotiations could threaten the effectiveness of the contracts, said Geraldine Fox, global sourcing head at Compass Management Consulting. She warned that lower price contracts could lead to quality slipping and longer contracts could leave firms with out-of-date IT. “The business today is not going to be the same as the business in eight years’ time and the economic environment will not be the same either,” Fox said. Phil Morris, managing at sourcing consultancy Equaterra, said it is risky to place inappropriate demands on the supplier. “I believe the emphasis should be buying services at a price appropriate for the market and at a level that is sustainable.” “If it is clear that the outsourcer cannot do it at that price the service will go down,” he said. Robert Morgan, director at Hamilton Bailey, which provides consultancy services to outsourcers, said outsourcers rarely make more than 8.5% and asking for large cuts in price comes at a cost. “The outsourcer will have to take out costs by reducing the service levels, taking people out or even sweating assets by not refreshing technology as quickly,” he said. Businesses can get price reductions and flexibility if they disclose their future business plans to outsourcers, he said. “By understanding [a customer’s] business strategy and applying that to the investment decisions required in technology considerable savings can be made.” Guy Mason, chief information officer at rail freight company English Welsh & Scottish Railway, said flexibility is more important than price. “Flexibility is important because the changing economic conditions mean there are some adjustments to our business plan and we want more flexibility from the supplier.”

The trend is particularly seen in the financial services sector. Citibank, for instance, has cut onsite work in certain projects by 75 per cent even as the sub-prime related assets writedown continues to take place, increasing the possibility of further chopping in such projects. Though confirming the trend, N Ganapathy Subramanian, president, financial solutions vertical at TCS, maintained that cost pressures were not entirely responsible for it. “The movement of onsite to offshore is also a function of the maturity of the relationship between the client and the program as also the complexity of the project and other factors are responsible for this,” he said. In fact, there is a reverse team deployment happening at TCS where the client insists on having its captive employees at the offshore location rather than locating vendor’s employees’ onsite, he explained. “This works out to be more cost-effective,” said Subramanian. For the IT sector, a higher proportion of workers at the offshore location would translate into lower topline but prop up its margins. Virender Agarwal, director and senior vice president, APAC-MEIA at Satyam Computer agreed there is “definitely some shift toward offshoring, which has been time-tested and in the interest of the IT vendors themselves”. Offshoring is the more profitable than having onsite resources even though billing rates are higher. Even though accepting that lower onsite resources would mean lower volumes in dollar terms, companies would prefer a higher component of offshore delivery, he argued. Offshore shift might mean higher margins but clearly lower onsite also means lower profitability, countered India Infoline analysts. However, Krishnakumar Natarajan, president & CEO - IT Services, at MindTree Consulting, said the trend was client-specific and not universal. “There are some clients, who are doing it because they want same work for lesser (IT) budget or higher work for same budget,” he said. However, all agree that the negative impact of the reducing onsite resources can be countered if offshoring volume increases considerably. “The negative impact can be offset only if the demand shoots. A weaker dollar would make it cheaper for the clients to offshore,” explained Natarajan. Suresh C Senapathy, Wipro executive vice-presidentfinance, and chief financial officer said most IT services vendors encouraged a higher offshore strength as that saved costs and lessened visa hassles for them.

Clients force IT cos to cut onsite teams
SOURCE: SIFY Business DATE: March 6th, 2008 ARTICLE Notwithstanding the brave talk and the wait-and-watch stance by software majors, signs that the Indian IT story is coming unstuck in the US are beginning to emerge. In one of the first signs of cost pressures, US clients are increasingly forcing Indian vendors to cut down their onsite (or on the premise) teams, analysts said. Aniruddha Dange and Sandeep Muthangi of broking house IIFL said there is enough anecdotal evidence to show that companies such as Citibank, Deutsche Bank and British Telecom are reducing onsite team sizes. They are clients of companies such as Infosys, Tata Consultancy Services, HCL Technologies and Tech Mahindra and the news is not all good for them, for a 10 per cent volume shift from onsite to offshore could result in 350 basis points being knocked off revenue growth rates, Dange and Muthangi said.

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Having said that, there is no way any vendor can afford to have onsite component lower than 20 per cent of the project strength which is the industry benchmark, said another senior Satyam official preferring anonymity, adding that he did not have evidence of clients forcing companies to cut down on onsite execution. Moreover, price negotiations are mostly on the blended rate and IT services providers are looking to improve margins even on onsite resources through novel ways, he said. However, onsite staff cuts could be a precursor to pricing cuts, feel IIFL’s Dange and Muthangi. Clients are likely to demand price cuts next even as discretionary projects are at the maximum risk of being dropped. In the likely event of volume growth falling short of current expectation, a 2 per cent cut in onsite project would dampen EBITDA growth in the next financial year by 165bps, they stressed.

have asked for help with accessing and leveraging the data within their enterprises.” The Pune Global Consulting Centre will work jointly with Teradata’s existing global consulting centre in Mumbai, which supports business intelligence consulting projects being implemented in Southeast Asia and the U.S. In addition, Teradata has research and development centers in Hyderabad and Bangalore.

3i a Private equity firm opens resource center in Bangalore
SOURCE: EconomicTimes DATE: March 6th, 2008

Teradata Opens Global Consulting Centre in Pune, India
SOURCE: TMCNet DATE: March 5th, 2008 ARTICLE Teradata Corporation, which is focused on raising business intelligence through data warehousing and enterprise analytics, has opened its Global Consulting Centre in Pune, India. Teradata selected Pune because of its talented pool of mature IT professionals who are dedicated to an IT career path; the educational institutions that can provide training, and the facilities it offers designed for the IT industry. The Teradata employees in the Pune Global Consulting Centre will provide business intelligence solutions for targeted industries in the Americas, including telecommunications, retail, manufacturing, banking and insurance. “We are looking at an expansion of our Teradata consulting skills in vertical industry markets with the talent in the new Pune center,” Robert Cromer, vice president for the Americas, Teradata Professional Services, said in a press release. “Teradata is committed to leveraging Indian professional services consultants to help businesses solve some of their most pressing problems.” “As a technology hub, Pune is an ideal location for Teradata’s second global consulting center in India,” said David Klumb, global vice president, Teradata Professional Services. “The new capabilities will boost Teradata’s capability to respond to our customers who

ARTICLE Private equity and venture capital firm 3i on Thursday the opening of a knowledge and resource centre in Bangalore in partnership with Infosys BPO. The new facility would have an initial staff of 20 and would be managed by Infosys BPO, a subsidiary of IT major Infosys Technologies, the companies said in a joint statement. Infosys would initially focus on providing global research services to support 3i’s investment business as well as delivering a centralised service for its accounts payable. “The partnership between 3i and Infosys BPO is a natural one. We believe that the expertise and additional resource Infosys brings, will further drive 3i’s competitive advantage in India and globally,” 3i Asia Managing Partner Chris Rowlands said. 3i already has significant operations in India through its local growth capital and infrastructure teams, with recent investments including Nimbus Communications, a media and entertainment company focused on TV, advertising and sports rights, UFO Movies Pvt Ltd, the worlds largest digital cinema chain. The PE firm has also invested in Adani Power, a 2,600 MW coal fired power plant in Gujarat and the recent successful IPO of Mundra Ports, the deepest all weather natural port, on the west coast of India.

Evalueserve appoints Nand Gangwani, IPO expert as new CFO
SOURCE: EconomicTimes DATE: March 3rd, 2008

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Offshoring & outsourcing newsletter- mid march, 2008

ARTICLE KPO service provider Evalueserve, currently mulling over an initial public offer, on Monday said it has appointed Nand Gangwani as its new Chief Financial Officer. “Nand is an accomplished finance executive with a demonstrated track record of raising capital from public markets, strategic planning, restructuring as well as growing companies with the help of acquisitions and partnerships,” Evalueserve’s Co-Founder and Chairman Alok Aggarwal said. Gangwani’s expertise in strategic initiatives such as IPOs and growth through acquisitions and partnerships hold significance as Evalueserve is looking at the possibilities of launching an initial public offer soon. Previously, the company’s India Head Ashish Gupta had told a newspaper that it was looking to go public in 2008 and options included both India and overseas listing. Prior to joining Evalueserve, Nand served as CFO for Napster and Roxio. As the CFO of Roxio, Nand led the successful restructuring of its software business and assisted in the transition of Napster to becoming a leading music subscription service, the leading KPO service provider said. Previously, he was the Vice President of Corporate and Business Development at Evolve Inc, a software company, where he led the reshaping of the company from a professional services automation company to a resource management company. Gangwani, an IIT-Delhi graduate and MBA in Finance from Bentley College, Boston, has also held business and financial management roles at Intuit, Emery Worldwide, and DHL Airways. Evalueserve provides custom research and analytics services to companies worldwide and was founded by IBM and McKinsey alumni. It has over 2,100 professionals located in research centres in Chile, India, China and New York.

First, it depends on who your company is and the brand recognition that you would have in India. Face it— most of the big players (Motorola, IBM, HP, GE, etc.) have been in India for years. They spent time building brand and early entrants invested a lot of time and energy into building a reputation in the country, nurturing relationships with government, educational institutions, and other technology companies. It’s not only the multinational companies, but the local Indian companies are now just as much of a draw for top talent. The likes of TCS, Wipro, Infosys, and others have been working with top universities to not only recruit but also to provide input to the curricula in those top universities. When I was living in Bangalore in the mid-90’s, working for Hewlett-Packard, we spent a lot of time working with local (and some not so local) Universities and Institutes of Technology. We knew then, as did others with captive centers, that a strong relationship with professors was a requirement for getting the programs to generate students that would fit our requirements and getting to top students pointed in our direction. While I am no longer with HP, I must humbly admit that it was a smart strategy and HP continues today to attract and retain great talent in India. Most of the long established players in the country have built up around the major hub cities. Bangalore, Mumbai, Hyderabad, Delhi, Pune, etc. are probably not the best place to set up shop if you are looking for a captive center in India and expect to attract and retain the kind of talent one needs to be successful. You will be up against extremely tough competition for the top resources. It’s also becoming increasing more difficult to find the kind of HR/Recruiting management that you would want without getting a bit crazy on compensation. Unless you have very strong brand recognition in India, or have the next wave of new technology that is so cool that all the top people would jump at the chance to work on it, I would suggest staying away from the major centers and considering some of the second tier cities. I would refer you to recent Alsbridge research on the next top 10 cities in India to consider: http://www.outsourcingleadership.com/nexttop10indianciti es.jpg Even for this next tier of cities, unless you plan on setting up a rather large center, the recommendation would be to find a company to partner with in India and establish an outsourcing relationship in a Build-Operate-Transfer (BOT) type model. This model has the benefit of letting you ride on the experience of someone who is already there and has already been-there-done-that. Many companies, once they start this type of relationship,

Is it too late to set up a captive software center in India?
SOURCE: Alsbridge Press Release DATE: March 5th, 2008 Here we are already in 2008 and it is clear that the Offshoring industry is not slowing down. The question today is, “Is it too late to set up a captive software center in India?” The answer, quite frankly, is yes and no.

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Offshoring & outsourcing newsletter- mid march, 2008

never get to the “transfer” part of the cycle. If things are working well, why change? For a software center of less than 100 people or so, BOT is definitely the something to consider. There are also companies that act as service providers in a big way for smaller software centers. These providers will equip you with the fitted out facilities, center management, back-office support functions (Facilities, HR, Finance, Security, Legal, etc.) and put the software people on your payroll if you wish. In this model, if you feel you must have a legal presence in the country in order to penetrate local markets, you accomplish your goal without having to take on all of the challenges of doing everything yourself. These providers are working with multiple companies so they have a bit of sway in recruiting that you would not have when you are just getting started. So…are you the next hot technology that will have people flocking to join you? If so, then no, it is not too late to set up a captive shop in the top tier cities in India. Your name will attract the talent you need and your technology will keep them around. If not, then the recommendation is to consider second/third tier cities in India and even then, partnering may be the road to start out on. There are also other countries to consider that are not at the same level of maturity as India is now with regard to the software development industry. But that is another article…..

“Attrition can be costly. It can break down the entire delivery schedule. Clients today are unwilling to absorb any losses arising out of people exiting at the providers’ end. Hence, they are increasingly dictating terms with providers to include a retention clause in the contract. It’s fast becoming an industry norm,” said Avinash Vashishta, MD, Tholons, an offshore advisory. Pari Natarajan, CEO, Xinnov, an offshore advisory firm, said global customers are increasingly concerned about the productivity of their offshoring partner and have realized that employee turnover is one of the key hindrances to productivity in India. Clients make significant investments to put teams and processes in place at their providers’ premises. “Under the retention contract, providers are obligated to retain crucial, customer-facing staff including database administrators, project managers, programme managers or team leads,” said Sabyasachi Satpathy, senior director, neoIT, a corporate globalization advisory. Normally, clients and providers agree on a minimum retention of 85% of those on a project for 18 to 24 months. Any break in this could attract a financial penalty amounting to 10% of the monthly invoice. Under this clause, the providers are also obligated to keep their clients posted on any possible exit of anyone in the team and what would be the alternative arrangements.

Training for commitment: new approach to curbing churn rate
SOURCE: LiveMint DATE: March 6th, 2008 ARTICLE In the early battles against attrition, some companies resorted to bonds to keep people around, and departing employees would pay a fine for breaking contract.But as churn rates still crawl upward, employers are rethinking that strategy. Now, they are linking overseas travel, education leaves and training opportunities with the amount of time a worker owes a company. Bonds will get tied not to employment, but the nature of on-the-job training provided to employees,” says Ashutosh Sinha, recruitment director at business process outsourcing (BPO) giant Convergys Corp.Also known as “service agreements” in the outsourcing and information technology (IT) industries, bonds generally require an employee to agree to stay with a company for a year or two, and pay the company several thousand rupees if they decide to leave. In the 1990s and early 2000s, companies such as Tata Consultancy Services Ltd and Wipro Ltd were notorious for demanding up to a few lakhs from (TCS) employees who left before their contract was up, and TCS even fought a lawsuit over the practice in a California court. The industry’s shift away from the practice, observers say, is partly a legal move. Third-party trainings or trips

IT firms face retention clause
SOURCE: Times of India DATE: March 6th, 2008 ARTICLE Attrition is not an internal issue any more. It’s, in fact, inflicting insomnia among overseas clients who offshore critical operations to Indian vendors. Clients are not willing to accept excuses about project delays on account of attrition. Nor are they willing to foot financial losses resulting from delayed delivery. So clients are now introducing a ‘retention clause’ in contracts. This will make enterprises responsible for retaining people/teams working on the client’s projects. Failing that, they would attract a financial penalty. With this, the rampant practice of internal-poaching - shifting people from a dedicated project to unrelated projects will also come under the scanner.

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Offshoring & outsourcing newsletter- mid march, 2008

abroad may be the only types of bond contracts that an employer can legally enforce, according to Sanjay Kamlani, a co-chief executive officer of Pangea3, a legal outsourcing company in Mumbai. A bond contract in any other instance is “nothing more than a scare tactic,” he says. Observers also say contracts with strings attached can be win-win for both employer and employee; BPO and technology workers can now join companies and pledge to stick around, in exchange for getting a bump up the skills ladder or the opportunity to learn new skills abroad. The exchange of training for commitment has become more common at mid-size companies. Globerian India Pvt. Ltd , an outsourcing company that handles medical billing for clients in the US, for example, got burnt after it covered several employees to get certified in the Six Sigma method of problem-solving—the employees left the company as soon as they finished the course. The Six Sigma process, created by the communications company Motorola Inc., is a data-driven approach to management. “They get certified, and their value goes up,” says Thenny Mejia, a senior vice-president at Globerian, as she explained the company’s decision to institute bonds. “Everybody wants to hire that person.” Now the company uses bonds for both Six Sigma trainees and for its medical coders, who have to go to the US to get certified before they can start working with medical records. Pangea3 also asks for a bond to be signed on occasion, if it spends a lot of money to send an employee abroad. It has sent about 10 lawyers to the US and Europe over the past few years to train with clients or get advanced degrees, says Kamlani. The company asked two of them to sign a bond agreeing that, if they quit within a year, they would pay back the company for their trip. The effort to tie bond contracts not just to training courses and overseas exposure but also to full degree programmes is led by Genpact Ltd. Officials in the recruitment and BPO space say Genpact recently instituted a five-year bond tied to partial tuition reimbursement for in-house MBA and other certificate programmes, but the firm said it “would not be in a position to talk about the contract.” But even the use of specialized bond contracts is growing rare, according to recruiters in the field. “They’re trying to safeguard themselves,” says Vinod Meghrajani, who heads the IT and related services vertical at the human resources consulting group MaFoi Management Consultants Ltd, when asked about the use of bonds in the industry. “But companies are more focusing on other hiring factors. What are the softer aspects that makes a person stick around?” Especially at large companies, the war for talent and the struggle to retain it is forcing recruitment directors to think

along those lines. At Convergys, for example, after cutting its six-month bond for anyone with at least one year of call centre experience (and seeing a 10% jump in the applicant pool), the company is now considering getting rid of its bond all together. TCS, too, experimented with getting rid of some of its stringent bond requirements, according to sources at the company, but a “training agreement” for fresh recruits on the company’s website includes a provision for a Rs50,000 deposit, refunded after the two-year contract is up. When asked for comment, a TCS spokesperson said the company was “not very keen” to comment. Wipro did not respond to calls or emails for comment, but one worker, on condition of anonymity, said a fine is still levied on some exiting staffers. But the rationale for bonds in the BPO world is still a sound one, Convergys’ Sinha says. “In the IT industry, for example, people pay for certain training to get into jobs. Here it is free for them,” Sinha says, but it’s making them “much more employable.”

TCS feels US pinch
SOURCE:The Telegraph DATE: March 6th, 2008 ARTICLE The slowdown in the US economy has finally started to hurt India’s software giants. Tata Consultancy Services (TCS), the country’s largest software exporter, today admitted that two of its top 15 clients based in the US had “delayed a couple of assignments”. Until now, software companies have maintained that there has been no sign of any decline in IT spending in the US after reports of a looming recession. N. Chandrasekaran, chief operating officer of TCS, refused to say whether the project delays would impact the company’s earnings in the fourth quarter ending March 31. Earlier, the company had said salary hikes this year would be around 10 to 13 per cent — lower than that of the previous year. This is the first time that the company has admitted that there are “delays” in decisions from the client side. While announcing the third-quarter results in midJanuary, the company had downplayed the effect of the slowdown by saying, “The jury is still out on the slowdown; we are cautiously confident about the future.” The company had emphasised that customers were migrating to higher revenue bands. “Twenty-five large deals are in the pipeline and we are not just looking at the banking and financial services industry. The deals are from all verticals like retail and travel.”

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Offshoring & outsourcing newsletter- mid march, 2008

Low-cost product TCS today launched a low-cost product for small firms. IT-as-a-Service (ITaaS) is an innovative business model that will give small and medium businesses the experience of customised, low-cost solutions scalable to their growing business needs. The service will initially be offered in the domestic market and later expanded overseas. TCS is looking at annual revenues of $495 million from the new activity in about five years. “It is possible to develop a Rs 200-crore business in four to five years,” Chandrasekaran said. “Our aim is to become a leading end-to-end business solution provider in the SMB segment,” said S. Ramadorai, chief executive officer of TCS.

With this, TCS joins companies such as Cisco, IBM and more than 2,000 business technology firms that have a significant presence in the region.

Nokia Siemens, TCS sign outsourcing deal

SOURCE: The Hindu DATE: March 1st, 2008 ARTICLE The Finland-based telecom gear manufacturer Nokia Siemens Networks has signed a multi-million euro deal with Tata Consultancy Services to transfer product engineering and R&D services, as well as parts of the Operations and Business Software (OBS) business unit activities from Nokia Siemens Networks to TCS.The reassigned parts belong to the Nokia Siemens Networks development centre in Düsseldorf, Germany, including 90 employees who will be transferred to TCS, as part of this engagement. With this agreement, Nokia Siemens Networks and TCS will create an efficient set-up, whereby TCS will provide global R&D services to Nokia Siemens Networks by leveraging its expertise in the telecommunications sector. Valuable Partners “for many years, Tata Consultancy Services has been a valuable partner to Nokia and Siemens, our parent companies. TCS brings to the table an in-depth experience in outsourcing projects, and a proven track record of successfully transferring and integrating customers’ R&D personnel. This deal provides the employees in Düsseldorf with an excellent opportunity to work with an international teams in a global company,” said Mr Juhani Hintikka, Head of the Operations and Business Software Business Unit, Nokia Siemens Networks. “The agreement with Nokia Siemens Networks reiterates TCS’ capability to enhance customers’ business by leveraging our superior R&D services and strong domain. As the R&D partner for Nokia Siemens Networks, TCS will share its innovative approaches, global best practices and benchmark standards to ensure excellence. “The new regional delivery centre for telecommunications customers in Düsseldorf — where the transferred employees will work — is strategic to us, as Germany is a key European market,” said Mr N. Chandrasekaran, COO and Executive Director of TCS. “With its strong domain expertise, the worldwide delivery structures based on the company’s proprietary Global Network Delivery Model and its strategic alliance partners, TCS is well-placed as a strong competitor in Europe. “The integration of Nokia Siemens Networks employees would establish TCS’ local presence and strengthen its position as a global player. This is especially important in Germany, where brand recognition is key,” said Mr Graham Pascoe, partner with the analyst house PriceWaterhouseCooper Advisory.

TCS in Cincinnati
SOURCE: The Hindu DATE: March 2nd, 2008 ARTICLE The US subsidiary of Tata Consultancy Services (TCS) has received incentives worth more than $19 million (Rs 76 crore) for setting up base in Cincinnati in the US. This facility will serve as the North American headquarters of TCS and as a development centre with information technology solution delivery capability, according to the Ohio Department of Development Web site. “This $20-million [Rs 100-crore] project is expected to create 1,000 positions within the first three years of the company’s operations,” the Web site said. However, this could not be verified with TCS. It is learnt that the $19-million tax incentive includes a 90 per cent, eight-year job creation tax credit, valued at more than $15 million. The US subsidiary, Tata America International Corporation, has spent $13 million for purchasing a 1,96,000-square-foot building at Clermont county in Cincinnati spread out across 222 wooded acres. A company spokesperson said that the Cincinnati facility would be inaugurated on March 17. Ohio state has also awarded TCS a $2.5-million ‘rapid outreach grant’ to help pay for the building and its renovation, which will cost the company $7 million. TCS selected this location for its large pool of highly skilled workers, its excellent access to the other major states in the US, and for the proximity of Cincinnati Northern Kentucky International Airport, the spokesperson added. Analysts feel that Cincinnati will enable TCS to provide the same time zone advantage to its American clients. The Clermont County site is expected to employ software engineers, pre-sales professionals, and administrative support staff.

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Offshoring & outsourcing newsletter- mid march, 2008

Cognizant opens new delivery center in Argentina
SOURCE: EconomicTimes DATE: March 12th, 2008 ARTICLE To tap local talent pool in Latin America, global IT and business process outsourcing giant Cognizant today inaugurated its 35th global delivery centre in Buenos Aires, Argentina. The new centre would support Cognizant’s North American customers in a similar time zone, leverage techno-functional and lingual capabilities available in the region to service global customers, Cognizant said in a statement. Cognizant’s new facility has the capacity to accommodate about 250 professionals. “……our global sourcing capabilities will be strengthened by our new Argentina delivery centre,” Cognizant President and CEO Francisco Dsouza said. “Our investments in newer global, regional and local delivery centres will help our clients seamlessly harness optimal talent globally for providing differentiated value to their end customers. “It is truly an exciting time to be in Argentina as the country continues to grow its technology exports, and with our strong talent base in India, we look forward to being a part of the growing relations between India and Argentina as well,” he added. Cognizant’s Buenos Aires regional delivery would leverage the recently launched Cognizant 2.0 platform. This platform enables all of Cognizant’s global, regional and local development centres to seamlessly and virtually collaborate through one central platform using the Web 2.0 technologies and deliver significant time-to-market, cost and transformational value to clients.

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