China’s position in market is similar to where India was 10 years ago

By Patrick Thibodeau

The top 10 Chinese outsourcing providers employ a total of 85,000 people. That may sound like a lot, but it’s a small number in the world of global outsourcing.

India has a number of outsourcing companies far larger than the combined total of China’s 10 leading outsourcing firms. India’s Tata Consultancy Services, for instance, employs 187,000 people alone.

But China’s IT outsourcing firms are in a good position to grow, according to outsourcing consultancy TPI.

“What’s interesting, and perhaps coincidental, is that the size of the leading Chinese providers today by employee and revenue [counts] is roughly equivalent to the size of the leading providers in India a decade ago,” said Michael Rehkopf, a partner and director at TPI during a conference call about the outsourcing market.

A decade ago, Indian providers accounted for less than 1% of the outsourcing market; today they have about 20% of the market by contract value. Contracts were $1.5 billion 10 years ago and about $18 billion today, which represents a 32% annual growth rate, said Rehkopf.

Many of the major Indian providers count on business from U.S. customers for more than 50% of their revenue, a path that China-based firms may not need to follow.

John Keppel, TPI president, believes the Chinese firms won’t need to rely as much on the U.S. for work. They have a substantial domestic market to tap, and the large economies of nearby countries, Japan and Korea, to do business in as well.

But what could hurt China’s outsourcing growth is increasing competition from other nations and intellectual property protection issues, said Rehkopf.

Caveats aside, Rehkopf said he won’t be surprised to see “Chinese service providers take off quickly and dramatically in the decade ahead.”

China’s outsourcing firms have been turning to Wall Street to raise cash.

For instance, ISoftStone Holdings, a company with about 10,000 employees, held an initial public offering (IPO) in December. Last year, two other Chinese firms went public as well. They are HiSoft Technology International and Camelot Information Systems. All three are on TPI’s list of top 10 outsourcers.

The Chinese employment market is influenced by the country’s vast number of engineering graduates, more than 300,000 annually. One company, Bleum Inc., seeks to hire new Chinese graduates who score an IQ of 140 on the company’s test.

Patrick Thibodeau covers outsourcing issues for Computerworld.

Software developer VanceInfo buys Chinese business outsourcing firm

Software developer VanceInfo Technologies Inc. said last week that it has purchased LW International Holdings Ltd., a Chinese business outsourcing services company.

China’s VanceInfo will pay $5.6 million in cash and stock for the company, with further payments based on LW International’s performance during the next three years.

LW, also known as Lifewood, was started in 2004 and serves clients in the U.S., Europe and Asia Pacific regions, mainly in the health care, publishing and financial services sectors.

VanceInfo said there are increasing synergies with between the business outsourcing and information technology businesses.

Lifewood reported about $4.5 million in net revenue last year.

Source: CanadianBusiness

Formation of consortium in the industry is not a new phenomenon. You often come across individuals, companies, organisations or governments (or any combination of these entities) making an association to participate in a common activity. In the process they pool their resources for achieving a common goal. That’s the idea of consortium. It seems to have now caught the fancy of the Indian Business process outsourcing (BPO) industry.

In the BPO industry, the era of simple solutions is over. Simple solutions means merely replicating inefficient business processes of an organisation by some other party at lower price points. There is no analytical, strategic and customised approach involved in those solutions. But now there is a growing demand for value added BPO services. Clients are moving away from their traditional focus on cost savings. They want to know the breadth and depth of the services a vendor has to offer. Also they look for the credibility, security certifications and service standards.

There are only a few large players like TCS , Infosys and Wipro which meet these criteria. This helps them win larger deals. But when it comes to small or mid-sized vendors, few make the cut. In fact sometimes even the larger players need to look expertise outside the organisation.

And there arises the idea of the formation of consortium in BPO industry. This brings in a larger geographical presence, credibility and a niche expertise all together. Also the arrangement serves well in case of larger projects where higher equity investments are required. As most of the times smaller firms specialise in a niche area they tend to remain undercapitalised. Hence the consortium structure suits them.

Big players in this business have already started joining hands with small niche players for their expertise. For example, Infosys BPO has formed a partnership with American insurance institutes to expand the company’s insurance vertical. According to Infosys BPO’s statement, the consortium between them and the American Institute for Chartered Property Casualty Underwriter and the Insurance Institute of America will enrich Infosys BPO’s domain expertise. Also that will help learning and development of Infosys BPO’s employees.

Other mid-sized and smaller players are also in the race. The consortium of HCL Infosystems, Accor Services and Virgo Softech has bagged a contract from the Government of Madhya Pradesh (MP) to set up food coupon-based targeted public distribution system (TPDS) in the state. Patni has made bids for some deals in a consortium to have a local language partner or a platform vendor to provide internet-based solutions. Aegis has been providing customer lifecycle management (CLM) services for a healthcare client with a help of a consortium of service providers in the Americas.

There is a definite advantage of forming consortium as it brings synergies in many ways. But this also throws up a lot of challenges. Who will lead and manage the synergies? Who will assume the risk, liabilities and service level agreement (SLA) commitments? These kinds of questions start arising. After all these, it becomes difficult to get synergy at operational level due to overlap of services, different approaches to the client delivery of different partners etc.

Despite all the problems, the idea of forming a consortium of small and mid-sized BPO companies is being considered for winning big orders. It is now the need of the hour. Just being a small niche player or sometimes even a larger player, who provides plain vanilla BPO services, does not help these days.

This kind of consortium formation also gives clients more options. Earlier clients used to choose different vendors themselves for their different requirements on the best of the breed basis. Now they can go for a big player or a consortium for their bigger projects.

Good days for big players seem to be getting over in BPO industry. Now big deals are not restricted to big players alone. Consortia of mid-sized & small BPO firms are going to give them a run for their money.

Source: EquityMaster.com

Philippines BPO industry urged to develop Public Private Partnerships to remain competitive

Senator Edgardo Angara has called on the government to fast track efforts to improve ties between government, industry, and academe to support the booming business process outsourcing (BPO) sector of the country.

Angara noted that a recent report from the World Bank (WB) indicated that the BPO sector of the country would continue to surge, and has the potential to maintain the strong growth, especially by improving on the skill level of human resources.

Oscar Sanez, CEO of Business Processing Association of the Philippines (BPAP), recently released an industry roadmap entitled, “IT-BPO Road Map 2011-2016: Driving Global Leadership” indicating that the BPO sectors revenues will rise and workforce grow at an increased rate with the proper government support.

“The study found that the industry can grow from US$9 billion in annual revenues and approximately 500,000 direct employees today to US$20 billion and 900,000 employees by 2016 if current conditions are sustained and with a lot of hard work,” said Sañez.

“But the study indicates that we can grow at an even faster rate and achieve $25 billion and 1.3 million employees by 2016 if we can significantly strengthen our Private-Public-Partnership with the government, and improve both the quantity and quality of our talent supply,” he noted.

Sanez, who is also a member of Comste (Congressional Commission on Science & Technology and Engineering) indicated that that the BPO sector is moving away from voice services into fields such as such as IT, medical, legal, which demand quality personnel.

Angara expressed concern that if these types of jobs in the country are not filled by well-trained and educated personnel, the country would lose its momentum in achieving a knowledge-based sector of the economy, creating a void in domestic growth.

Angara noted that creating productive Public Private Partnership (PPPs) would enable industry leaders to interact with academe, which in turn would develop better training and curriculum for students that can seamlessly enter the workforce.

The move from simply expanding voice services to providing more technical backroom services presents many opportunities to expand the workforce and provide highly capable, and technical employees that can compete on an international level.

Sanez also presented some of the other priority issues that the BPO sector wants addressed in order to maintain the rapid growth of the industry and remain a the Top Off shoring Destination of the Year, as awarded by the National Outsourcing Association of the US, namely the strengthening of data privacy laws, the creation of a Department of Information and Communication Technology (DICT), and the creation of a campaign to create global awareness of the Philippines as a center for BPO excellence.

Sweden’s Medius has established operations in Australia, completing a period of rapid international growth for the paperless workflow specialist.

The new Australian subsidiary is headed up by former ReadSoft employee Robert Bruhn, who is looking to hire technical and sales staff to tackle the local Purchase to pay (P2P) and invoice automation software market.

Bruhn points out that Medius MediusFlow offers more than just P2P automation as it offers a broad platform for workflow design, “MediusFlow is able to be configured as an on-premise, outsourced or SaaS solution, or any combination of the above, with scanning outsourced to a BPO if required,” said Bruhn.

“My target for Australia is to grow with the same rate or better than Medius AB. This requires hiring both technical and sales staff rapidly. The required staff must have first-hand knowledge of or certification in PMBOK/BABOK.”

Senior staff will be brought in from Sweden to install and configure MediusFlow’s first customers in Australia.

Medius Australia is also looking for OCR and ERP partners. Readsoft and Microsoft are existing global partners.

MediusFlow offers a web-based procure-to-pay workflow that can be integrated with any OCR system, purchasing system, and ERP platform. The platform is sold on a per transaction basis, rather than per user, and the only desktop software required is an Outlook plug-in that allows for invoice authorisation from within the email client.
An iPhone app has been launched and other smartphones are soon to follow, providing the ability to manage workflow on the go.

Medius has out-of-the-box integration with 40 ERP systems and 20 purchasing systems and it is currently in use at over 500 customers globally. Norwegian supermarket giant NorgesGruppen processes more than 4.5 million invoices annually with MediusFlow.