2012 Market Predictions report predicts the year’s focus on sourcing management and consolidation

Due to worldwide macroeconomic and political uncertainty, global sourcing activity is projected to be sluggish in early 2012, but business confidence is likely to be restored toward the end of the year, according to a complimentary research report issued by Everest Group, an advisory and research firm on global services. The firm predicts next year will see increased attention to global sourcing management and consolidation initiatives as companies seek more leverage from existing channels across sourcing lines.

“The demand environment for service providers will remain tentative in 2012 given the watchful approach of global buyers, and optimisation will be a strong focus for organizations looking to extract more value from their sourcing models,” said Eric Simonson, managing partner of Research. “While the economy in the United States is still in recovery mode, demand from European markets will likely remain sluggish due to uncertainties surrounding monetary and fiscal policy actions as well as sovereign debt risk. Despite the downside effects from economic conditions, buyers will see service providers bring forward new concepts to remain competitive. We also expect to see momentum in emerging areas such as social media, mobility, green IT and cloud computing that will foster innovation and evolution of new specialty providers.”

Other predictions for the global sourcing market include:

1. BFSI will continue to be the dominant industry segment in 2012 with verticals such as healthcare and MDR (manufacturing, distribution and retail) continuing to witness increased traction.
2. North America will continue to be the dominant buyer geography, followed by Europe, with the Asia Pacific seeing growth above the industry average.
3. Global sourcing stakeholders will continue to pursue new locations due to talent, cost arbitrage and risk diversification-related considerations.
4. In addition to Central and Eastern Europe (CEE) and Latin America, emerging geographies such as Africa will continue to attract interest as global sourcing locations.
5. Labor market pressures in established markets, such as India and the Philippines, will ease in early 2012 due to softening demand. These pressures may gradually return toward the end of the year if the global economic outlook improves.
6. Companies will continue adoption of hybrid captive/third-party sourcing models, and efforts will be made to improve captive value by focusing on high-value processes.
7. Captive investments will continue with the majority of setups and expansions occurring in the Asia Pacific and CEE geographies.

By Pradeep Khanna

Sovereign debt issues in Europe have again made investors risk averse the world over. US$ has now become a safe haven currency. The impact is being felt in emerging economies as funds are being pulled out of these markets. There has been a general trend of depreciation of emerging country currencies.

In so far as Australia is concerned, the Indian Rupee (INR) and Philippines (PHP) are two important currencies from a globalised services delivery perspective – INR as India has a dominant position in services globalisation, and PHP as Philippines is now also an important services delivery centre, especially for BPO. How these currencies move has an impact on the cost of a globalised service delivery model.

Since 02 Aug 2011, against the US$, the INR has depreciated 20% and PHP has depreciated 5.14%. Against the A$, since 01 Aug 2011, INR has depreciated by 13.29% and PHP has actually appreciated by 0.08%. It’s obvious, INR has depreciated significantly more than PHP against both US$ and A$ in the last five months.
All things being equal and looking at only currency exchange rates, in US$ and A$ terms, cost of delivering services from India should have becoming significantly cheaper in the last 5 months. In the case of Philippines, cost of delivering services in A$ terms would have increased marginally (0.08%) and in US$ terms decreased slightly (5.14%).

Whether, customers actually got the benefits of a depreciating INR depends on a number of factors including the hedging strategy of the customers, their vendors and offshoring contract provisions in regard to currency movements. Customer currency risk management strategies and information on currency hedging positions/strategies of major global and Indian vendors like IBM, Accenture, Infosys, TCS, Wipro etc. would be covered in later bulletins in 2012. Also note – currency movements are just one of many variables impacting services globalisation.

Coming back to exchange rates, while exchange rates between two currencies are determined by interest rate differential, Inflation differential, current account deficits/surplus, public debt, terms of trade, general economic performance etc., – its interesting to see how people of Indian and Philippines origin living overseas (outside of India and Philippines respectively) are impacting their currency movements.

India is currently estimated to have a ‘stock ‘ of around 25million + people living overseas. These people are commonly referred to as Non Resident Indians (NRIs) and account for 2.1% of India’s population. In comparison, Philippines is estimated to have a ‘stock’ of around 9.5+ million living overseas. These people commonly referred to Overseas Filipino Workers (OFWs) account for 9.4 % of Philippines population.

These people living overseas maintain strong links to their mother countries (India and Philippines in this case) and remit significant amounts of money. As per World Bank figures, remittances by NRIs to India were around US$55 billion in 2011 – and India was the highest remittance recipient country in the world. India’s gross export of goods and services in FY 2010-11 were US$382.5 billion giving it a ratio of Inward remittances /Export of Goods and services of 14.38.

In comparison, OFWs remittances to Philippines were around $21 billion in 2010 – and Philippines was the fourth highest remittance recipient country in the world. Philippines gross exports of goods and services were $65.10 billion in FY 2010 giving it a ratio of Inward Remittance/Export of goods and services of 32.25.

While there could be minor differences to the above numbers due to different data sources, the trends are quite clear – Inward remittances play an important role in the economy and currency movements of both these countries – the impact is much higher in case of Philippines as compared to India as evidenced in the summary table below:

Both India and Philippines have well defined policies to cater to this overseas resident segment – more so as this is a steady and growing stream of inward remittances. No wonder India recently (in Dec 2011) decontrolled interest rates on NRI deposits resulting in a sharp rise in some NRI deposit rates. Also realising there may be hesitancy in investing in a depreciating currency, India also recently allowed NRIs to hedge currency risk.

So, will it stem the INR exchange rate slide. Financial analysts believe the fall in INR exchange rate has been more sentimental than fundamental. Of course, structural issues being faced by the Indian economy, slower GDP growth (India’s GDP growth is now forecast to grow at around 7% as per India’s PM statement on 09 Jan 2012) and relatively high inflation rates have also impacted on the INR exchange rate in addition to global risk aversion.

Interesting to note, how in a flatter world, the cost of delivering services for Australia could potentially be impacted to some extent by people of Indian and Philippines origin living outside their home countries.

Pradeep Khanna – Chief Executive and Managing Director
GLOBAL MINDSET

• Korn/Ferry’s global RPO division Futurestep recorded revenue of $US28.6 million for the quarter, up 29% (cc) and operating profit of $US2.3 million, up from $US1.2 million last year. The company predicted that revenue in the next quarter would be between $US183 and $US203 million.
• Panasonic releases TDE/NCP Firmware Version 5 for its top selling IP PBX systems – the KX-NCP500 and TDE200/600 – offering enhanced capacity and upgraded features. The firmware is available now free of charge from Panasonic Certified Telecommunications Resellers. The firmware allows NCP Series IP PBX users to almost double handset capacity, allowing for business growth and staff increases without needing to replace the system. The upgrade also brings enhanced features to call centres using the popular TDE Series IP PBX, allowing the number of callers that can be accommodated in an ICD group to increase from 30 people to 100 people. Furthermore, these callers can now choose to leave a message and exit the ICD queue, rather than being cut off if the number of callers in the queue exceeds capacity.
• Jabra today announced the release of the Value Pack 3 firmware upgrade containing three key new call handling options that make daily call handling even more intuitive on the popular Jabra PRO™ 9400 and Jabra GO™ 6400 Series. The upgrade allows users to dial directly on the touch screen of their headset base through the new dial pad for mobile phones and softphones. Users can make calls directly from the base without having to access their mobile phone or keyboard. This function is particularly useful to users who do not have a traditional telephony handset as they are using a hosted or cloud telephony network. The user can use the touch screen on the Jabra headset base to make calls on their corporate network or mobile phone. The dial pad provides the user with a standardised way of making calls.

By Hayden Walles
Photo by Chris Harrison

It’s not unusual these days to see virtual keyboards on the touch screens of portable devices like tablets and phones. These devices lack a physical keyboard but make up for it by displaying a picture of one on the screen and letting the user tap away on that.

But virtual keyboards are not just constrained to the screen. Today almost anything can become a keyboard – from a table top to the palm of your hand.

Korean company Celluon has been developing virtual keyboards for several years and their latest product is the Magic Cube, a small box that fits in your hand yet provides a full-size keyboard when needed.

Switch it on, sit it on a desk and it projects an image of a keyboard on to the surface in front of it. Tap the virtual keys and the corresponding characters are communicated wirelessly to any compatible device, from a laptop to a smartphone.

The principles involved are very simple. The projection of the keyboard is just that – made by a tiny projector at the top of the box. At the bottom of the box beams of infrared light are emitted just above the surface of the desk. As your fingers tap the surface they cut through these beams, which are reflected up to a camera in the middle of the box. The camera sees the reflection and works out from its position which key you have “pressed”.

Though the Magic Cube is clever it is essentially just a very portable replacement for a real keyboard.

More radical possibilities are on the horizon. Microsoft researchers Hrvoje Benko and Andrew Wilson, along with Chris Harrison of Carnegie Mellon University in the United States, recently showed off a system they call OmniTouch, which turns any surface into a touch screen.

OmniTouch is made up of a shoulder-mounted projector and depth-sensing camera combination. The projector displays interactive images on any nearby surface – a wall, a table, a pad or even parts of the user’s body.
The camera tracks the user’s fingers, working out where and when they touch other objects.

Putting it all together allows the user to, for example, dial a phone number on a keypad displayed on the palm of their hand, or draw projected pictures on an ordinary paper pad.

Pretty much anything, in fact, that you can do with an ordinary touch-sensitive display, except that the display itself can be any suitable surface.

We take it for granted that the size of portable devices is a compromise between compactness and usability. But if the display and controls need not be physically part of the device, all bets are off. It’s too early to tell whether systems like OmniTouch will take off. But in a few years they may virtually replace their physical counterparts in many situations, in more ways than one.

The Press, New Zealand

The use of cloud computing ranges from 75% of customers in the technology and life sciences sector to 25% for financial institutions and customers in the transport, energy and infrastructure sectors.

All customers consider a security breach to be the biggest risk in cloud computing.

Customers in different industries rate secondary risks differently, with financial services organisations rating compliance as the second biggest risk while other sectors rate loss of data and loss of control over data as theirs.

61% of suppliers, and 66% of customers, believe that due diligence procedures have tightened in the last three years.

Just 8% of suppliers thought that they themselves should manage political / jurisdiction risk, compared to 49% of customers who felt that suppliers should manage this risk.

78% of customers believe that managing the risk of data loss should be a joint effort, up from 13% in 2008.

According to a global survey by international legal practice Norton Rose Group on current outsourcing practices and trends, businesses and their suppliers see the same risks with cloud computing solutions.

Nick Abrahams, technology partner at Norton Rose Australia, commented:
“It seems that customers are still concerned about the risks of cloud computing transactions. Customers’ main concerns are security breaches, loss of control over data and loss of data. For financial institutions, compliance risks are also key.

“The cloud computing industry has grown significantly over the past three years, but suppliers still need to convince customers that their data is safe. Recent well-publicised data breaches have not helped.”

The survey also found that customers are using lengthy due diligence processes prior to entering agreements.

Michael Park, technology partner at Norton Rose Australia, commented:
“Due diligence is particularly relevant for cloud computing. The results show that data security is the key risk driver for all customers. Due diligence processes have improved in the past three years, but customers need to develop a due diligence process that tests and evaluates suppliers against key risks.

“The only way for customers to be sure that a potential supplier is appropriate is to visit the supplier, use their systems and carry out reference checks. The survey shows that the risks for customers in different sectors differ significantly. Customers need to ensure that suppliers have considered the risks that are important to them.”

While companies are increasingly taking on responsibility for risks, such as project delay and data loss, opinion is sharply divided on whether the customer or the supplier should take responsibility for political / jurisdiction risk.

“The survey indicates that customers do not perform due diligence on supplier’s staff, assuming that this has been done by the supplier. Recent security breaches, however, show that it takes only one person to cause a devastating reputational impact,” said Park.

“Where a company puts any element of its business into the cloud, it must ensure that due diligence has been undertaken on the supplier’s staff given that they may have access to data about the company and its clients.”

The survey also reveals a disconnect in the way suppliers and their customers view risk. Customers rate reputational damage as a primary risk but suppliers rank it as a secondary risk, and while service performance failure is seen as primary risk for suppliers, their customers view this as a secondary risk.

“Customers need to realise that not all risks can be outsourced to a cloud provider. The regulators are also very interested in cloud. APRA has informed the banks and financial institutions that they need to do the risk analysis of cloud the same way they analyse any outsourcing,” added Abrahams.

“Australia’s technology sector is as busy as it has ever been, and we expect this to continue for the foreseeable future. Cloud computing is a key element to growth. Customers are looking to the cloud to gain flexibility with their technology solutions.”

The report, entitled Outsourcing in a Brave New World, is the second outsourcing report released by Norton Rose Group and details the views of CIOs, General Counsel and Heads of Procurement from 74 businesses globally including technology and life sciences businesses, retail companies, financial institutions, transport, energy and infrastructure companies and the professional services sector, and suppliers themselves.

Please see the report at Outsourcing in a Brave New World.

Norton Rose Group is a leading international legal practice offering a full business law service to many of the world’s pre-eminent financial institutions and corporations from offices in Europe, Asia Pacific, Canada, Africa and the Middle East, and, from 1 January 2012, Latin America and Central Asia.

By Irma Isip

The contact center industry is expected to grow at a faster clip of 20 to 25 percent per year over the next five years, according to Benedict Hernandez, president of the Contact Center Association of the Philippines (CCAP).

In an interview, Hernandez said the industry originally saw 15-20 percent growth until 2016 despite an already high base.

“We earlier thought the growth rate would be closer to 15 percent until 2016, but now it’s in the 20 to 25 percent range,” said Hernandez, adding that the sustainability of the industry has not been more prevalent than today.

He said the growth is expected from a combination of expansion and new investments in offshoring and outsourcing (O&O).

Hernandez also sees better opportunities since there are many companies that have not outsourced their needs and would now begin to look at cost advantages.

Hernandez also said there could be plenty of “captive” businesses that be brought about by the crises in the United States and Europe,

“The crises put a lot of cost pressures on these companies,” Hernandez said, adding that these firms may well look beyond their shores, including the Philippines, which is already enjoying a boom in the outsourcing industry.

“Despite the volume of activities that we already have, there are still a lot of companies which have yet to outsource, both US and non-US,” said Hernandez.

Based on CCAP’s mid-year assessment, the full-year target of 15 percent to 20 percent growth of revenues and workforce this year is achievable.

Hernandez said the worst crisis the industry has experienced was the financial debacle in the US in 2008 and 2009.

Yet, he said, the industry grew “significantly” during those years when bigger companies globally became aggressive in offshoring their manpower to manage their costs.

“Crisis or not, they are looking at ways to reduce costs – through offshoring,” Hernandez said.

CCAP recently signed a memorandum of cooperation with the Commission on Higher Education for a five-year partnership that aims to improve college curricula, provide training programs for teachers, and evaluate student graduate skills

“We want to make a module for the aspiring call center agent,” Hernandez said.

A student can take “BPO 101″ as part of the core curriculum. He can also take 21 units BPO services management as a minor course.

Hernandez said that the course will be offered in selected colleges and universities by next school year 2012-2013.

However, Hernandez said the industry faces increasing challenges that could constrain growth.

The challenges include long-term sustainability of a qualified labor pool supply, talent retention, government support for the industry, favorable regulatory policies and incentives and, lastly cost concerns that include labor, inflation, infrastructures and utilities.

For this year, CCAP projects revenues will grow 18 percent to $7.1 billion, with the sector employing about 406,000 compared with last year’s $6.2 billion revenues and 344,000 workforce.

Source: Malaya

By Kevin Scarpati

10.) Flexibility
With uncertainty surrounding today’s global economy, companies need the ability to expand or downsize quickly. Unfortunately, that’s not always possible with today’s labor laws, as employee lawsuits are at an all-time high. By outsourcing, companies take that risk away, allowing businesses to adapt more quickly to rising or slowing demand.

9.) Efficiency
Odds are, your company isn’t an expert in IT management, HR services or accounting functions. Companies can spend weeks, sometimes months, just finding people for a particular in-house department. From there, you’re forced to train people and really adjust on the fly. At the end of the day, businesses can be left with a hefty bill with little to show for their money. By simply outsourcing basic business services, companies are able to jump right to the finish line when building a department.

8.) Peace of Mind
While the uncertainty surrounding outsourcing contract negotiations can be unsettling, companies often feel a sense of relief once people start signing on the dotted line. Contractual agreements offer protection for both parties, and remove any nasty human interactions that can take place when in-house workers are dismissed. Outsourcing companies can also be held responsible for negligence and poor performance in legally binding contracts, further aiding the outsourcing drive.

7.) Freeing Up Internal Resources
Why waste people in areas that don’t focus on core business functions? Capital and people are becoming higher commodities in a difficult financial environment, and companies need as many good people as possible to focus on what really matters with a business. By outsourcing non-core processes, companies free up time and capital to move their business forward.

6.) Risk Management
Going along with No. 10 on this list, risk management is another top reason why companies choose to outsource. If a business is launching a new product or offering something new, having employees in developed nations offers little in terms of risk management should the product not do well on the open market. With offshore workers, operations can quickly be fine-tuned to meet a skyrocketing demand or a demand that never comes into fruition.

5.) Improved Service
Believe it or not, outsourcing can actually help improve service. Why waste time and valuable resources training an in-house customer service team when there are professionals to be hired that can usually do the same task for less money? IT performance, HR functions and financial services are some of the most commonly outsourced jobs, and companies all over the world have been working in those specific fields for years. Having an offshore company handle non-core business activities usually lead to better service.

4.) Tax Breaks
Check out our piece on the Top 5 Tax Efficient Outsourcing Locations, and you’ll get a clearer picture on why companies choose to outsource some of their operations. By handling business overseas, businesses are able to take advantage of lower corporate tax rates. Countries like Ireland, Hong Kong, Singapore and Taiwan have very low corporate tax rates, which can have a dramatic impact on a company’s bottom line should they outsource certain services there.

3.) Lower Regulatory Costs
Not only can companies pay offshore workers less, but significantly lowering regulatory costs also drive down the outsourcing price tag. Programs like Social Security, Medicare and unemployment insurance don’t exist in many developing countries, which drive down outsourcing costs further. Even if an outsourced worker makes the same as his/her American or European counterpart, lower regulatory costs mean that it’s usually much cheaper for the business to go with the overseas employee.

2.) Focusing on Core Business
The second biggest reason companies choose to outsource is to free up time to focus on core business processes. Without having to run an accounting department or an IT operation, companies are able to direct their scope to work on what really matters inside their business, increasing work flow and allowing managers to finish projects faster.

1.) Lower Wages
As the old saying goes, it’s all about the money. The fact of the matter is that most companies wouldn’t be sending jobs overseas if they weren’t saving money. According to a 2010 study, India’s per capita income is $1,371, good for 133rd in the world. By comparison, the United States placed tenth, with a per capita income of $46,860. Lower wages are a huge factor when outsourcing, and the top reason companies choose to send parts of their operation overseas.

Source: Supply Chain Digital