By Stephanie Overby, CIO

As AIG, AOL, Dell, Target and other companies sold or shuttered their wholly-owned offshore IT and business process centers over the past five years, outsourcing industry experts predicted that the offshore captive center model was headed for the history books. But, according to a recent research report by outsourcing consultancy and research firm Everest Group, the captive model is staying alive-and thriving.

In fact, reports Everest Group, most large-scale captives continue to operate and have grown both in terms of scale and the complexity of services they provide. New captive set-ups are outpacing sell-offs, and divestitures are steadily declining. Last year, ten new captives were opened and 13 captives expanded, while just two were sold, according to the report.

Captive centers will continue to play a major role in offshoring for the foreseeable future for two reasons, says Eric Simonson, Everest Group’s managing director. “First, it is a large part of the market, representing about 25 percent of delivery within India. Second, the model is different from third-party models and that is not widely understood. A captive cannot only deliver the typical services of a [third-party] service provider, but also many other services which are just part of the normal business. In effect, a [captive center] is a corporate campus which happens to be based offshore.”

The IT captive center in India dates back to the 1990s and was led by technology and financial services companies that set up shop on the subcontinent (see box, below). At that time, the primary motive was to attain low cost while maintaining or increasing quality, says Simonson. Some companies were also spurred by interest in expanding their businesses in the region.

The History of Captive IT Centers in India 1985: Texas Instruments establishes the first captive center in India, focused on research and development. 1990-1998: General Electric, British Airways and Dun & Bradstreet establish and grow captives in India. All are eventually converted into third-party service providers. 1998-2005: The captive model is adopted broadly across large technology, global banking, financial services and insurance firms. 2005-2008: Rapid adoption of captive model across most industry sectors. 2008: More than 500 captives are operating in India. –Everest Research Institute

By 2006, captive operations delivered about $8 billion worth of IT and business process activities, according to Everest Group. And even as some industry watchers suggested that the model was no longer viable for most companies, captive center activities grew at a compound annual growth rate of 10 percent, to reach $10.6 billion in 2009, according to Everest Group.

Although divestitures have occurred and approximately 20 percent of captives have downsized, that does not indicate that the model itself has failed, says Simonson. Companies that sold their operations were in search of short-term cash while third-party service providers were looking for acquisitions to expand their capabilities, according to Everest.

Those captive centers that were shut down altogether tended to be newer centers that struggled to build robust operations and recruit and retain talent in an increasingly competitive market, Simonson says.

“This is a sign of some captives struggling, not the model struggling-and most of those shut down were very small and barely got started,” Simonson says. “It should be expected that not all new entities (captives or other operations) would be successful.”

Simonson points out that 30 percent of the top 20 IT service providers that Everest tracks have been acquired in the last three years, yet that does not mean that the IT service provider model is struggling. “Failures of some entities does not mean the model is flawed,” Simonson says. “The landscape continues to evolve.”

While captive offshoring success was defined in the past by meeting cost reduction goals and effectively managing risk, going forward additional value will be required.

“The value may be in terms of ability to ramp up and down resources for ad-hoc needs, create new ideas that advance the status quo, contribute talent to the global leadership of an organization, or provide an option to enter or better serve new geographic markets,” Simonson says. “Success increasingly becomes about the impact the captive has on the broader organization, not just the cost of a process or activity.”

To gauge the health of the captive center market in the future, adds Simonson, analysts will need to look not at the number of new captives established, but at the growth of existing captives. “The captive market will continue to grow, but largely by existing organizations both scaling and evolving the nature of work they perform,” he says. “[But] most firms for whom captives make sense already have a presence.”

While India remains the center of the captive universe, add Simonson, the model will be even more important in other offshore locations. “For example, large high-tech companies will see China captive operations as important for a combination of localization of products for east Asia, providing back-office support to other east Asian geographies, and supporting the domestic China market,” Simonson says. “Due to the diversity of languages, industry knowledge, and domestic market business opportunities, the use of captives outside of India is more precisely defined.”

Source: Network World

By Shraddha Nair & Harini Subramani

Private equity investors Franklin Templeton Private Equity Strategy, a fund managed by Franklin Templeton Asset Management (India); Aureos South Asia Fund and ePlanet Capital have bought a majority stake in Newgen Imaging Systems a Chennai-based unlisted e-publishing outsourcing firm, two people familiar with the development said.

“We are convinced about the opportunity in the outsourced publishing space, specifically in the opportunity that presents itself in the digitization of books,” said Balaji Srinivas, managing director, Aureos India Advisors Pvt. Ltd.

The buyers have purchased a 60% stake in Newgen, said a person directly involved with the deal, asking not to be named as he is not authorized to speak to the media.

The stake was purchased from Carlyle Asia Venture Partners II, a growth capital fund managed by global investment manager Carlyle Group, which invested $10 million in 2004 and increased its stake by investing later in 2006. Carlyle will exit the company with the stake sale, both the persons cited above said.

A Carlyle spokesperson declined to comment.

Newgen, founded in 1996, provides outsourced publishing services, particularly to publishers in the US and Europe. It offers project management service for books and journals, taking on processes such as author liaison, development editing, copyediting, design, artwork and permission, typesetting, composition and eBook delivery.

Some well known e-publishers include Macmillan Publishers, International Typesetting and Composition, Mizpah Publishing Services and Cadgraf Digitals.

“The industry is not very organized and very few well-known players exist,” said Pradeep Udhas, executive director and national head, information technology and business process outsourcing, at consulting firm KPMG India.

The Indian e-publishing offshoring industry is estimated to grow at a compounded annual growth rate of 35% to $1.2 billion by 2012, employing nearly 74,000 people in around 1,500 companies, according to KPMG.

“E-Publishing is primarily growing on account of increased outsourcing being done internationally in the publishing space,” said Udhas. “Other drivers include increase in broadband penetration, private schools adopting hybrid teaching methods, and foreign universities offering online courses.”

Secondary deals, or sale from one private equity fund to another, have emerged as a popular mode of exit by investors due to volatility in the capital markets. The value of secondary deals more than doubled to $125 million across eight deals in January-June this year, compared with $59 million across nine transactions in the year-ago period.

shraddha.n@livemint.com

Deals India, published jointly by Mint, Dow Jones Newswires and The Wall Street Journal, is a one-stop destination for investment professionals following deal flow, deals news, private equity and venture capital activity in India.

By Janan Yussif

Kenya is hoping that continued investment efforts in its outsourcing sector will continue to boost the country’s economic growth. The government announced that it was looking to incorporate high-skilled IT services such as software development, animation and gaming into the local market in order to buttress international companies interest in the country, which has already seen much growth in outsourcing in recent years.

The Kenya ICT Board, a government arm charged with marketing the country as a business process outsourcing (BPO) hub, has been concentrating on voice segment for services like customer care and telemarketing, reported Business Daily.

“These are less lucrative and has seen Kenya lose many BPO opportunities despite having a bubbly techie community that has won major awards in software development,” the report stated.

Analysts believe that by pushing these sectors it will help make Kenya a more enticing destination for companies looking to get a foot into East African markets.

“What we have seen in recent years is that Kenya is really going after making the country a leading destination for companies looking to outsource and it is working,” said William Mkale, a Nairobi-based ministry of communications official. He told IT News Africa/Bikya Masr that these new efforts are likely to spur growth and keep the economy pushing forward.
“Look at the success of the telecom sector in Kenya in recent years and it is obvious that by continuing to bolster the IT infrastructure that the ministry has been pushing is going to achieve great success,” he added.

The government is focusing on linking the 25 registered BPO and call center operators while leaving out other 637 information technology service (ITES) providers.

Source: Bikyamasr

Sri Lanka’s information technology and business process outsourcing firms have started to expand out of Columbo, to lower costs and also be closer to the residents of potential workers, officials said.

Dinesh Saparamadu, head of HSenid, a software developer said his firm had set up a research and development unit and gone to Kandy in central Sri Lanka where Peradeniya, a national university was located. “We had a lot of students boarding here (in Colombo) who go home for the weekend,” Saparamadu told an economic forum organized by the Ceylon Chamber of Commerce, Sri Lanka’s largest business association.

“We need to go and set up satellite operations. ” Saparamadu who is also chairman of Sri Lanka Association of Software and Service Companies (SLASSCOM ), an industry body, said IFS, another software developer had set up offices in Kandy.

Niranjan Tavarayen, senior vice president, WNS Global Services said his firm was planning to set up an outsourcing unit about 30 kilometres away from the capital.

One of the problems of setting up offices outside Colombo was that senior officials did not want to reside in the regions due to lack of facilities and infrastructure such as schools for their children.

Tavarayen says international clients want to locate their outsourcing centres in cities that look modern and have up to date facilities. But there were clients who were willing to outsource work to ‘tier two’ cities, he said.

Rohan Samarajiva, head of Lirne Asia, a regional policy research unit says the government in particular has an opportunity to locate call centres outside the capital.

Reshan Dewapura, head of Sri Lanka’s ICT Agency says the government’s ’1919′ call centre could move parts out when it expand. The government was also planning to set up an IT park outside the capital.

Source: Lanka Business Online

The impact of the new carbon tax on the Australian outsourcing industry

By Martin Conboy President Australian BPO Association

Australian treasurer Wayne Swan says new Treasury data show the impact of a carbon tax on emissions-intensive industries would be negligible compared with the pressure caused by the fluctuating Australian dollar.
Professor Bruce Chapman president of the Economic Society of Australia and director of policy at the Australian National University’s Crawford school of government in a recent report entitled “How many jobs is 23,510 really?” In this report He attempts to put into perspective a claim by the Minerals Council of Australia that a carbon trading system would cut by around 24,000 people, the number than would be employed in the mining industry. He points out that, “Something like 370,000 people every month go from not having a job to having a job, and something like 365,000 people every month do the opposite.”

He goes on to say, “That’s the change every month. The Minerals Council has projected its change over a period of ten years.”

“The additional outflow would be 5 people for every 10,000 who would have left in the month anyway. I am happy to call that invisible. I was going to draw a graph of it for the report but I couldn’t – you can’t draw a graph because the effect is too tiny.”

“What it says is the carbon price debate should have nothing to do with job loss figures. The labour market issue should be seen to be irrelevant. It is not interesting, it is not something we should spend any further effort analysing”…

A carbon tax is an environmental tax that is levied on the carbon content of fuels. It is a form of carbon pricing. Carbon atoms are present in every fossil fuel (coal, petroleum, and natural gas) and are released as carbon dioxide (CO2) when they are burnt. In contrast, non-combustion energy sources—wind, sunlight, hydropower, and nuclear—do not convert hydrocarbons to carbon dioxide. A carbon tax can be implemented by taxing the burning of fossil fuels—coal, petroleum products such as gasoline and aviation fuel, and natural gas—in proportion to their carbon content.

Not withstanding the political debate mostly carried on by parties with vested commercial interests this is the first time in history that companies will have to account for carbon when they do their annual accounts.

Going green is a lot more involved than simply turning off the lights; changing to energy efficient light globes; using double-sided photo copy paper; not throwing waste into the sewage system; recycling; or designing buildings that work with nature to heat up or cool down as the case maybe, although that at least is a start.

David Suzuki the much admired environmental scientist reminds us that it is because of the size of the human herd that we need to realize our impact on the planet. “We don’t know our own strength. So many of us have become disconnected to the earth. Our future depends on choices, on the choices we have made in the past and those we will make today and in the future. We cannot continue the exceptional growth of this last half of the 20th century without experiencing consequences. Think about this, every time that the global population doubles there are more people currently alive than the sum of all the people who ever lived.“

There can be no question that Australia’s safest, internationally competitive, long-term climate change objective should be to achieve a “carbon neutral or better” future – anything less is not sustainable nor in the best interests of future generations of Australians.

From both a risk and opportunity perspective, the legislation should support businesses that create flexible, economically attractive pathways to a carbon neutral or better future. This will help place such businesses in the most powerful position, as climate change progressively becomes a dominant and mainstream economic and political dynamic for society. Those organisations that can fulfill their purpose, thrive and grow within a carbon-controlled commercial eco system will be the most sustainable.

There is a strategic need for innovation that can provide carbon based goods and services in a carbon constrained world and a harmonizing need for innovation that can deliver ‘carbon negative’ outcomes on a major scale.

Being ‘green’ is not just an option any more; it has become a necessity, especially as more and more organisations prefer to do business with companies who have initiatives in place to reduce the carbon footprint of an operation. Many business deals in the coming years will depend on the carbon neutrality credentials of an enterprise. Be that as it may, if we have the ability to change the way we treat our environment, surely then we have a responsibility to do something about it. It’s all very well being rich, but all the gold in the world will be useless if you cannot breathe!

Thinking green has become an important part of an organization’s corporate social responsibility. Slowly but steadily we find companies taking positive steps towards setting up operations that comply with environment sustainability points.

“We define a green company as doing three things such as integrating corporate responsibility — including green — directly to the business strategy; making it easy for customers to buy, operate and dispose of your products in an environmentally responsible way; and being as transparent as possible about your green initiatives and operations, and very public about your environmental goals,” says Mahesh Bhalla, executive director, and GM, consumer division, Dell India.

“To be environment friendly, the company has to have efficient power consumption; recyclable/reusable packaging; recycling offers for older equipment; use of non-toxic materials; and making investments in future green concepts such as alternative materials,” says Bhalla.

Proper use of outsourcing and cloud based IT lowers carbon emissions by allowing people to work from anywhere without having to commute, these days they ‘Telecommute’ using cloud based applications. By shifting business processes away from environments that require workers to use private transport to get to work, to environments that have fully utilized mass public transport systems must have an over all impact on carbon footprints. If a company is outsourcing some of its business processes, it will require less real estate as it will have a reduced work force and thus will have lower heating/ cooling bills.

So where does this leave the outsourcing sector?

As I have previously mentioned Australian companies will be sorely tempted with the prospect of sending local jobs offshore. Given that it’s very hard to find willing customer service staff in a full employment economy like Australia, it makes sense for companies to consider other options just to be able to provide customer service to their customers. A strong dollar gives Australian businesses a lot of buying power and amplifies the difference in the cost of labour in Australia compared to say the Philippines, Malaysia, India and China.
Putting aside the fluctuations in foreign exchange, the more exciting and interesting aspect of the green debate as far as outsourcing is concerned is that companies will turn to outsourcing suppliers to help them with challenges like customer service, i.e. Solar panel companies, temporary contractors to help with installing will be supplied by Recruitment companies, specialist carbon knowlegble accountants who can keep score of carbon credits as well as dollars and cents will be in high demand as business will have to factor in carbon as part of their business plans. There will be a whole range of new types of jobs and opportunities that will be created as we start to embrace the brave new world that will be created by a carbon tax. I can see a growth spurt in RPO as a result.

Capgemini and CA Technologies have announced a partnership to develop global Energy, Carbon and Sustainability BPO services. Targeting organisations in industries such as manufacturing, fuel and utilities that have a significant carbon footprint, the service will help organisations to better manage complex sustainability data collection to address increasingly challenging reporting demands.

Capgemini believe the new service will offer them significant opportunities within their existing client base and with new clients, Michael Alf, VP Capgemini Australia, says, “The issues surrounding sustainability and for companies to manage their responsibilities are becoming far more crucial. Organisations need to be providing accurate and meaningful reporting to ensure they are meeting their compliance requirements and are active in addressing their corporate responsibilities.”

“Given the trends around sustainability and the significant pressure for organisations to do something about it, we see significant growth opportunities in this area”.

Compliance will be a leading but not a prime driver behind this area of outsourcing. Forward thinking enterprises have recognised the significant competitive advantage in adopting sustainable development principles, including greater efficiencies and cost reduction, improved compliance performance, and brand protection leading to greater support from regulators and stakeholders.

Over the last view years a range of Indexes and standards have evolved, in Australia and overseas, to evaluate the environmental and sustainability practices of different companies. As such there is the Australian SAM Sustainability Index, the Corporate Responsibility Index (Australia), the Dow Jones Sustainability Indexes and the FTSE4Good Index.

So as far as opportunities for the outsourcing sector that will be created by the carbon tax, I say bring it on.

By Mark Atterby – Senior Staff Writer

Unisys has created a hybrid outsourcing service to help mortgage lenders comply with the new National Consumer Credit Protection (NCCP) ACT, while still leveraging the cost benefits of outsourcing back office processes.

The NCCP replaces a range of state based legislation to protect consumers and ensure those operating in the finance industry adhere to ethical and professional standards. As part of the new legislation, anyone wanting to offer financial services needs to obtain a license or be an appointed representative of someone who has a license.

For some time Unisys had RAMS Home Loans as a client, providing a range of back office processes for their mortgage lending. Rafe Kruger, General Manager, Unisys Business Process Outsourcing, Asia Pacific, comments, “By 2008 we had three clients in the banking space, including Anchorage and RAMS. We used to work with all three organisation on a utility basis, where they all leveraged the economies of scale associated with that model.”

The introduction of the NCCP last year and the strict codes of behaviour associated with it, meant Unisys had to change the outsourcing model they provided, so their clients could leverage the cost benefits of a general utility model of outsourcing while also adhering to the compliance requirements of the new legislation. Kruger, who has lead the Unisys BPO business in Asia Pacific since 2005, said, “The route we went down was that each of our banking clients had a licence and each one of them appointed us as a credit representative under that licence. We then went away and built the processes and systems and the mechanism for delivering services, for each individual client, that were compliant with the NCCP legislation and their licencing.”

Essentially, Unisys has divided their service offering. On the one hand they have created three subsidiaries, where each subsidiary is nominated as a credit representative under the licence of a particular client.

This subsidiary manages all the activities governed by the NCCP legislation for just that client. The service is more of a managed service arrangement, where the Unisys subsidiary provides the infrastructure to enable the relevant systems and processes but the client retains control and responsibility for managing those processes.

On the other hand Unisys maintains a core team that supports non-legislated activity which can still be offered via a utility or “leveraged” model for all three clients. “By combining these two approaches – client specific and utility model — we can offer clients a solution that both caters for NCCP legislation but still accesses the cost benefits of a shared utility service,” Mr Kruger explained.

Under the terms of their outsourcing agreements, Unisys Credit Services and its subsidiaries are responsible for all mortgage settlement and post-settlement functions and operations, including collections management and recoveries. They also manage a customer contact centre for all clients, providing the primary point of contact for customer enquiries.

By Katlene Cacho

THE Australian government wants to strengthen its partnership with local business chambers. Top officials are encouraging Cebuano exporters to take advantage of free trade agreements (FTA) to boost trade between the two countries.

Australian Ambassador Rod Smith said they have been considering Cebu as one of their potential business partners because of its thriving economy, which is buoyed by the growth of the city’s manufacturing and outsourcing sectors.

“Australia and the Philippines have a long-standing trade relationship. We want to strengthen it and we are capitalizing our efforts in Cebu and the rest of the Visayan region,” Smith said in a recent interview.

Smith said Australia’s interest in the country is mainly in mining, business process outsourcing, infrastructure and tourism.

Smith said there is “great promise” of an increased trade partnership with Australia and the Philippines with the Asean-Australia-New Zealand Free Trade Agreement (AANZFTA) going into effect last year.

Less than 3 percent

Smith reported that of the $90 billion in trade between Asean and Australia, the Philippines accounts for less than three percent or $2.5 billion.

Last year, two-way merchandise trade between Australia and the Philippines was valued at P60 billion. Major Australian merchandise exports to the country include copper ores and concentrate, medicine, copper and milk and cream.

Philippine exports were electrical machinery and parts, radio broadcast receivers, telecommunications equipment and parts.

The two-way trade in services between the two countries last year is valued at P35.28 billion, with the Philippines recording a surplus of P18.36 billion to an import of P17.12 billion from Australia.

Australia’s top service exports to the country are education-related and personal travel. The Philippines’ top exports were personal and business-related travel.

The AANZFTA is Australia’s largest FTA. It eliminates about 96 percent tariff on the country’s exports to Australia. “The importance of the agreement is that it gives Philippines the competitive position to do trade in our country,” Smith said.

He also advised exporters to look beyond traditional markets and consider Australia’s large economy as destination of the country’s exports. For Cebu, Smith said they are interested in the furniture and food processing sectors.

“We don’t only cater to finished products but we also export intermediary services.

The challenge for exporters is to make use of the Australian export-driven country, for them to get involved in the supply chain of the global market,” Smith said. “We really hope to bring more Cebu products to Australia.”

Seminars

Ross Bray, senior trade and investment commissioner for Philippines and Micronesia of the Australian Trade Commission said they have partnered with the Department of Trade and Industry in conducting trade and investment seminars for exporters.

He said that it is important for an investor to know Australian culture.
Apart from increasing trade, Australia is also promoting its country as an ideal destination for education.

Bray said Philippines is one of the country’s major recipients of scholarship grants.

He said studying in Australia would give Filipinos instant connection with other foreign students who could be future business partners.
Over 617,000 international students studied in Australia last year. The students came from China, India, Korea, Thailand and Vietnam.

Last year, over 4,800 Filipinos studied in Australia.

“Aside from the quality of education, Filipinos study there because of its proximity to the Philippines and both countries have similar time zones,” Bray said.

Published in the Sun.Star Cebu newspaper

A YouGov survey of over 2,000 adults in the UK, commissioned by business outsourcing company arvato, found one in five consumers (22%) feel they receive poor customer service when speaking to call centres.

Call centre staff with ‘strong regional or foreign accents’ topped the list of frustrations when dealing with customer service lines, followed by queuing and automated menus, while ‘friendly staff’ and ‘effective problem solving’ were said to be the most important features of good service.

The YouGov survey showed Insurance companies were ranked worst at dealing with customer orders and enquiries, followed by utility providers, such as gas and electricity companies, and public sector organisations.

Internet-only retailers, such as ASOS.com and play.com, ranked highest in the survey, followed by banks.

Only 1% of respondents said they had never felt frustrated by call centres.

Those who were most dissatisfied with service standards were professional middle-aged men (35-44), while those least dissatisfied were the unemployed and full-time students. Respondents from London were found to be more likely to complain, with those least likely from Scotland.

Mark Brown, Managing Director, Contact Centres & Loyalty, arvato UK & Ireland, says the research highlights how many organisations were struggling to improve customer service when faced with pressure to cut costs due to a challenging economy.

He said: “This is the dilemma which has been debated by Britain’s biggest brands since the onset of the recession – how can you reduce operating costs while still improving customer satisfaction and loyalty?
“The truth is the two things are not mutually exclusive. Cutting costs doesn’t have to mean off-shoring call centres or replacing real people with machines. By re-examining their customer contact operations, and getting the right people, processes and technologies in place for the right customer service, companies can reduce costs while enhancing the experience for their customers.

“What is certain is that, with a sluggish economy and weak consumer confidence ahead, customer satisfaction is the new battleground for Britain’s biggest brands who are fighting to retain their market share. Those organisations that overlook areas such as contact centres – which remain a key interface between brands and their customers – will see their customers vote with their feet.”

Over 1m people work in the UK’s 5,650 call centres (source: ContactBabel 2011).

For more information, visit www.arvato.co.uk