Source:www.australianit.news.com.au

ENERGY utility AGL has turned to offshore outsourcing, awarding Tata Consultancy Services a $16 million services contract that will be filled in part by workers in the firm’s Indian development centres.

The deal, announced yesterday, is expected to save AGL about $12 million a year for the next five years and comes as the utility carries out a sweeping rationalisation of its information systems.

Some of the work will be completed offshore but most will be delivered through Tata’s operations in Australia.

AGL will scrap about 100 legacy applications in its technology overhaul, introducing a single SAP retail system for a saving of about $60 million a year once complete.

Most of the cost savings will come from an aggressive cull of AGL’s technology headcount.

The company is in the process of reducing IT staff from 300 to 20 and has already eliminated about 80 per cent of the jobs.

The Tata deal will cut 16 AGL IT jobs and Tata is not expected to take on any of the workers, unlike IBM, which picked up a number of AGL employees as part of an earlier services agreement.

IBM, Tata and Accenture are the three main technology services companies contracted to work on AGL’s IT revamp.

The Tata deal builds on AGL’s newly introduced practice of awarding output-based contracts, which mean that suppliers are not paid until they deliver working systems and services.

“The Tata agreement enhances the innovative outputs-based deal we have with Accenture to provide a single SAP platform, which replaces our legacy systems,” AGL managing director Paul Anthony told the Australian Securities Exchange.

“By taking the early opportunity to select and appropriate outsourced partner to run our SAP retail and enterprise resource planning systems, AGL has captured the benefits of outsourcing ahead of the anticipated changes from the IT change program.”

India, which has emerged as the back-office of the world in recent years, is expected to face stiff competition from countries like China, Malaysia and Singapore even as the global outsourcing industry is position to reach a great market size with in a few years. With the global acceptance of India as a financial services outsourcing hub, major financial companies are joining the off shoring bandwagon. A lot many banks are interested to set up their operational units in India. Recently the leading bank called Credit Suisse has announced its plans to set up its center of excellence in Pune, India.

More and more global investment banks are getting their work done in India. Cost still remains the predominant driver for most of the global financial institutions to outsource services to India. Gradually India is counted as a market capable to offer high-end and mission critical support services. Over the last two years research and analytics has emerged as a service area that has picked up steam.

Low labor costs and plentiful availability of skilled manpower are the key factors behind India’s sustenance as the top outsourcing destination globally. By setting up their infrastructure in India, the foreign companies have been able to realize cost savings to the tune of 30-50 percent. Outsourcing sector in India is experiencing consolidation and providers are moving up the value chain, expanding their onshore presence to strengthen global delivery capabilities.

India’s growth can come under stress due to the factors like high attrition rates, poor infrastructure, rising wages and appreciation of rupee against US dollar but with the time the country will surely come up with good solutions for these issues.

Going forward, global sourcing that follows a best-of-breed approach will find greater suitability as firms adopt a multiple-model, multiple-vendor and multiple-location approach. Combined or hybrid models will be the preferred model for financial institutions. With almost 50% of the world’s biggest banks in terms of asset size are off shoring to India, the country remains the most preferred outsourcing destination. However, India faces hard competition from emerging hubs in Asia Pacific and Eastern Europe. Despite such stiff competition, India will retain its dominant position to boost in future.