Source: knowledge.computing.co.uk

Sometimes the figures just don’t match the hype. Take outsourcing to China, for example. Despite the current high profile of the country as a key global sourcing destination , just 5 per cent of leading UK IT organisations are currently using China as base for offshoring, according to independent advisory firm EquaTerra.

So much for China as the new home of outsourcing - especially when you consider 100 per cent of UK businesses that use outsourcing currently offshore all or part of their IT functions to India.

China, then - to paraphrase Edwin Starr, what is it good for? Well, absolutely lots of things, most notably research and development.

A recent survey by the European Commission found Europe’s research and development spending has been declining since 2000, standing at just 1.9 per cent of GDP ­ and almost half the rate devoted to research investment in China.

Want company-specific examples? Well, Computing - in the guise of editor Bryan Glick - recently took a trip to China, investigating research at Huawei, a manufacturer of telecommunications and networking equipment for customers such as BT, Vodafone and Telefonica. The following example illustrates how Huawei is able to take advantage of lower labour costs to invest big-style in R&D:

Huawei invests 10 per cent of its revenue in research and development (R&D) ­ a comparable proportion to Western IT providers. But lower staff costs make such spending levels deliver more than the firm’s rivals, says Huawei’s chief marketing officer Xu Zhijun.

“Our revenue this year will be about $11bn (£5.3bn), so our R&D investment will be about $1bn (£483m). In absolute amounts we are not investing as much as other big players, but R&D expense lies mainly in people costs,” he says .

“If you look at our labour costs in R&D, China’s average is only about one-sixth that of the US and Europe. So Huawei’s $1bn (£480m) investment in R&D will amount to $4bn (£1.93bn) or even $5bn (£2.42bn) in the US or EU.”

To back up the claim, Huawei can point to a remarkable statistic: 48 per cent of its 62,000 employees work in R&D ­ that’s more than 30,000 people, a workforce percentage that no Western firm could possibly match.

Blimey, 48 per cent - where does that leave UK innovation? How can we compete long-term with China, especially when UK plc spends just 1.9 per cent of GDP on R&D?

The historic importance and inherent talent of UK IT professionals are all well-and-good. But if China carries on dedicating 50-per cent of its workforce to R&D, the UK’s lead in innovation will soon disappear. Which is pretty discouraging.

Time, then, for the government and the private sector to step up to the plate and guarantee the UK’s position at the heart of global IT R&D.

Source: www.hindustantimes.com

Software major Tata Consultancy Services (TCS), which was the first to brack the billion-dollar rubicon in revenue among Indian software companies, has now bagged the largest outsourcing deal in the Indian software sector.

TCS has bagged a $1.2 billion outsourcing contract from The Nielsen Company, a US-based information and media company in a 10-year deal that involves maintaining IT systems, providing support to IT systems remotely, developing and maintaining HR, accounting software and providing back office services to Nielsen.

These services would be delivered from across its global development centres in India, Latin America and Europe.

TCS would also set up an innovation centre for Nielsen, which would work on its future IT requirements.

The deal, however, does not include asset takeover, something that companies like IBM do when they take up large outsourcing deals.

As a part of the deal, TCS would take over the captive BPO unit of Nielsen in Baroda, which does high-end work like analytics. The unit has 350 employees.

TCS shares closed at Rs 1,118, up from its previous close of Rs 1,095

While the location of the innovation centre is yet to be finalised, TCS Chief Executive S. Ramadorai said that it could either be in Chennai, Hungary or Brazil. TCS has similar innovation centres in Chennai, which services the retail and airline sectors.

Analysts see the deal as a positive sign for the Indian IT industry. “The rising rupee and uncertainty over outsourcing demand from the US were major concerns, but this deal shows that demand for IT outsourcing is still strong there,” said an analyst from a Mumbai-based brokerage.

Benefits from such transformational long-term deals would kick in a few quarters and it is clearly an indication of Indian IT companies moving up the value chain, another analyst said.

Media and telecom contributed 16.09 per cent of its revenue in 2006-07. TCS officials said the deal was bagged amid competition from other software majors like Accenture, IBM and Infosys.