Source: www.ciol.com

LONDON, UK: The financial crisis and global recession will accelerate adoption of global outsourcing and offshoring as strategic business tools as organisations respond to economic adversity with a forceful push toward cost-reduction according to leading sourcing advisory firm EquaTerra. Factors expected to impact outsourcing and offshoring over the next year are:

Globalisation will continue but at a slower pace: Numerous factors, including the severe global economic downturn, repeated product health/safety scares related to Chinese goods, a collapse of commodity prices (critical to supporting many emerging market economies) and the election of a new U.S. administration concerned with the loss of domestic jobs will slow globalisation and one of its key manifestations, the global sourcing of services. But the compelling business benefits of global sourcing, especially in tough economic times, will continue to drive growth.

Reassessment of current global outsourcing strategies/destinations: As buyer focus shifts to cost reduction and cost avoidance, organisations will carefully analyse current and future outsourcing efforts and service provider partners to ensure they are getting services from the most cost-effective location.

Steep learning curves: As buyers turn to outsourcing/offshoring to help weather economic turbulence, they will need to consider mitigating factors, including service provider capacity levels, prior direct experience and whether engaging a service provider expands or consolidates the supplier base, supplier consolidation/rationalisation is viewed as a means to gain economies of scale, reduce overall costs and speed implementation of new efforts to meet shorter term business needs.

Volatility in foreign exchange markets: Outsourcing buyers and sellers must become more effective/efficient at hedging against currency fluctuations that often negatively impact local currencies in emerging markets, creating instability in cost structure/pricing/profit margins. The seesawing value of the dollar will make calculating the true costs of outsourcing/offshoring more complicated, challenging buyers and service providers to plan/project longer-term pricing, cost and profitability levels. Efforts to do this should include explicit contractual contingencies and, when possible, spreading global service delivery efforts across multiple markets.

Wage inflation in offshoring markets will abate, at least temporarily: As Western markets pause to digest events and determine a go-forward strategy,demand for global outsourcing services will slow temporarily, curbing the recent trend toward wage inflation in offshoring markets and helping top outsourcing destinations remain competitive.

Evolving outsourcing business model: Buyers will continue to shift away from the use of project-based contract labor in favor of longer term, formalised outsourcing relationships. By committing to longer term and larger scale deals, buyers can get better pricing from service providers, better levels of service and lock-in longer term cost savings strategies.

Move toward flexible service delivery models and acquiring in-house skills needed to manage sourcing successfully: As buyers gain outsourcing/offshoring management experience, they will seek greater flexibility in service delivery models to fit form to function and tasks. The result will be a mix of domestic, nearshore and offshore shared services/captive centres and other outsourcing efforts that will evolve with the marketplace. Organisations will also place greater emphasis on defining, acquiring and transferring skills needed to successfully govern outsourcing/offshoring efforts.

Source: www.business-standard.com

ValueLabs, a Hyderabad-based software development, testing and knowledge process outsourcing (KPO) company, is planning to set up its second facility in the city at an investment of Rs 150 crore. ValueLabs currently has two facilities – a 175,000-sft centre in Hyderabad employing 1,420 and the other in Kuala Lumpur in Malaysia housing 40 professional.

“We are in the initial stages of discussion with the state government for allotment of 10 acre of land in an SEZ near Hyderabad and expect a positive response in the next few weeks. We plan to start work on the facility within two and a half months of allotment,” Arjun Rao, chief executive officer of ValueLabs, told Business Standard.

Rao said the first phase of the new facility will involve an investment of Rs 100 crore and would accommodate 750 employees upon completion in the next two years. “The 500,000-sft facility will be fully operational in the next four years employing 5,000, two-thirds of which will be catering to new businesses,” he said. The zero-debt company would fund the expansion partly through debt and the rest through internal accruals.

The company has also acquired 30 acres in Pune’s upcoming IT hub Hinjewadi and had already received necessary approvals from the Maharashtra government for setting up its centre there. “We believe that our current and proposed facilities in Hyderabad will meet our requirements for the next three to four years. We plan to take the Pune project forward after three years from now,” Rao said. ValueLabs headcount will go up to 7,000 when its Pune facility is ready.

The company had also secured a licence to operate in Dubai’s IT cluster – Dubai Internet City – and recently opened its sales office there, which besides acting as the primary engine of growth in the Gulf Co-operative Council countries will also serve as the springboard into the central Asian and African markets.

Rao said the company saw a huge traction in energy and telecom sectors in West Asia and expects to clinch five clients in the region to offer them custom application development, maintenance solutions and remote infrastructure management services. “We expect West Asia to contribute 10 per cent to our revenues in the next one year,” he added.

At present, the US contributes around 60 per cent to ValueLabs business, which it plans to bring down further to 50 per cent by expanding to other markets including South Africa, West Asia, India and Europe.

ValueLabs reported revenues of Rs 120 crore in the last financial year. It expects to close the current fiscal with a revenue run rate of Rs 200 crore on the back of its extended team model (ETM) and geographical diversification. The company follows an ETM approach in which its team becomes a part of the independent software vendor’s (ISV) organisation. Today, 50 per cent of its 60 clients are ISVs.