Come 2012, one quarter of top business process outsourcing (BPO) providers as they are known today to enterprises will cease to exist, according to new predictions from Gartner.

The shakeup in the BPO landscape will take the form of market exits and acquisitions, brought about by a variety of factors, the research house said Wednesday in a statement.

Robert Brown, research vice president at Gartner, explained: “As providers are exposed to the economic crisis, loss-making contracts and an inability to adapt to standardized delivery models, many will struggle to survive in their current form.

“Some will be acquired and some will exit the market completely to be replaced by dynamic new players delivering BPO as automated, utility services,” he said.

Gartner recommended that businesses look for warning signs when evaluating BPO vendors, in order to mitigate risks, and outlined six key markers:

1. “Chronically unprofitable” portfolio BPO deals. Some vendors rush into deals without giving much thought on how to transition deployments to a “standardized, rationalized, profitable state of operations”. When evaluating vendors, enterprises should gain further insight to understand how profitable each vendor is. Service providers should be open to sharing such information as it can limit long-term risk to both themselves as well as their clients.

2. Inability to win significant new business, or drive growth and profits. Clients need to consider a provider’s new business track record over a sustained period of two to three years, as well as the vendor’s ability to manage multiple deals at the same time. Lack of recent new business activity may suggest the vendor is “choking on a backlog of business”.

3. Loss of visible, established marquee BPO deals to competitors. Losing deals to competitors after a contract has expired can signal trouble. When assessing a service provider, potential customers ought to exercise due diligence in seeking references from current clients to understand their relationship and experiences with that vendor.

4. Capitalization prevents funding for bids. Vendors that adopt the “lift and shift” approach are the most likely to run into difficulties obtaining funds to invest in larger BPO deals. To work around this, service providers are increasingly making investments in platform-intensive approaches to BPO that require buyers to adopt their standard platform and service level agreements.

5. Exposure to banking and finance. Service providers with significant amounts of BPO revenue from the sector, which accounts for about one-third of the total global BPO market, were the first to be affected by the financial meltdown. This exposure could still impact BPO providers in the longer term. Those looking at BPO contracts need to be aware of the potential impact, particularly when dealing with vendors that derive over 85 percent of their revenue from financial services.

6. Growth in BPO contract cancellation and re-insourcing. Cancellation rates in Gartner’s BPO buyer survey in 2008 rose sharply over 2007. Enterprises ought to build exit strategies into their contracts and develop contingencies for contract termination before committing to any deals. In addition, executives must ensure all rational options are exhausted before initiating termination procedures.

[ VIA :http://www.zdnetasia.com/news/business/0,39044229,62058207,00.htm ]

ACS acquisition is likely to have an impact on IT players such as TCS, Infosys Technologies and Wipro

Bangalore/Mumbai: Close on the heels of Dell Inc.’s acquisition of Perot Systems, the purchase of Affiliated Computer Services Inc. by Xerox Inc. is further evidence that Indian information technology (IT) firms are being caught flat-footed in hunting down opportunities for inorganic growth and achieving scale as the industry consolidates, according to analysts.

Dell, primarily a hardware maker with a strong presence in the personal computer and server market, was looking to beef up services with last week’s $3.9 billion (Rs18,720 crore) Perot acquisition.

Xerox, seen as a document management company, wants to transition to a technology services company. Earlier, in May 2008, Hewlett-Packard (HP) acquired EDS for $13.9 billion to strengthen its IT services offerings.

Unlike hardware and software products, IT services traditionally tend to weather slowdowns better as contracts are usually spread over a number of years and offer predictable revenues.

The increased mergers and acquisition (M&A) activity is an indicator of the consolidation in the industry, as companies try to cope with cuts in IT spending. In June, research firm Forrester Inc. had forecast that global IT spending for hardware, software and services will drop by 10.6% to $1.53 trillion.

The ACS acquisition is likely to have an impact on Indian IT players such as Tata Consultancy Services Ltd (TCS), Infosys Technologies Ltd and Wipro Ltd as the company got about 40% of its $6.16 billion revenue last year from providing business process outsourcing (BPO) and IT-enabled services to the US government.

“It enables ACS, a market leader in BPO, to quickly expand its global reach and benefit from Xerox’s technology and innovation,” Carol DeMatteo director, corporate communications, at ACS, said in an email. “It gives Xerox the scale to attack the $150 billion BPO market through a combination of services, technology and innovation.”

Even as large enterprises and other private sector players in the key US market have been cutting IT spending, the US government has been stepping up expenditure as it seeks to reform the financial and healthcare sectors.

Kumar R. Parakala, head of global sourcing advisory services at audit and consultancy firm KPMG says that so far, Indian players have been sitting and watching the deal-making happening on the global scene.

While some of the hardware players have been acquiring services companies to emerges as end-to-end players, Indian IT companies which are primarily in the services business have not yet made any major moves in the market.

“The pressure to merge and build partnerships hasn’t come to India, yet. But Indian players are sitting on large cash reserves and I would not be surprised to see a tie-up between an Indian IT services firm and a hardware/infrastructure firm,” Parakala said.

Clients are increasingly looking for end-to-end solutions and having a hardware portfolio helps those who already have a well-diversified services portfolio, Parakala added.

This works both ways. “For the Indian IT services firms, it has become more of an imperative to diversify into the hardware/product space. If they want to compete globally, they need to have a product line like IBP, HP or Dell,” said Milan Sheth, partner, technology advisory services at global audit and consultancy firm Ernst and Young. “It would be an interesting play for the next phase of growth.”

Hitesh Kuvelkar, associate director of research at Mumbai-based brokerage and investment advisory firm First Global Stockbroking Pvt. Ltd feels that as valuations have come down with the global market going through the downturn, Indian players who have hitherto been cautious will now look for acquisitions in verticals such as government and healthcare, where they don’t have much presence. “This is true, especially in the crucial North American market.”

Adding that the IT services industry has matured and linear growth is becoming harder, Kuvelkar says that consolidation is inevitable and inorganic growth is the only way to maintain past growth levels.

However Chandramouli C.S., director at IT outsourcing advisory Zinnov Management Consultants Pvt. Ltd, feels that in the immediate term of one to two years, neither the Dell-Perot deal or Xerox-ACS deal will have any impact on Indian services firm, because integration is a rather lengthy process in such large deals. “However, in the long term, Indian players will need to act decisively to be able to compete globally, especially in the wake of international hardware vendors transforming into services providers and offering single-window solutions for clients,” Chandramouli said.

Out of its global workforce of 70,000, ACS employs 5,000 people in India. In March, Mint had reported that ACS had transitioned about 500 of its employees on to the rolls of Patni Computer Systems Ltd in a sub-contracting arrangement.

“There is a real demand from enterprises and governments for the services we can deliver on a global scale,” said DeMatteo of ACS. “This transaction creates the leading global enterprise for comprehensive document and business process management, and a single provider for enterprises and governments to do the three things that matter most: reduce costs, improve processes, and manage information more efficiently.”

Source:http://www.livemint.com/2009/09/29002251/Indian-IT-firms-slow-in-merger.html?h=A1

Wipro plans to explore options to sell its development centre at Sophia Antipolis, France, because of extensive employee protests against shutting it down.

The issue had snowballed into a major controversy with the involvement of the local French government officials. Wipro had initiated talks to close down the centre that it acquired from New logic because of poor demand. The centre employs around 60 people.

“As part of the ongoing process, we will continue to look favourably on any proposal that we may get from interested parties willing to continue part of totality of the activities in the Sophia Antipolis centre,” Pramod Idiculla, general manager (strategy), Wipro Technologies, told ET. The Indian IT firm acquired privately-held Newlogic in 2005 for around $56 million.

A cross-section of consultants ET spoke to said Wipro may find it hard to sell the facility in this environment. “I am not sure, if the Newlogic unit will find any buyers. A safer bet would be to wait for the demand to improve and then take a call,” said a semiconductor design consultant based in Germany.

“These 60-odd engineers may be few in numbers, but any move to sack them will create a public unrest in this region, there’s already pressure on EU countries to ensure that jobs do not go outside the region,” he added.

In response to a question on whether Wipro would go ahead with its earlier decision to shut down the facility, if it does not find any buyers, Mr Idiculla said the company was still in the process of consultation with employee representatives. “A final decision will be taken after the consultation,” he said.

“We have reiterated to the French government our commitment to help reduce the impact of any potential redundancies that may arise as a part of this process and our commitment to try and identify opportunities for redeployment for employees,” added Mr Idiculla. The company said it is also open to any proposal from the employees about creation of businesses, which may provide solutions for employees.

Read More On:http://economictimes.indiatimes.com/articleshow/5050700.cms

Operator could seek up to $2 billion from Indian banks if overseas component falls short.

India’s Bharti Airtel Ltd. has approached Indian banks for a $1 billion loan denominated in rupees as part funding for its deal with South Africa’s MTN Group Ltd., mydigitalfc.com reported Thursday, citing two senior bankers.

Bharti needs $5 billion in debt to finance the deal, and hopes to raise up to $4 billion overseas, the Web site reported the bankers as saying. If the overseas component falls short, the rupee component could increase to $2 billion, the Web site said.

Click here to find out more!State Bank of India will lead a consortium for the rupee tranche of the loan, the Web site said. SBI will take part in both the onshore and offshore debt raising, the Web site reported people close to the development as saying.

Source:http://www.totaltele.com/view.aspx?ID=449062