Industry news

Since the early 2000’s, US based Hedge Fund and Private Equity managers have looked across the Atlantic as a way of expanding their businesses. In some cases it was to have actual portfolio managers operating in the UK, whereas in others it was to have a European research and/or marketing capability. Being in Europe allows the business to access markets and knowledge not easily available in the US. Crucially, it also opens the door to a larger, more diverse investor base.

Irrespective of the rationale for setting up in the UK, they all face the same challenges: different regulations, different taxing regimes, different employment laws and importantly, a different business culture.

Historically, US businesses have not always been keen on outsourcing in their own country. However, the exploits of Bernard Madoff have unwittingly forced US fund managers to outsource their fund administration function (pricing of positions, etc.) as investors are now unwilling to invest in a fund where the pricing is not performed independently.

On the other hand, when setting up in the UK fund managers eagerly embrace outsourcing. The reason? Simple: they don’t understand how things are done in the UK and find it much more economical and efficient to outsource the knowledge that they lack. They could of course hire a team of support staff internally but as they usually work to a budget, this would tend to be much more expensive. As such, they only hire core staff and outsource most other functions.

But cost isn’t the only reason. Afraid of employment laws that are more draconian than they are used to, US managers don’t like the idea of hiring vast numbers of staff that could be expensive and troublesome. In addition, there is another employment matter to consider: the career of the non-core staff they are hiring. Do they really want to develop the career of a payroll technician? How do they go about staff training them? What career path are they going to have? These are problems for the outsourced service provider, not the fund manager, which makes outsourcing a more attractive option.

Another benefit for US managers is the ability to scale up or down should the business either grow or shrink. Again, this allows the team to focus on managing money whilst the outsourced service provider reacts to the resourcing needs.

The changing regulatory landscape currently being dictated by Europe is causing the greatest challenge and potential obstacle to managers coming to the UK. Whilst the full impact of this is not going to be felt for a few years yet, US managers are keeping a close eye on developments. However, by having a fully scalable back office function due to outsourcing, the manager is more readily keeping his options open to change.

In a nutshell, the full benefits of outsourcing are seen in US inbound set ups; flexibility, scalability, cost savings, depth of local knowledge and control.

More than £4bn of outsourcing tenders is currently under negotiation, according to a study of contracts the Official Journal of the European Union.

According to today’s Financial Times, this has led to many City investment analysts – who have conducted research into outsourcing companies’ bid pipelines - predicting an outsourcing boom.

Martyn Hart, Chairman of the National Outsourcing Association said:

“Pressure on the public sector to make cost reductions has made for a healthy pipeline for many outsourcing suppliers, particularly now that tender costs have been reduced through ‘de-formalisation’ of the bid process. Having learned to engage suppliers earlier in the process, expect more business process outsourcing, as the public sector learns how to get itself a better deal. Commoditised IT can save around 10% annually, but only accounts for 5-6% of government spend - BPO can offer savings on a much grander scale. Expect those companies that offer both ITO and BPO services to be most coveted by City investors. And, to ensure Outsourcing Works, the government must invest the time to up-skill its people. Only through proficiency, experience and knowledge-sharing can the public sector maximise the cost and service benefits of this outsourcing boom.”

Cumbria County Council has rejected bids from BT and Fujitsu to provide its superfast broadband roll-out across the region.

The central government funded project planned to give 90% of homes in Cumbria a minimum of 25Mbps broadband speed by 2015.

Despite the tech giants being the final two in the process for the £40m contract, Cumbria CC has decided that neither bid is suitable.

A statement from Cumbria County Council said: “Cabinet received detailed submissions from the final two potential suppliers (Fujitsu and BT) and despite a lot of progress being made, neither of the final tenders had completely fulfilled the original and full requirements of the procurement process,”

Defence secretary Phillip Hammond has inked a £1bn contract for reactors that will power the next generation of British nuclear submarines, creating 300 jobs.

Two reactor cores are set to be built at the Rolls Royce plant in Derbyshire. One of them will be used for a new Astute-class attack submarine, and the first of the next-gen nuclear deterrent subs.

An MoD spokesman said: "This government is committed to maintaining a continuous submarine-based nuclear deterrent and announced last May that design work would begin to replace our existing submarines. Following a Trident value-for-money study carried out as part of the strategic defence and security review, we are proceeding with initial work to renew the nuclear deterrent, but a final decision will be taken in 2016.”

The Cabinet Office has announced the 29 companies that will tout their wares over the public sector network (PSN).

The PSN will provide a central hub that public sector entities can acquire communications services through, reducing duplication or cost inefficiencies from current ad hoc processes.

Vodafone, Telefonica, Virgin Media Business, Logicalis, BT, Cable & Wireless Worldwide, Level 3, Capita Business Services, Fujitsu, MDNX Enterprise Services, Eircom and Computacenter all feature on the list, amongst others.

PSN programme director Craig Eblett said: “The PSN Services Framework, together with the PSN Connectivity Framework, provides the public sector with the preferred route to market for all PSN networks and telecommunications spend.”

Computacenter shares have fallen 12% to a new year low after warning investors that increased demand for services will mean huge recruitment costs.

The rapid growth of IT services businesses in Europe, particularly in Germany and Spain will mean that the firm will have to take on an extra 700 staff in order to cope with demand. Computacenter had already planned to hire 500 extra workers in the second half of this year and with the new recruitments will have face £7 million in costs, wiping 10% off of expected profits for the year.

Mike Norris, CEO of Computacenter was quoted in The Guardian: “If you go back a year, [it] was growing at 1 per cent. Now it’s growing at 15 per cent. It would be fair to say that it has grown faster than I expected. Is [the £7 million] investment or for poor execution? There’s an element of both”

He continued: “If you look at Logica and BT Global Services, they’ve had to make big adjustments down the line.”

Unilever is planning to close sites in England and Wales, cutting up to 800 jobs and offshoring to Bangalore.

The proposed cuts affect factories in Slough and Swansea, a distribution centre in Bridgend and an office in Ewloe, north Wales. They could mean 500 direct job losses, 300 redundancies among contractors and third parties, with 100 jobs offshored to its IT centre in Bangalore.

At the same time, it plans to invest £40m in its ‘historic home’ - Port Sunlight on the Wirral. This investment is expected to create 150 jobs.

Cognizant today announced that it has expanded its relationship with ING U.S. to offer a comprehensive array of insurance business process services. ING U.S. is the U.S.-based retirement, investment management, and insurance operations of Dutch-based ING Groep N.V. (NYSE: ING). The expanded seven-year, $330 million agreement builds on Cognizant’s ongoing success in providing specific technology systems management for ING U.S.

Under the terms of the new agreement, Cognizant will hire more than 1,000 ING U.S. employees in Minot, North Dakota and Des Moines, Iowa to create a world-class, U.S.-based center of excellence for insurance and finance business process services. This center will be an integral part of Cognizant’s global delivery network and will allow Cognizant to provide an expanded range of business process services spanning the insurance and financial services industries. Cognizant currently provides business process services to more than 40 clients in these industries.

As part of the multiyear agreement, Cognizant will purchase ING U.S.’s existing facility in Minot, North Dakota, and will sub-lease offices in the current ING U.S. facility in Des Moines, Iowa, providing business and workplace continuity for ING U.S. customers and the employees who will transition to Cognizant.

“We are pleased to partner with ING U.S. to launch our U.S.-based business process services center of excellence for the insurance and finance industries,” said Gordon Coburn, President of Cognizant. “We look forward to welcoming ING U.S.’s employees to Cognizant and working with this highly talented group of individuals. Our new center of excellence will serve as a key long-term component of our global delivery network and is yet another step in our ever-expanding in-country delivery capability.”

A Home Office report has found that same sex marriage will cost the government millions in updating IT systems.

The potential legislation would lead to a number of computer systems needing to be adjusted in order to remove references to marriage between men and women. Updating the General Register Office (GRO) IT system is thought to be the most expensive, costing £2 million. However, the government insist this will be a one off cost, spread over two years.

Other costs will include a £1 million for updating the benefits and pensions system at the Department for Work and Pensions, while £250,000 will be needed to reform HMRC’s IT systems £200,000 for the Office for National Statistics and £165,000 for the Ministry of Justice IT system.

The Home Office has received more than 100,000 responses to its proposal to pass legislation in order to give same-sex couples equal rights to get married.

Xerox is planning a number of acquisitions in order to boost its business services repertoire. The acquisitions are designed to boost revenue and profit margins and to gain a new reputation as an innovative forward moving business.

Ursula Burns, CEO stated Xerox has set aside between $350 million and $400 million for purchasing companies, particularly those with specialty analytic capabilities or healthcare technologies.

However, Burns ruled out any major purchases, such as its acquisition of Affiliated Computer Services Inc (ACS) for $5.5 billion in 2009. The purchase moved Xerox into the outsourcing business in what was the company's biggest deal in its 106-year history.

Xerox sources more than half its revenue from its services division which includes processing credit card applications, managing toll systems and unemployment benefit provisions for public sectors.

"We have to grow this services business without doubt around it with continuous revenue growth and predictable margins...so that people see yeah they are really in this business." Burns said.