Industry news

Long-term outsourcing staff at PT Jakarta International Container Terminal (JICT), Indonesia’s largest container port, staged a protest this week having been denied permanent employee status.

Many of the workers, working in IT and administration , have worked there for up to 20 years, according to press reports. They are now being asked to sign contracts as outsourcing workers or to give up their employment at the port.

Those employed on a part-time outsourcing contract are reported to earn one tenth of a full-time wage; approximately £90 a month against £900 for a full-time worker.

"We have been working at the firm main division for 15 to 20 years but we have yet to become permanent employees," Sutimanto, chairman of the JICT outsourcing worker association, said as quoted by Kompas.com.

"The labour law bans a company from outsourcing jobs in its main division."

Approximately 500 workers protested in front of the main gate of the Tanjung Priok port, North Jakarta demanding permanent employee status.

Hewlett-Packard (HP) expects outsourcing and off shoring IT infrastructure to be an emerging growth engine for the global technology services industry, the company has announced.

The technology giant also estimates this remote infrastructure management market to exceed $8.6 billion in India by the end of 2010.

HP plans to increase its IT infrastructure outsourcing, business leveraging on the scale and labour arbitrage operations within India, said Ludger Rohlmann, HP VP and ITO of delivery operations.

“Today, there are increasingly more remote operation opportunities, with an apparent shift from work onsite to remote working. In some parts of ITO, up to 80 per cent of work can be done remotely," said Rohlmann.

"We expect more work to come to India through the increasing pressure on our customers to reduce their costs and thus outsource to locations like India.”

Barack Obama has announced plans to slash taxes for American firms to generate jobs in the US, it has been widely reported.

The move is aimed to counteract the outsourcing of jobs; however, analysts say this is likely to create more problems than it aims solve.

A survey conducted by Asia Sentinel in India has concluded that it will be difficult to impose tax penalties on US firms that outsource jobs.

John Daval, a New Delhi-based outsourcing consultant said: "This is a really complex issue as enormous job losses have taken place in the US and it is difficult to quantify the exact tax losses triggered by outsourcing."

If the President does manage to impose tax breaks, it is believed this will hit American companies more than the Indian outsourcing industry.

However, the President's stance has caused some concern for the Indian outsourcing industry as nearly 70 per cent of India's US$40bn software is directed at the US market.

Hello and a belated Happy New Year. After a brief break from blogging, I'm back and ready to start posting again. So if there are stories, issues or trends you'd like to see covered here, please don't hesitate to {encode="jessica@sourcingfocus.com" title="email"} me.

One area I'll be keeping a close eye on in 2010 is Latin America and the Caribbean. For a start, it's a region that's already benefiting from the willingness of US corporations to "nearshore" back-office operations.

And let's not forget it's census year in the US. According to a recent article in The Economist, America's Hispanic population is this year expected to come in at almost 16% of the total, having overtaken the black population, likely to be put at around 2.5 percentage points less.

Spanish is already the second most-common language in the US and, according to 2007 figures from the US Census Bureau, Spanish is the primary language spoken at home by over 34 million Americans aged five or over. Increasingly, this audience has considerable consumer clout.

For many US companies, these demographic trends - along with the continued need for cost reduction - boost the attractions of Latin American business process outsourcing, and in particular, call centre operations.

There's also been a flurry of mergers and acquisitions in the region, as this article from research company Zagada's Nearshore Journal site outlines.

Last year's bumper $6.4 billion acquisition of ACS by Xerox, for example, was preceded by ACS's own takeovers of Argentina-based Grupo Multivoice in 2008 and e-Services group in Jamaica in 2009. These deals were not inconsequential buy-ups of tiny 'boutique' players, either: Multivoice had $40 million in revenue and 6,000 workers. The deal value was undisclosed. In the case of e-Services, the company had $65 million in annual revenues, 4,000 workers and was acquired for $85 million.

Three companies - Bancolombia's Multienlace BPO subsidiary, Actionline Codoba of Argentina and a small Peruvian contact centre - all snapped up by a US-based private equity firm, Eton Park Capital Management.

Other notable targets in the region include Star Contact (Panama), bought by US-based NCO Group; Teledatos (Columbia), bought by French BPO company Teleperformance; and National Asset Recovery Services' (NARS) centres in Panama and Jamaica, which were purchased by HIG Capital, another US-based private equity firm.

Meanwhile, homegrown Softtek of Mexico has expanded into other countries in the region in recent years, including Argentina and Paraguay, as well as elsewhere in the world. For example, in July 2009, the company opened a new global delivery centre in Wuxi, China.

As analyst Peter Ryan of Datamonitor recently commented. "Latin America will equally benefit from possible delivery engagements with companies based in Spain, Portugal and other parts of Western Europe that are interested in taking advantage of price point arbitrage, a large labor pool and ever-increasing language skills among university graduates."

He adds that the increase in interest among Indian-based services organizations for possible roll-outs in Latin America has been strong over the past few years and is likely to grow as Indian labour becomes more expensive.

All of this points to a fast-growing and exciting market in 2010.

Let’s start with some stats. The judgment came in at just under 10 years after the original contract. The trial lasted for 110 days, involved 500,000 documents and 70 witnesses. The judgment is almost 500 pages and 2,500 paragraphs long. Legal fees are estimated at over £70 million to date, and set to rise further.

The dispute arose out of a £48m IT services contract between satellite broadcaster BSkyB and global IT contractor EDS (which is now part of HP). BSkyB had a catalogue of complaints – they ended up delivering the project themselves after all, but as well as the “run of the mill” contract claims BSkyB also alleged EDS lied in the pre-contract tendering process. They said 9 EDS employees lied about 5 different things.

EDS made a good fist of it. 8 of those employees were found to be honest (if not always possessing accurate memories) and the court found that no one at EDS lied about 4 of those issues.

But one was enough. One lying witness about one issue may have cost EDS upwards of £200m.

The lie was a simple, maybe even a common one - about being able to complete on time. But without it the court were convinced that BSkyB would have gone to PwC instead of EDS, and saved itself a lot of grief, and money, if it had. Every bid team in the land should be thinking hard about that.

And the worst part for EDS (well, HP now of course) is that the lie (as opposed to the contract claims) blew away the agreed liability cap of £30m. BSkyB were claiming £700m, but after the judgment seem to be reigning that in to closer to £200m. The final figure will be determined in February, when everybody has to return to court.

The judgment is a classic – not because it makes any new law – but because it reveals how dishonest people can dig bigger and bigger holes for themselves. EDS’s main witness lost all his credibility, his job, and the case when he claimed to have a real MBA from a real University. He went to the course for months, describing in detail about his regular plane rides and the college buildings, only to be shown not only that the college never existed, but that BSkyB’s lead barrister’s dog, Lulu managed to get the same “qualification” by applying online. Shame on EDS’s Mr Galloway when all was revealed, the final blow being that Lulu was awarded better marks than him.

HP is going to spend even more time and money on an appeal. And maybe a few pounds more on some employee background checks, just in case Lulu is looking for a job…

AstraZeneca is to cut 8,000 jobs worldwide as it embarks on outsourcing more of its research and development.

Some of the work is due to be transferred to China in a move cut costs, it has been widely reported.

Shares in the company fell 140p to 2905p, wiping £2 billion from its market capitalisation and making it the biggest faller in the FTSE 100.

David Brennan, chief executive of the AstraZeneca said: “As the majority of our employees are in the UK, the US and Europe, you could expect more job cuts there

It has been all over the news this week and we are just as enthralled by it here at the sourcingfocus.com news room. The long-awaited end to the Sky and EDS dispute has been revealed, with Sky being awarded a substantial part of its £709 million lawsuit. The Round-Up read with interest an article on the Computing website which revealed that EDS’s key witness had bought his degree online. No surprise that this undermined the witness’s credibility, not to mention the credibility of the entire EDS case. Check out Tom Young’s article to see how this revelation played out in court.

For those of you who are more interested in the implications this case has on the outsourcing sector and the overall legal implications, look no further then sourcingfocus.com. The NOA chairman, Martyn Hart, has detailed what he believes will be the effect on the outsourcing industry in the Hart of Outsourcing and Alan Owens, partner at Morrison & Foerster outlines the ensuing legal implications in this week’s Guest Blog.

So apart from the end of this major battle, what else has been happening this week? Unlike Sky, McDonald’s is more than happy with the delivery of its outsourcing contract as it extended a long-term ITO contract with ACS.

Under the renewed agreement ACS will provide McDonald’s with a range of managed IT services including, desktop support, messaging services, data centre facilities management and network operations.

When it comes to popular publishing outsourcing destinations, India remained ahead of the game, it was revealed this week. Research carried out by Valuenotes Database revealed that 66 per cent of the 237 respondents selected the offshore giant. The US was second favourite followed by the Philippines, UK and China. With India and China continuously being pitted against each other it seems India is the Asian Tiger who prevailed in this particular race.

A UK company also revealed big news this week. AstraZeneca is to cut 8,000 jobs worldwide as it embarks on outsourcing more of its research and development. Great news for the industry, but not such good news for employees at the sites being closed in Loughborough and Cambridge.

Like most companies, AstraZeneca has stated that cost is a major motive for this move to outsource research and development.

That’s one point to China, and one point to India this week.

British American Tobacco has signed a multi-year outsourcing contract with Wipro Technologies to provide application support services.

Global IT service provider, Wipro Technologies will help the tobacco giant improve the effectiveness and efficiency of its application support services for its global business operations across 130 countries.

Under the contract, the two companies’ will partner up to provide an enterprise-wide global application support delivery model. This will consequently reduce the total cost of ownership and allow for more opportunities for value added services for the business users of British American Tobacco.

“The global capabilities of Wipro match very well with the needs of British American Tobacco as a Global Enterprise,” said Phil Colman, chief information officer, British American Tobacco.

“We believe this is the right way forward for us in terms of our IT strategy. We will be considerably more effective across our global enterprise. These changes will help us improve the application support service quality, facilitate better integration, enable enhanced knowledge sharing and, ultimately, help us become more competitive,” added Ben Fourie, Head of Global IT Services at British American Tobacco.

Meggitt have signed an engineering management outsourcing contract with HCL. The contract is worth $50 million and will see HCL providing engineering services for the company’s global operations.

The contract was awarded after a multi-vendor review which ran for several months. Terry Twigger, Meggitt’s chief executive commented: “This strategic initiative will help us respond to the current economic environment while successfully positioning us for future growth.”

Meggitt is a UK headquartered company with a presence in North America, Europe and Asia. It specialises in extreme environment engineering

Bharti Airtel has invited bids to outsource the management of its inter-city optic fibre cable network.

It has been reported that the deal is estimated to be worth up to $1bn over a five-year period.

“We will form a JV and have a stake in the company to which we award this contract,” Bharti’s chief executive officer, Manoj Kohli, told the Economic Times. Kohli also suggested that Bharti hopes to close the deal before the end of this fiscal.

Bharti operates optical fibre cable network of over 100,000 route kilometers. The company is also set to renew its multi-billion network-outsourcing contracts with Ericsson and Nokia Siemens this year.