Industry news

Is Brazil finally emerging from the shadow of its BRIC cousins?

Early in the decade, Goldman Sachs devised a new acronym for emerging economies. Unlike the tiger nations of the 1990s, these countries were to be known as BRIC and the 21st century was expected to be theirs. However; whilst Russia, India and China have forged ahead, Brazil has been seen as lagging behind, unable or unwilling to take advantage of increasing globalisation.

But, is the general scepticism about Brazil’s inclusion amongst the BRIC countries justified? The country is politically stable, it has a rising economy, a well-educated workforce and a burgeoning financial market of its own. Brazil is certainly also experiencing solid growth. Last year it became a net creditor to the world for the first time; in May Standard & Poor gave the country its first ever credit rating and in February, according to Morgan Stanley Capital International, Brazil became “the world’s largest emerging market”, as a rally for Brazil stocks combined with falls in China left Brazil with a slightly larger market value: “now accounting for 14.95% of the MSCI emerging markets, it is also bigger than Korea, Russia or India”.

Is Brazil finally emerging from the shadow of its BRIC cousins? Is its boom sustainable and is the time now right for increased foreign investment?

Certainly, there are still concerns about the country; its sluggish approach to fiscal reform and worries about inflation contribute to a sense of unease. Its GDP is steadily rising and represents firm progress, but at 5.4% a year it is less than the growth in other BRIC countries; India and China report 8.9% and 11.5% respectively.

It seems however, that although the numbers may be trailing the others, Brazil has many other benefits. Compared to other BRIC nations it has respectable corporate governance, there is a sustainable supply of well-educated people and the developing economy is supported by its convenient geographic location, making it better placed to service Europe and the USA. Brazil also doesn’t have the wild east reputation of Russia, the introspection of China, or the prospect of price/wage inflation that has bedevilled India. Perhaps it is this that is driving Brazil’s improvement against its rivals and luring foreign investment?

This, and the development of the financial centre, Sầo Paulo. With over 20m people, the city also has a massive student population. The university is the largest in Brazil and the third largest in Latin America, turning out a regular supply of well-educated, young Brazilians.

It would be missing the point therefore, to see Brazil as the new India for outsourced projects, or this growth as a temporary blip. We’ve all known for years that scouring the world for the cheapest day rate doesn’t usually get the best results for an outsourcing project. What’s important today is the level of service and commitment. Brazil is unlikely to follow India down the cheap and cheerful route. It understands the importance of tying service levels and deliverables to appropriate costs, especially in a multi-layered, financial services project.

This sector in particular can take advantage of Brazil’s increasing prominence. Most banking IT projects require a combination of skilled resources, which can be delivered in a variety of locations; the 4Ps of outsourcing - project, people, place and only then price. Brazil is exceptionally positioned to respond to this need. The idea is to consider the needs of the project first and then identify the right people to complete it. After that the various places and the price become obvious. With its high-calibre workforce and its association with Europe, Brazil is well-placed to fulfil the people and place side of the project.

Yet, this is not just about Brazil’s ability to service the rest of the world. Of increasing significance, is not only Brazil’s new economy and its geographical position, which makes it well-places to service both Europe and the USA, but its own, rapidly growing, banking sector. Brazil is becoming the project part of the 4Ps, the centre of the project and not just the service provider. For technology companies, particularly ones serving the banking sector, the country must now represent a logical investment prospect?

If the 19th century was dominated by Great Britain and the USA defined the 20th century, then it seems that the emerging economies, BRIC with Brazil included, are well-placed to impact the 21st century. As this decade progresses at least, Brazil is definitely emerging from the shadow of its BRIC cousins.

57 percent of Shared Service Centres (SSC) have problems with regulatory compliance, according to a study released by outsourcing consultants, Alsbridge.

The study, undertaken annually, also found that 89 percent of shared service managers foresee challenges with their SSCs, which is a worrying statistic given the pressure being placed on both private and public sector organisations to implement shared service agreements.

Elaine Harrison, Senior Manager at Alsbridge plc, commented, “SLAs should provide a link between services provided by the SSC and the business objectives by creating cost/performance accountabilities. However SLAs should not be seen as a substitute for an effective governance framework”.

EquaTerra, the outsourcing consultancy, expects the Chinese HR outsourcing industry to be worth more than £41bn by the end of 2008, according to a new report by the company. The firm also predicts rapid growth of up to 25% in 2008 and 2009.

The report, written by EquaTerra’s Shanghai-based consultant, Vibhash Ranjan,  provides a snapshot of the maturing human resource outsourcing (HRO) market in China today and an expert analysis of current and future trends.  Some other interesting points highlighted in the report include:

Drivers of growth

· The recent spectacular growth in the Chinese economy is compelling foreign owned organisations based in China to adopt sophisticated HR related practices.  Factors influencing the growth of HRO include rising labour costs, new types of employee supplemental benefits and a rise in the focus on employee engagement and talent management.  

Market Growth

· In 2008 and 2009, the HRO market is expected to expand by at least 25 per cent.  However, due to the prevailing operational complexities in China, most multinational companies choose to adopt the services of Chinese HR service providers such as FESCO or CIIC.

Differing drivers of change

· One of the key reasons that Chinese organisations will choose to implement a HRO strategy is to free up the HR department from transactional and administrative tasks and let them focus on strategic tasks of planning and management.

Important markets

· The adoption of HRO in China has traditionally been driven by multinational client companies which account for over 90 per cent of the number of deals and total contract value. As these companies have their major operations based in Shanghai, Beijing and Guangdong regions, these three areas account for approximately 85 per cent of the market.

Future outlook

· To date, China still does not have enough skilled manpower to meet the growing demand of the HRO services market. This will lead to wage acceleration for providers, margin erosion and raiding other providers (especially of benefits administration and compensation providers) for resources. Ultimately, the dominant provider players will be those companies that can obtain and retain quality delivery people.

The full whitepaper can be seen here: Human Resource Outsourcing in China

Trustmarque Solutions, a UK software licensing company has won a two-year contract, worth over £4 million, to supply encrypted and non-encrypted hardware and software to the Ministry of Defence (MoD).

The deal, which follows the consolidation of the Defence Equipment and Supply (DE&S) procurement framework, will also see Trustmarque supply the MoD with anti-virus software from security vendor, McAfee.

Robert Cornish, MoD Key Account Manager for Trustmarque, commented on the deal: “Under the contract, we will be able to supply the MoD with everything they need, from desktops and laptops, to software and all associated licences. This means we can bring the same savings through leveraging our long-established hardware relationships, as we have done historically for their software purchases, using our twenty years of experience establishing ourselves in this market.”

The DE&S consolidation comes as part of a wider strategy to formally merge the DE&S with the Office of Government Commerce (OGC), which is an independent office of HM Treasury, established to help Government deliver best value from its spending. To this end, the DE&S is collaborating heavily with the OGC to ensure their procurement methods are in line with one another, to make the eventual merger as seamless as possible. In the long term such an arrangement will provide continuity across the whole of government.

Tech Mahindra, the largest independent India-based telecommunications IT services provider, has decided to acquire an equity stake in Servista, a leading European systems integrator.

As a part of the agreement, Tech Mahindra will be Servista’s exclusive delivery arm for the next three years and will also help Servista develop its European IT offshoring business.

Ben Andradi, chief executive officer, Servista Ltd said, “We are delighted to enter into this highly complimentary relationship with Tech Mahindra that will deliver the huge benefits of Indian offshoring to the European market place”.

EADS, a global aerospace and defense service company, has selected Atos Origin as a preferred supplier for engineering services. The selection has consolidated a 15 year relationship between the companies in France and Spain.

Atos will now be added to the EADS’s list of 28 global partners after making it through the company’s rigorous tender process involving 2,000 vendors. Atos is now EADS preferred supplier for engineering services which covers the purchase of more than €2 billion in engineering services a year.

Infosys has announced that it has agreed terms for a cash offer for UK-based SAP consulting company, Axon Group. The £407 million deal could be completed as early as November 2008.

Commenting on the transaction, Kris Gopalakrishnan, CEO of Infosys said, "We are excited about this acquisition. We hold the management and employees of Axon in high regard and look forward to welcoming them to the Infosys Group".

HP today announced that it has completed its acquisition of EDS, creating a leading force in technology services.

The acquisition is, by value, the largest in the IT services sector and the second largest in the technology industry, following HP's acquisition of Compaq, which closed in 2002.

Mark Hurd, HP chairman and chief executive officer, commented "This is a historic day for HP and EDS and for the clients we serve".

Health Net Inc, one of the largest managed health care companies in the US, has taken on IBM in a five-year managed services and IT infrastructure deal. The contract, estimated to be worth over US$300 million, will see IBM manage Health Net's entire IT infrastructure.

Under the terms of the contract IBM will provide Health Net with full IT infrastructure management services including: data centre services, IT security management, help desk and desk-side support.

James E. Woys, Health Net's COO, said, "This is an important step in making Health Net more competitive and a key component of our operations strategy to increase our capabilities while reducing administrative costs and improving efficiency. By partnering with IBM, Health Net will receive benefits including reduction of IT costs and operational risk while gaining access to IBM's global resources and technologies."

Health Net expects to derive substantial cost savings and increased data centre reliability from the deal. However, no projected savings have been released.

The US Coast Guard (USCG) has awarded Unisys a contract to provide IT support services to the 'USCG Finance Center', which manages financial services for the organisation and multiple US Department of Homeland Security (DHS) agencies. The contract extends an existing agreement held between the two companies since 2003.

The contract, which could be worth upto US$ 24 million, will be played out in an initial five month period followed by four one-year options, exercisable at the government’s discretion. The estimated value of each option year is between $5 million and $6 million.

Under the agreement Unisys will continue to provide functional and technical support for the USCG Finance Center’s Core Enterprise Suite, a comprehensive financial and procurement system used by major U.S. Department of Homeland Security agencies, including the USCG, the Transportation Security Administration, and the Domestic Nuclear Detection Office. The Core Enterprise Suite serves as the financial infrastructure for many of the nation’s most important homeland security initiatives.

The system processes invoices and payments to thousands of DHS vendors and suppliers, as well as expense reimbursements for more than 100,000 personnel. It also manages agency asset reporting, and provides updated budget information to DHS. Unisys support services help the Coast Guard achieve the high performance and full time availability of the mission-critical system’s core financial management applications and technology, including Oracle Financials, Oracle databases and UNIX servers. The Unisys team also will help to support the DHS data centers and to install, manage and support disaster recovery solutions for the Core Enterprise Suite.

Tom Conaway, Managing Partner at Homeland Security Unisys Federal Systems, commented "The USCG Core Enterprise Suite is vital to the day-to-day operations of the USCG Finance Center, which supports many of our nation’s most important homeland defense initiatives. Unisys is pleased to continue our work with the center, providing IT support and expertise that enables the complex and extensive accounting infrastructure to meet evolving requirements and to be managed efficiently and effectively”.