Ron Kifer, CIO, Applied Materials, achieved a major outsourcing-led IT transformation at his company in a short span of just 10 months. And, he ascribes a lot of that time saving to having skipped the Request for Proposal (RFP) stage when looking for IT service providers. “We did not do an RFP. We prioritized five vendors according to our strategic fit, and chose two,” says Kifer. “We completed the exercise in eight weeks.”
What Kifer did is unusual, though not uncommon.
Outsourcing advisors are increasingly advising customers to take the fast-track route to sourcing, at least when sourcing commodity services, such as IT helpdesk support, infrastructure management and application maintenance on the IT side, and employee data management, general accounting and customer service on the Business Process Outsourcing (BPO) side.
Since the skills sets of the top few IT and BPO service providers are well established, they argue, doing an RFP achieves little. How do you differentiate between an IBM Global Services and an Accenture or between an Infosys and a TCS, for example, they ask?
But such companies may not be the right strategic fit for all customers; neither would they fit their budgets. Where do these customers begin their search for the service provider that is right for them?
To enable customers to have a ready-list for RFPs, Global Services, in association with neoIT, a leading sourcing advisory firm, puts together an annual ranking of global IT and BPO service providers in 10 categories that can be clubbed under three broad heads: Technology providers; customer service and business-process providers; and providers by regions. You will find these rankings, and the profiles of the winning providers, on the following pages.
Global Services and neoIT also list the top 100 global IT and BPO providers. These are the world’s 100 best providers, and constitute a ready reference list for Request for Information (RFI) and provide a service provider landscape for customers to facilitate their initial internal sourcing discussions.
Both the rankings and the listing emerge from our annual Global Services 100 survey. What also emerges from the survey is a wealth of knowledge on the industry trends. What follows are some insights we have derived from the received survey responses.
The Year of M&As
2007 was the year of M&As. Infosys acquired Philips’ three Shared Services Centers in Poland, Thailand and India; CSC acquired Covansys; Wipro got Infocrossing; Cognizant acquired marketRx; Softtek acquired I.T. United; Hildebrando acquired Sinapsis; Caritor acquired Keane; and many more. Year 2007 saw as many as 436 deals being signed globally.
The 2008 Global Services 100 survey expands on this trend. As many as 34 percent respondents to our survey said that they merged with or acquired one or more providers.
And just over 11 percent of the participants went on to acquire a consulting firm. For instance, CGI Group acquired Plaut Consulting SAS with the objective of tripling their operations in Europe by 2010. Other names in the news were Neoris, Applabs and Ness Technologies for acquiring Hi-Tech Consultores, IS Integration and MS9 Consulting, respectively.
Companies also raised huge sums of money through venture-capital funding, private-equity investment and initial public offerings. A good 13 percent service providers said that they underwent changes in investment structure last year.
This only goes on to prove the change in the strategy of many providers, as they chose to take the quick inorganic route to growth rather than the gradual organic one, gaining a readymade talent base and access to a new geographies, and customer base.
As the global services industry matures and consolidates, the M&As of 2007 are just a sign of many more to come in the future.
Forex Vagaries Strike Home
Currencies do fluctuate in their value against each other. Global companies are aware of this and they build in a measure of forex-based risk management into their business model. Our 2006 and 2007 Global Services 100 surveys showed that global IT and BPO service providers — whose bread and butter depended on overseas markets, and in most cases mostly on one market, the U.S.A. — considered it amongst their least worries.
But with the greenback showing a relentless decline against many currencies through the year, the picture is different. In 2007, the reality of the vagaries of foreign exchange struck home. The sliding dollar and the strengthening currencies of some key outsourcing destinations (India, the Philippines, Canada) saw many service providers compromising on margins and putting a hold on hiring plans last year.
Not surprisingly, almost 47 percent respondents to the Global Services 100 survey this year identified foreign-currency fluctuation as their most critical business concern in 2007.
And, it is the Indian service providers that seem to be hurt the most. Since most of them derive up to 65 to 75 percent of their revenues from the U.S.A., the changing equation between the U.S. dollar and the Indian rupee spoilt their party last year and forced them back to the drawing board to consider non-U.S. avenues. Many of them were quick to do so, and looked toward Europe, and even Japan as potential markets. Some even strengthened plans for servicing the increasingly maturing domestic Indian market.
What does this forex swing mean for the global customers of IT and BPO services? Going forward, they can expect price increases and currency risk sharing defined in the contracts. It is also time to tighten the belt and improve offshore productivity.
