Infosys BPO to acquire US co McCamish for initial $38 mn

IT bellwether Infosys Technologies on Thursday said its subsidiary Infosys BPO will acquire US-based McCamish Systems for an initial payment of $38 million (about Rs 176.6 crore).

Infosys BPO has signed a definitive agreement to acquire all the outstanding interests of McCamish Systems LLC, Infosys Tech said in a filing to the Bombay Stock Exchange.

"The upfront consideration for the deal is $38 million, with up to an additional $20 million payable to the sellers if McCamish Systems achieves certain financial targets in the future," the company added.

The acquisition is expected to be completed later this year.

"We look forward to this combination with McCamish, and welcome an exceptional group of professionals with strong skill sets to the Infosys family who will enrich our service capabilities in the USA," Infosys BPO CEO & MD Amitabh Chaudhry said.

The acquisitions is expected to enhance Infosys' capability to provide complete business solutions for insurance and financial industries.

"Infosys BPO has in-depth knowledge of the insurance and financial services sector, and this deal reinforces our relationship position in providing business platform services," Chaudhry said.

The combination is likely to enable McCamish to serve larger portfolio of transactions for clients and expand into global markets.

Shares of Infosys Technologies were trading at Rs 2,336 on the BSE, up 1.18 per cent from its previous close.

BPOs in India to Deplete

Bangalore: About one quarter of the top Business Process Outsourcing (BPO) operatives will not exist as separate entities by 2012. The rise of new vendors, acquisitions and market exits will change the BPO provider landscape in the coming years. The enterprises should look for warning signs while evaluating BPO vendors to lessen risks, states a recent report by analyst firm Gartner.


"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," said Robert H. Brown, Research Vice President, Gartner.

The report "Assess and Manage Vendor Risks to Protect Your Business" has identified six key points to watch for, that might announce the predicted market shakeout. The report also identified the BPO vendors which may be the candidates for acquisition or for instant market exit.

The report suggests to look out for unprofitable portfolio BPO deals, as some BPO providers are carrying unprofitable contract portfolios, largely stemming from too much, too soon pursuit of the deals, without much thought as to how to transition them to a standardized, rationalized, profitable state of ongoing operations.

The enterprises have also been asked to gain insight into the vendor's track record of winning new businesses, particularly over a sustained period of two to three years. The report suggests that the loss of a major customer can be a leading indicator of trouble, especially if the remaining portfolio of business is small. The report suggested that some heavily leveraged vendors may be unable to obtain the necessary investment needed to bid on a business opportunity despite of attractive propositions.

The financial services sector accounts for about one-third of the total BPO market globally and provides significant amount of BPO revenue. The banking sector was the first to be exposed to the credit crunch resulting to financial meltdown. The mergers and acquisitions saw both current and prospective buyers of BPO getting out of play and this exposure could still leave many BPO providers vulnerable for long term.

Also, as per Gartner's previous BPO survey report, cancellation rates rose in 2008 as compared to 2007 data. On this basis, the report advises buyers to build exit strategies into contracts and develop contingencies for contract termination, especially before signing the deal.

More HR work to be outsourced to India

Bangalore: India is likely to get a large amount of offshored HR work in the next three years. According to a study by Everest Group, a global consulting and research firm, some 111 global HRO (human resources outsourcing) contracts worth $6 billion are nearing term end in 2010-12 and 75-85 percent of these engagements are likely be extended while 15-25 percent will be repatriated or transferred to new suppliers.

The study says, "Given the maturity of India as an offshore delivery location and presence of high number of HRO suppliers, more work is going to come to the country." In the next three years, contract restructuring is likely to play a significant role as early adopters of HRO services face impending renewal cycles. HRO clients will increasingly evaluate how to drive incremental value for their organizations through the end-of-term process.

"The areas of restructuring range from modifying the number and type of in-scope processes, to enhance delivery models through global sourcing, to introduce alternative pricing models," says the study. The mid-market and large market HRO buyers, who used to be reluctant to take services from offshore locations, are expected to leverage offshoring much more in their second generation deals due to increased cost pressures in recent times.

Pressure on India Other Markets take marketshare in BPO and IT

The global information technology and business process outsourcing market will end 2009 with total revenues of $373 billion, 14.4 per cent higher than the $326 billion recorded in 2008.

India and China will remain at the top of the list, with expected revenues amounting to $48 billion and $28 billion, respectively.

India would have 44.8 per cent of the total outsourcing pie and China 25.9 per cent, according to Canadian-based ICT research and advisory firm XMG Global.

The growth rate for 2009 will be, however, less than the 19 per cent that the industry recorded in 2008 over 2007, XMG said in its annual year-end prediction of where the offshoring and global outsourcing industry will finish.

“The market share of India is similar to 2008 and has mostly to do with the Satyam accounting adjustments and the shifting of work to other offshore countries. In other words, we are seeing new levels of normalcy in which the recession has provided the opportunity to rationalise and shift work to offshore destinations other than India,” XMG Global’s Senior Analyst, Mr Vincent Altez, said in the report.

The Philippines is expected to close the year with $7.3 billion or 21.7 per cent growth — lower than the 24 per cent growth forecast due to the slower growth for IT services and the delay in expansion plans of several captive players. Foreign direct investment is also expected to slide this year as investors are streamlining capital.

Pressure on India

While South Africa, Egypt and Mexico are emerging as alternative destinations for offshoring, the Chinese and Vietnamese governments continue to attract foreign investors and build advance infrastructure, putting pressure on mature offshore countries such as India..

HP To Cut Loose its BPO Business

A recent Channel Insider article raised the concern that HP might sell off or shutter some of its outsourcing business. Specifically, the article speculated on the BPO operations that EDS brought into the firm as part of HP’s acquisition of EDS. BPO, business process outsourcing, describes the outsourcing of entire business processes, like accounts payable, to a third party with the objective of reducing costs and/or improving the performance/outcomes of those processes.

HP bought EDS back in May this year. Selling off assets, like the BPO practice, would seem like something that would have been done earlier than now. But, HP may not be happy with the lower returns that BPO offers. That was certainly one scenario that Channel Insider offered up.

(Fellow blogger Dennis Howlett offered up an assessment of the HP EDS merger here).

Why do companies decide to get out of recently acquired businesses? They do so because:

- the businesses do not ‘fit’ their strategic game plan
- the businesses are not healthy
- the businesses cannot return the margins that the company’s shareholders demand
- the economics of that business are really messed up by competitors’ pricing
- they do not understand that space or how to operate it well
- etc.

BPO is about scale and process delivery. The more scale, theoretically, the lower the operating costs. The better designed the processes, theoretically, the lower the operating costs and improved service levels for customers. However, BPO in practice doesn’t work the same as in theory. BPO deals often include a lot of one-off processing. Few ‘best practices’ or ‘best processes’ work well across industries or work well for every company. Too often, BPO solutions are not standardized and hence more expensive to operate than in theory. I suspect that most BPO solutions look more (and are sold more) like hosted applications than the standardized, multi-tenant applications offered by SaaS (software as a service) vendors.

Another issue with BPO deals concerns the ability of the outsourcer to dramatically improve existing processes and performance levels. Some deals essentially involve the transfer of systems to another firm. No step change in improvement occurs. Other deals promise a transition to new level of performance via new systems and process designs. These deals are expensive to implement as the change management, user training, and other costs drive up the BPO cutover costs for the user firm and the outsourcer. Finally, BPO providers who promise ‘continuous’ process improvements may find that getting a customer to one step change is expensive enough. Future improvements may be too costly to justify.

BPO providers also build their business on the use of third party ERP software. Guess what, those same BPO providers better have terrific pricing with those firms as license, maintenance and support costs for these products have been growing faster than inflation, consumer price index or reason.

But the use of ERP software may not be such a great thing for these BPO firms. If every BPO provider uses the same limited set of solutions with their limited (1980s) functionality, these solutions are not innovative or delivering unique value. This is especially true for back office (i.e., accounting and HR) applications. ERP and innovation are not words often found in the same sentence. Without innovation, value is hard to deliver.

BPO doesn’t have to be a low margin business, though. If outsourcers want to get higher margins, they need to offer something more than a commodity offering. Specifically, they need to offer innovation and value. The value must be more than low cost/pricing. Innovation must be more than process designs. BPO without innovation is a commodity. Without innovation, BPO is like any other business service: janitorial, vending, delivery services, etc.

If HP can spin off this business without taking a bath, they should use the funds to re-invent BPO. BPO today should be a service offered via a SaaS solution running with a PaaS (platform as a service) in a full multi-tenant world. BPO needs to fully embrace the cloud.

BPO-based processes need a huge infusion of innovation and it won’t be coming from the usual ERP suspects. Most of these firms have become large technology portfolio managers more interested in 43% operating margins on their maintenance base than in delivering something really new or different. These ERP firms are too vested in maintaining the status quo and not in delivering something really amazing. Their inattention to innovation is hurting BPO. Maybe, this is why HP is possibly running away from BPO….

Obama's move to end tax breaks for US firms who outsource

New Delhi: India Inc believes the move by the Barack Obama administration to reduce tax breaks for US firms that ship jobs overseas will hit American companies more than impact on the Indian outsourcing industry.

"It's a more US-US issue rather than one aimed at stopping outsourcing, or off-shoring, or anything to do with India," said Som Mittal, president of the National Association of Software and Service Companies (Nasscom), a representative boddy for the industry.

"If you look at Indian companies operating in the US, or elsewhere, they work there and pay taxes there. Hence, it is not about stopping outsourcing, or off-shoring, but just to collect taxes," Mittal told IANS.

His comments came after President Barack Obama said Monday that the current US tax system gave US-based multinationals that shipped jobs to places like India an unfair advantage over other domestic rivals and wanted corrective steps.

"It's a tax code that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York," Obama said, explaining why he intended to close tax loopholes and crackdown on overseas tax havens.

"I want to see our companies remain the most competitive in the world. But the way to make sure that happens is not to reward our companies for moving jobs off our shores or transferring profits to overseas tax havens."

According to a McKinsey-Nasscom study, the Indian software and outsourcing industry employs some two million people, earning total revenues worth $52 billion, of which nearly $48 billion comes from exports.

The Confederation of Indian Industry also felt that the remarks were more in the nature of posturing and that it was not intended at curbing outsourcing of work by US firms to Indian companies.

"It's an internal issue. It will only reduce their competitiveness," said Hari Bhartia, vice president of the chamber. "It is a populist posture. Perhaps his (Obama's) intention was not the same. However, it sends a wrong message."

According to Girish Vanvari, a tax expert and executive director with accounting and consultancy major KPMG, the Obama administration's move was aimed at keeping American money within the country.

"I don't think this will happen. America is one of the largest free markets in the world - otherwise, you will have companies paying as much as 70 percent of their revenues as taxes," Vanvari told IANS.

Nasscom maintained that large US companies had subsidiaries across the world and that more than 50 percent of their revenues were coming from outside the US. The US move was to ensure that the large profits kept outside are also brought into the tax net.

"President Obama is intending to collect those taxes to create more jobs in US," said the industry lobby that sent a delegation to the US last month to meet lawmakers, urging them to refrain from protectionist measures.

Infosys Technologies, India's second largest software and outsourcing company, also felt that the US proposal was aimed at closing corporate tax loopholes and crack down on overseas tax havens.

"We do not believe that it has anything to do with IT outsourcing done by US corporations," a spokesperson for the company said.

2009 The Year Ahead for Indian IT

With sinking profits, eroding margins, cost-cuttings and an acquisition bid gone awry, 2008 was a year with more jeers than cheers for the country's over $50 billion IT sector, which has seen nearly a decade of uninterrupted boom.

However, as 2008 draws to a close, the sector is bracing up for a tough time ahead as the scars of global recession are showing up on the country's sunrise sector.

The sector, which has been charting a growth of over 30 per cent, had to settle for a growth rate of 20 per cent, as the global slowdown plunged the industry into unpredictable times.

In the year littered with economic disasters, the failed attempt of country's fourth largest software exporter Satyam Computer to botch up two family-promoted firms for $1.6 billion not only resulted in loss of face but also hit the reputation nurtured by the Indian IT sector over the years.

Faced with shareholder's revolt and heavy criticism over corporate governance issues, Satyam withdrew the offer within hours of making the proposal.

But within a space of 24 hours, the scrip lost over 30 per cent in India and was down 55 per cent in New York Stock Exchange trade.As a fallout, the Board size also shrank with four independent Directors resigning from the 10-Directors strong Board of the company in the wake of the fiasco.

The Satyam saga is likely to continue next year as well with the Board scheduled to meet on January 10.If Satyam made it to the headlines for a failed deal, it was HCL Technologies, the country's fifth largest software exporter next to Satyam that made the country proud by inking the largest takeover deal in the software space overseas.

HCL piped rival country's second largest IT giant Infosys to bag UK-based SAP consulting firm Axon for $658 million. While Infosys had made 600 pence per share offer for Axon, HCL made a counter bid of 650 pence a share to acquire the UK-based firm.

The year was also some significant M&As on the IT front, such as the $13.9-billion acquisition of Electronic Data Services by HP. Back home, Wipro acquired Citi Technology Services, Citigroup's IT arm in India, in an all-cash $127 million deal.

Earlier, TCS had bought out Citi's captive BPO arm Citigroup Global Services for about $505 million, which reiterates the strength of the Indian IT story. Another reason that will give the software services sector a reason to rejoice is the IT Amendment Bill.

The Lok Sabha passed the Information Technology (Amendment) Bill 2006 this month, which gives the government the power to tackle data theft. The bill might act as a shot in the arm for the BPO firms for whom data security is of utmost importance.

The Bill has provisions to deal with new forms of cyber crimes like publicising sexually explicit material in electronic form, video voyeurism and breach of confidentiality, leakage of data by intermediary and e-commerce frauds, among others.The US is the world's largest technology market and accounts for between 50 per cent and 60 per cent of the revenues of the top Indian firms. Since September, however, the economic situation in the US and the rest of the world has worsened.

Country's software lobby group Nasscom had estimated that India's software and back-office services industry would grow by 21-24 per cent in the 12 months to March, but its president Som Mittal said recently that this number could be revised downward.

With no signs of an early revival, all the IT biggies such as TCS, Infosys, Wipro and Satyam have revised their revenue guidance downwards.The currency volatility has also compounded the woes of the Indian IT sector.

If a rising rupee in the last fiscal had dented export earnings, the steady rise of the US dollar against the rupee, British pound and Euro during the second quarter (July-September) impacted revenue realisation in dollar terms since 30 per cent of the billing is done in these currencies.The sector also experienced slowdown in hiring.

Already, under pressure to cut cost, most of the IT biggies had to freeze their hiring in the year. Moreover, the joining dates of the new recruits were also postponed, ringing the alarm bells in the job market. The top five IT companies posted a 36 per cent decline in their rate of manpower addition in the last quarter.

As for hiring by BPOs -- for long looked upon as poor the cousins of information technology companies -- also faced the heat.

However, BPOs remained a bit sanguine, as Nasscom's figures indicate that the BPO sector recorded revenue growth of 31.6 per cent whereas IT companies grew at 28 per cent.In 2009, as the new administration led by Barack Obama takes a look at the outsourcing story vis-a-vis India, it is the efficiency and resilience of the IT sector which can help it sail through the troubled waters.

BPO Attrition Down 5 -15%

The US financial meltdown has finally managed to do what the BPO sector has been trying to do for years on end - reduce the attrition rate of employees by 5-15 percentage points. BPOs that were coping with 30-40 per cent employee turnover are now reporting numbers between 20 per cent and 30 per cent.

Industry insiders as well as sector experts said that companies are unlikely to miss this opportunity to rationalise bloated boom-time salaries. "Companies are aiming to go back to the cost levels of 2005 and 2006. So, we will see an across the board reduction in salaries," said KPMG Head (people and change advisory) Ganesh Shermon.

Genpact, the largest BPO in the country, reported attrition rate of 26 per cent for the nine months ended September 30, 2008, down from 30 per cent in the same quarter of 2007. 24x7 Customer said the drop in attrition has been 10 percentage points this month. The company's annualised attrition rate is 38 per cent.

For Satyam , the month-on-month attrition has come down by approximately 15 percentage points. Healthcare BPO Cbay Systems has seen a drop of 10 percentage points in the last few months. And Nasdaq-listed Syntel has seen a 4-5 percentage point drop.

BPOs, on their part, said this had less to do with the economic meltdown and more with the human resources development practices they have put in place. But analysts said that this has happened because of the global economic uncertainty - employees are choosing to stay put on their jobs than risk new ones.

Companies said they had not seen any contraction in the demand for their services and they will keep on hiring people in large numbers. Cbay Systems, for instance, plans to increase its headcount by 10,000 in the next 18 months. "Satyam BPO has not witnessed any diminishing of demand from our existing customers," added Satyam BPO Global Head (human resources) Naresh Jhangiani.

What is certain is that salaries in the sector will soon get rationalised. "We believe there is an opportunity for salary rationalisation. We are looking at not only the entry level but the middle and senior levels as well. We might see a drop of 5 per cent in salary levels in the coming few months," said Syntel Global Head (human resources) Srikanth Karra.

"Going ahead, salary increases will be on the basis of productivity. While the fixed salary should remain the same, the variable pay will see changes," Cbay Systems chairman and CEO Raman Kumar said. "At the middle- and top-management level, things had gone a bit haywire and this period will bring the required balance."

Wipro Join BPO

India’s third largest software exporter Wipro is asking its latest batch of recruits from engineering colleges if they want to join its business process outsourcing (BPO) division instead of the technology services unit for which they were originally hired.

Wipro said it is offering the option because it sees delays in the joining dates for some batches of recruits due to the ‘current business environment.’ According to sources, the students have been given the option of working in the BPO division for a year and later they could be shifted to the IT services vertical. The salary from the original offer remains unchanged.

At the end of September, Wipro employed nearly 62,000 staff in its IT services business and about 21,000 in the BPO division. It also makes strategic sense for Wipro to recruit the new engineering graduates in the BPO unit as this vertical regularly witnesses higher attrition rates than the IT services division.

So friend kindly don’t accept this offer by Wipro. In some district of Tamil Nadu students and there parents filed a case in court and and the engineering students of that district go the joining date within one week. So, I kindly ask you all to fight for this,this your dream and you all have rigths for doing it so. Since you got this offer I hope your waiting for joining date and have not tried anything outside ,so fight for dreams.

WIPRO MultiSkilled Workforce

In an effort to slash hiring and increase efficiency, Wipro Technologies, one of the leading IT companies in the country, is training its employees to turn into a multi-skilled workforce.The Bangalore-headquartered company is providing training to its employees in different domains and technologies to cater to the current requirements as the company is pursuing for integrated deals by providing both BPO and IT services by a single team."When people are multi-skilled, we will likely have fewer people. Instead of having two individuals being paid lower salaries, we are better off paying more to a single person who is capable of doing both work. This not only improves turnaround times, but also efficiency in operations," Girish Paranjpe, Joint CEO for Wipro's IT business, told Business Standard.With an aim of optimally using its manpower in both IT and BPO operations, Wipro has already signed a few large integrated deals, wherein the company is providing both the IT outsourcing and BPO services by a single team. The company has transitioned some of their employees from each of these two businesses (IT and BPO) to work for such projects.According to Paranjpe, the company has signed up three-four large clients who have outsourced their entire IT and BPO activity to the company. By the end of FY09, the company expects that close to 1,000 people will be deployed in the integrated outsourcing projects."One of the things we are trying to drive is integrated projects by offering both BPO and IT services. So, it makes more sense to have a fungible team. Much of our new work, we are hoping to do in an integrated fashion — where we will manage the IT application and also carry out the business process for the clients," Paranjpe added.In December last year, Wipro had offered close to 2,000 campus recruits from various engineering colleges jobs in the BPO business till they could be absorbed in the company's IT business. The experiment of putting engineering graduates into BPO work, however, seems to have seen a very limited success as the company found many of them unsuitable for BPO works.Analysts say, Wipro's experiment of putting engineering graduates into BPO work was driven by the company's aggressive quest to make the manpower multi-skilled so that they could be useful as the company signs more number of integrated deals.Of about 1,000 people who had accepted the offers to join the BPO jobs, the company found only about 300 suitable for the job after initial screening. Among those who failed to qualify the initial screening, close to 450 people are undergoing training now, and will be asked to take the test again, according to Wipro's Head of HR Pratik Kumar.Said Kumar, "If today we are looking for engineers for BPO works, it's not because we have engineers who are sitting idle. But because suddenly we found that nature of the job is such, we require engineers as well. It's is not a utilisation issue. It's an issue of the integrated nature of the work which is throwing opportunities."