BANGALORE (Reuters) - India's software industry association on Saturday criticised a United States Senate bill that imposes curbs on overseas outsourcing of government business, calling it an attack on free trade.

"We are dismayed to learn about the Bill in the U.S. Senate that restricts offshoring of work contracted by the U.S. government," Kiran Karnik, president of the National Association of Software and Service Companies (NASSCOM), said in a statement.

Indian newspapers prominently displayed on their front pages the passage in the U.S. Senate on Thursday a federal spending bill, which includes clauses restricting outsourcing.

"The bill is yet to become law, and we hope that wiser counsel will prevail," Karnik said.

However, NASSCOM said the business impact of planned U.S. restrictions on outsourcing would be "very small" as the share of U.S. federal government contracts in Indian software exports was less than two percent.

India's software service industry and an accompanying sector that runs call centres and back-office work conducted over high-speed telecoms have been growing aggressively, triggering protectionist talk in the west.

The industry's exports, based on strong English language skills and cheaper wages, grossed $9.5 billion in the year to March 2003, and are expected to grow at least 26 percent in the current fiscal year to March 2004.

While recent state-level bills in the U.S. have been minor irritants for India, the federal bill this week in an election year for both United States and India caused unease between the two nations warming up as strategic partners.

"I feel that this is the thing which will worsen the prospects of multilateral negotiations on trade," Information Technology Minister Arun Shourie told television channel NDTV 24x7 from Davos.

Alarm bells have been sounded in the U.S. over a potential loss of jobs in the services sector to India, while China is already seen as having taken a huge chunk of manufacturing jobs.

On the Indian side, where a huge economy has become increasingly globally integrated due to a decade of reforms, fresh fears have arisen over whether Washington is unfair in trade.

Karnik said India's government had itself awarded computerization contracts for its income-tax department to U.S.-based companies, raising a hint there was scope for retaliatory trade action.

"Such a Bill is not in keeping with the increasing globalisation of trade, which benefits all countries, and is contrary to the spirit of free trade being promoted by the World Trade Organisation and long espoused by the United States," the statement said.

Bangalore-based companies like Nasdaq-listed Infosys Technologies Ltd and New York-listed Wipro Ltd have been among leading gainers from outsourcing by U.S. Fortune 500 giants.

Infosys CEO Kris Gopalakrishnan said in a statement his company had no U.S. government work but that he would be monitoring the situation.

REUTERS

By Pimm Fox

It doesn't take an MBA to know that you can save money paying a salary of $20,000 for IT skills in India vs. $80,000 in Indianapolis. That's why the outsourcing movement now encompasses software creation, not just support and maintenance. According to a Meta Group study, 41% of all new application development, whether involving Cobol, .Net, C# or C++, is happening offshore. And the Fortune 100 are increasingly dependent on distributed talent. But using offshore programmers requires sophisticated communication and collaboration technology. Without it, the cost of managing outsourced application development can easily strip away any savings you get from salaries.

Unfortunately, such technology is still in its infancy. But there is one tool that suggests how offshore development can be managed: the SourceForge.net Web site. Run by Fremont, Calif.-based VA Software Inc., the site hosts thousands of projects for free, serving as an open-source development platform for project teams as well as a real-time monitor for executives and partners.

Richard Christopher, delivery manager at Allstream Corp. in Calgary, Alberta, uses this repository of open source code and applications as part of his effort to manage integration work for clients in the oil and gas industries. "My role entails ensuring an IT project has the appropriate resources and is delivered on time and on budget," Christopher says.

Using SourceForge.net, Christopher's team manages code, content and process. The tool also handles document management and version control. From his clients' perspective, it's easy to perform acceptance testing, log defects and bugs, and assign priorities tagged with notes. "The nice thing is a user can see what happened yesterday and why," he says. "We're not waiting for the Monday morning status meeting or phone call."

The open-source nature of SourceForge.net also carries benefits.

As open-source development proliferates, people will contribute to existing projects, producing additional functions and new security features. Stan Carney, a consultant working with Allstream, tells me that as each project gets rolling, the open-source community comes and adds the changes it needs without having to invest in a ground-up development program. "It brings software development closer to traditional engineering," he says. That's because "code is no longer hidden in a black box that can't be inspected."

The more that open source code moves into the enterprise, the greater transparency -- and accountability -- there will be in development. That places the emphasis even more squarely on people with project management skills, whose jobs will remain close to home.

COMPUTERWORLD

Industry associations have come out strongly against the US law barring the outsourcing of government work to companies outside the US.

"The passage of the law is unfortunate and unwarranted. Normally such provisions are not changed, perhaps US President George Bush will reconsider this," said Anand Mahindra, president, Confederation of Indian Industry (CII).

Similarly, Electronics and Computer Software Export promotion Council (ESC), said such a law not only went against the spirit of competition but would also affect the bottomlines of US corporates.

CII said this latest action showed a discrepancy and disconnect between what the United States considered good for India and what it was willing to do itself.

CII believes that India is taking examples from the United States and other developed countries on its path of liberalization and reforms.

However, such anti-liberalisation measures, when adopted by developed countries, and particularly by the US, which target developing countries will lead to greater protectionism in other sectors, thus impacting global trade flows.

CII said the government showed that it was possible to continue liberalisation even though elections were imminent.

"India and the United States have been steadily deepening their economic and strategic ties. Therefore, the passage of this law will be a speed-breaker on the road to closer ties. This is particularly unfortunate, since studies on the BPO sector have shown that the company that outsources gains more than the company to which it is outsourcing.

"In this particular case, since the Senate ban is on US government contracts, the ultimate loser is the US taxpayer, who will now pay more for government services," the CII statement said.

Business Standard

NEW DELHI: The passage of the omnibus-spending Bill with a provision to ban outsourcing by the US Senate has highlighted the central role that outsourcing or more importantly the loss of American jobs will play on the forthcoming US elections.

The Senate ban is effective only on the US companies while they are executing federal projects.

This would mean that firms in the US which win federal contracts can not subcontract the project to companies outside the US. (Can America do without outsourcing?)

Even as industry bodies like Nasscom have said that though the passage of the Bill was unfortunate, it would not affect India much, fact remains that any doubts as an issue outsourcing is a political livewire has been dispelled.

Nasscom says that the effect on Indian companies will be minimal because federal projects comprise merely two per cent of India’s IT exports.

It is quite clear then that besides the loss of American jobs, another issue – whether American taxpayers should bear the cost of shipping jobs to other countries – will also keep cropping up till election day in November this year.

So where do the various White House aspirants as well as the present occupant stand on the issue of outsourcing?

Though US President George W Bush has said that his administration will not try to stop companies from sending IT work offshore, there is very little chance that he will veto this Bill.

With the spotlight increasingly on Senator John Kerry, it is interesting to understand where he stands on the issue of overseas migration of American jobs. Senator Kerry has been the most vocal and lucid on the issue.

Unlike some fellow candidates, he has not dealt with outsourcing only in the manufacturing sector or in an omnibus manner. He has made clear his position on outsourcing of services as well. To begin with, he introduced a Bill in the US Senate last year that would require call centre service agents to identify the country where they are located at the beginning of each call.

According to Kerry, in the current economy, consumers increasingly use the telephone or Internet to buy goods and services, inquire about transactions and bills, and get technical support or other information. More than 70 per cent of customer interaction occurs in call centres. According to him, an estimated six million Americans work in call centres.

“In recent years, many call centres have shifted operations overseas, to places like India, Vietnam, and the Philippines. The US has lost 250,000 call centre jobs since 2001.”

He says that, besides wanting to keep the call centre jobs in the US, he wants to provide a measure of security for telephone and Internet consumer transactions. Therefore the consumers should have a right to know where they are calling.

Like fellow Democrat General Clark, Kerry says he will close every single loophole that gives companies incentives to move jobs abroad. This would include stopping American companies from setting up virtual headquarters in foreign countries just to avoid paying US taxes and stop tax breaks for companies that move jobs abroad.

At the same time he has said that he would provide a corporate rate reduction to manufacturers who produce goods in the US propose a new jobs tax credit to encourage manufacturing companies to stay and expand in America. When a manufacturing company creates jobs above their 12-month average, the payroll taxes of the new employees will be refunded for two years.

In line with the Bill passed by the Senate last week, Kerry opposes the idea of using American taxpayer dollars to send entry-level service jobs overseas.

Kerry believes that the US federal contracts where possible should be performed by American workers.

Among the other Democrat candidates, General Wesley Clark takes a position that understands the economic forces that drive American companies to outsource work to countries where labour cost is low. To counter this overseas migration of jobs, Gen Clark has proposed tax credits to business if they hire Americans full time.

Howard Dean, former Vermont Governor, while not making any direct reference to outsourcing, says that American companies must meet their need for workers at all skill levels without pitting Americans against foreigners.

Other Democratic Party candidates like John Edwards have been silent on outsourcing. However, records show that Edwards voted to increase the H1-B visa cap in 2000. Joe Lieberman, who also supported increasing the number of H1-B visas in 1998 and 2000, says that he would like to curb the abuse of visa programmes.

Like Kerry and Clark, he advocates tax credits for companies that create new jobs in the US.

The Economic Times

On February 4, 2004, in St. Petersburg, Russia, American CIOs will talk about their experience with representatives of Russian companies. Invited by DataArt, Stuart Robbins, the executive director of CIO Collective and a key technology thought leader in America’s premier CIO community, is a featured keynote speaker for this event. Stuart will provide an executive overview and analysis of the changing CIO role, best practices, and emerging opportunities in the current global marketplace.

By Eric J.Sinrod

There has been a growing trend for companies based in the United States to outsource significant aspects of their information technology functions to other countries, such as India, where the work can be performed more cheaply. While saving money in the short-term is an understandable goal, companies must not be short-sighted. Without proper care and advance thinking, outsourcing can lead to a host of intellectual property, security and privacy problems down the road. This week's column explains the current outsourcing climate, sets forth problems encountered as a result of outsourcing, and provides recommendations for successful outsourcing relationships. The column concludes by examining efforts, particularly within the financial services industry, to develop outsourcing best practices.

Current outsourcing contract

Application development and maintenance not uncommonly are outsourced to other countries by US companies. There also has been an increasing tendency to outsource business processes, such as claims handling. And, now, companies are starting to outsource technical support for information technology infrastructure and systems.

Companies fully understand that it is cheaper to perform the above functions outside of the United States. Indeed, McKinsey estimates that by the year 2010, the information technology industry in the United States will save approximately $390 billion as a result of outsourcing of software development. Forrester Research projects that 3.3 million information technology jobs will be lost in the United States over the next 12 years as a result of those jobs being handled in other countries.

Oursourcing problems

Notwithstanding short-term savings achieved by outsourcing, companies face serious risks in terms of protection of intellectual property and trade secrets, security and privacy.

For example, outsourcing of software-related functions could lead to an information technology vendor in a foreign country copying the source code to create its own competing and infringing software, and this could happen in a country where the laws are not terribly strong in terms of protecting the intellectual property of US companies. This is not just a hypothetical concern, as this already has occurred to the severe detriment of American companies.

And, of course, with the sending of information back and forth between the United States and other countries, and with the reliance on scores of people to handle outsourced functions overseas, it is not difficult to ascertain the vast array of security and privacy risks that come to the fore. There are greater opportunities for attacks, hacks, viruses, worms, not to mention the negligent or intentional revelation of personally identifiable details relating to individuals.

Building successful outsourcing relationships

Outsourcing still has value, so long as companies lay the groundwork for successful outsourcing relationships, and as discussed momentarily, they follow sound outsourcing practices.

To build a successful outsourcing relationship, it is important up front for both the outsourcing company and the information technology vendor to have a very clear perception of what they each want to achieve from the relationship. The contract between the parties, usually a service level agreement, needs to be plain in terms of required objectives. The contract also must be clear about the parties' specific rights, responsibilities and performance obligations. The contract also should be straightforward as to the incentive terms under which the vendor can earn a bonus, under what circumstances a penalty will be assessed for failure to perform, when the parties can terminate the relationship, and how unforeseeable events will be accommodated.

Before the negotiation of the contract even takes place, the outsourcing company should take care to think through exactly what it wants to outsource. Consideration should be given as to whether mission critical processes or applications should be outsourced, especially if they are unstable or volatile in any major respect.

In negotiating the contract, it is important to understand that a strong-armed negotiation that leads to "victory" on all points could be the beginning of a sour relationship, especially if that relationship is with an unknown or unproven vendor. Hopefully, the contract will build in a communications vehicle that the parties can use to openly work together to address and rectify any problems.

Best practices

Given the many problems that can be encountered when it comes to outsourcing, thought has been given to "best practices" to follow to avoid those problems. By way of the Financial Services Technology Consortium (FSTC), the financial services industry, which has been leading the pack in terms of outsourcing information technology services, has started to consider creation of a set of best practices to follow. The FSTC has been studying how to protect company trade secrets and personally identifiable information pertaining to customers.

These secrets and this customer information needs to be protected from being disclosed or taken by outsourcing vendors, their employees or contractors, and by competitors. Verification of a vendor's security program and background checks on personnel may be best to really will get the job done. Along these lines, some overseas outsourcing vendors prohibit their personnel from bringing certain items to work, such as handhelds, laptops and the like, in an effort to prevent the copying or stealing of information.

Another idea to protect trade secrets is to prohibit outsourcing vendors from working for competitors of an outsourcing company. Furthermore, in terms of protecting customer information, technologies can be utilized that disguise the personal data of customers.

Be careful out there

Given the cost savings, it is unlikely that the outsourcing trend is going to decrease any time soon. Any company about to embark on an outsourcing program would be smart to keep its eyes wide open, develop strong outsourcing relationships, and adopt outsourcing practices that will ward off future problems.

USA Today

By Peter Bart Perkins

Offshore outsourcing is here to stay, since U.S. companies need to remain competitive in the world market. Responsible business people have to consider moving work to locations that offer the best combination of cost and service. Unfortunately, the U.S. is in the midst of an offshore mania. The hype in the business and trade press (as well as that great executive opinion-shaper, the airline magazine) simultaneously causes and confirms this. As a result, a large number of companies are convinced that they must send something offshore to remain competitive and are further convinced that they must do so immediately.

In addition, many companies are feeling so pressured that they truly believe they don't have time to examine the questions necessary for success offshore. But companies that focus solely on the potential cost savings from going offshore, without careful evaluation of corporate motivations, business issues and trade-offs, will be unhappy with their offshore efforts down the road.

No Shortcuts

Many companies are currently searching for the "right" offshore partner. But they aren't really in a position to determine which of the myriad offshore options best meets their needs unless they've established their sourcing requirements. This is most effectively accomplished through a process that examines the critical sourcing issues, which then leads to a deliberate sourcing strategy.

I've recently been approached by a number of companies that are interested in going offshore but that want to jump straight to partner selection and contract negotiation, without doing any homework. For example, a systems integration firm asked me to introduce it to an offshore company that could supply programmers and project managers. In order to determine which companies might be most appropriate, I asked the systems integration people several qualifying questions, including these:

Which cost/service trade-offs are you willing to make?
How much risk can your company tolerate?
How will you make decisions and resolve disagreements with your offshore partner?
How important is Software Engineering Institute certification? Does your company require CMM Level 5 processes?
Do you have several low-risk projects that would make good pilots?
When faced with these questions, the systems integration people became impatient. They insisted they didn't have time to explore such questions, but needed to select a partner and sign an agreement immediately. (It's interesting to note that this well-established company would never dream of starting one of its own consulting assignments without a clear, well-written set of requirements.)

A Quickie Wedding?

This company reminds me of someone who desperately wishes to be married. With only that goal in mind, he rushes to a justice of the peace with someone he met a week ago at a dinner party, despite the advice of close friends. What do you suppose the odds on that marriage lasting will be? Such a brief engagement can result in a successful marriage, but the chances are extremely poor. Do you want to bet your company's future on the equivalent of a one-week engagement? And, by the way, just like divorce, leaving your offshore partner will be costly and painful.

I've had similar experiences with enough firms to convince me that the U.S. is in the middle of a full-blown offshore mania. Looking at the history of manias, from the construction of the railroads during the 1800s to the initial boom in automobile manufacturers to the Internet bubble, it's clear that they always end (sometimes spectacularly!).

The mania phase of offshore efforts will eventually end, too. At that point, companies will send work offshore only as the result of business decisions that have been well thought out. If you're currently feeling pressured to outsource or to send something offshore immediately, invest the time that this important business decision deserves and requires. Only then can you successfully leverage your sourcing decisions to select the right offshore option and design a partnership that will result in long-term success.

COMPUTERWORLD

By Peter Laura Rohde

IBM Corp. has won a five-year IT global outsourcing deal with Nokia Corp., the world's largest mobile phone maker, the companies announced Friday.

Under the terms of the contract, IBM will handle Nokia's IT Helpdesk operations as well as manage and develop the Espoo, Finland, company's desktop IT environment, according to Tapani Kaskinen, a spokesman for Nokia. The deal, which is subject to competition authorities' approval, is being valued at €200 million (US$251.4 million).

"Certain services have been carried out by Nokia ourselves, but particularly with the IT Helpdesk, we thought that through outsourcing we could achieve cost efficiencies," Kaskinen said. "Also, we believe that we'll be able to benefit from IBM's latest technologies and services and that outsourcing will give us greater flexibility while allowing us to focus on our core competencies."

IBM, in Armonk, New York, beat a number of competitors for the contract including Hewlett-Packard Co. (HP) and Electronic Data Systems Corp., according to a source close to the negotiations.

"One of the main reasons we got this contract is because of our capabilities in human resources," said an IBM spokeswoman. As part of the agreement, about 430 people will join IBM from Nokia in 36 countries, she said.

The IBM services will be provided to Nokia employees in 57 countries, said Jens Boegh Nielsen, IBM's client solution executive, and the person charged with overseeing the day-to-day operations of the deal.

According to analyst estimates, Nokia currently employes between 55,000 to 57,000 people, based on the company's growth since April 2002 when it said it had 53,000 employees.

The services are geared towards the end-user environment and built around IBM's On Demand computing initiative, which also uses its Tivoli management software, Boegh Nielsen said. "The deal is structured around the consumption-based user model and is built on some of IBM's latest and most advanced technologies," he said.

Along with providing services for desktops, IBM will also offer services over PDAs (personal digital assistants) and wireless devices, Boegh Nielsen said. Hardware in not included in the deal, apart from the hardware required to run the Tivoli software, he said.

The first of IBM's services for Nokia are expected to begin in April, Kaskinen said.

The deal between Nokia and IBM is fairly standard within the industry and is similar to the five-year outsourcing deal Telefonaktiebolaget LM Ericsson signed with HP last June, said Andy Buss, a senior analyst with Canalys.com Ltd.

"Companies such as Nokia and Ericsson can reduce costs with such outsourcing agreements while also gaining robust supportive systems," Buss said. "The strength of both HP and IBM is that they both have a strong local presence in the Nordic countries -- which Scandinavian companies consider to be very important -- but are global players as well."

IDG.com.sg

By Iain Ferguson and Dawn Kawamoto

A leading Asia-Pacific tech analyst claims the outsourcing of information technology and business processes offshore is "not something to get overly excited about," despite increasing international controversy over the migration of jobs to lower-cost countries.

Bob Hayward, senior vice-president with Gartner, told ZDNet Australia that only around 1-2 percent of the dollars spent on information technology and business process-related outsourcing by organisations in Australia was offshore-related.

Even though this was expected to rise, it would still only account for 5-6 percent of dollars spent in two years' time, Hayward said.

While offshore outsourcing was the "fastest growing part of a growing market," at the end of the day, "it was not something to get overly excited about," he said.

However, there are indications that the practice of using offshore resources is rapidly becoming top-of-mind for Australian and New Zealand chief information officers. A Forrester survey of 57 CIOs across the two countries late last year revealed while only 28 percent were presently using offshore resources, 47 percent either intended to use or would consider using offshore resources over the next year.

Hayward's remarks come amidst rising global controversy over the loss of jobs in countries like Australia and the U.S. to lower-cost countries such as India and China. Tech heavyweights in the U.S. this week were forced to come out fighting against political pressure from Congress over the loss of U.S. tech jobs to offshore workers.

The tech companies, under the banner of the Computer Systems Policy Project, released a report stressing the need to keep international doors open so that domestic companies can remain competitive.

In its report, the organisation included preliminary policy recommendations for Congress to consider. It plans to have its members--which include chief executives from Intel, Dell and Hewlett-Packard--lobby lawmakers next month during the organisation's semiannual meeting.

"Economic downturns and security issues spur impulses to protect specific sectors and markets and limit international trade and collaboration," the report stated. "Yet these measures often backfire. Countries that resort to protectionism end up hampering innovation and crippling their industries, which leads to lower economic growth and, ultimately, higher unemployment."

Congress has held several hearings about the outsourcing of IT jobs, and a group of lawmakers is urging India to create jobs for U.S. workers.

Concern has grown in the U.S. as an increasing number of tech companies lay off domestic workers and move the work to countries such as India. Employees in call centre support, manufacturing and software programming have been hit particularly hard.

While helping to cut costs, however, outsourcing is not without problems. Some customers are complaining about the quality and lack of service they receive from overseas call centres, and international operations can also be strained by misunderstandings due to culture and communications, as well as differing time zones.

"I would caution people from becoming too overly excited about offshore sourcing and do things that they may later regret," said Amit Maheshwari, chief executive of i-Vantage, an outsourcing consultancy firm. "I have seen some companies close a full shop in the U.S. and move it offshore, only to find it does not work for their particular situation."

And where the backlash can be particularly painful is when it hurts the quality of a company's product or service, said Maheshwari, noting that Dell recently moved some of its technical call centre support for its corporate accounts back to the United States.

Still, the trend shows no sign of reversing, and the IT trade group cautioned politicians against interfering.

"Any trade barriers created by the United States in an attempt to avoid global competition could lead to retaliation from our trading partners and even an all-out trade war--resulting in a drag on the global economy and reduced employment here at home," the report stated.

The group also noted that under the current economic climate, customers of U.S. tech companies are pressuring vendors to reduce costs, offer more products and reduce the time it takes to get products to the market.

"U.S. companies operate abroad to be close to global customers, both geographically and culturally, and to meet round-the-clock expectations for customer service," the report noted.

In its policy proposals, CSPP asked Congress not only to promote the IT industry's "innovation pipeline" but also to improve education and training for U.S. workers.

"A growing number of workers in these foreign countries and companies are highly educated, skilled and talented--a competitive challenge in their own right," the report said. "Americans who think that foreign workers are no match for U.S. workers in knowledge, skills and creativity are mistaken."

ZDNet

The company signed US$500m in key Asia-Pacific outsourcing wins in the last six months alone. Raju Chellam finds out more

US giant Hewlett-Packard Company will push for IT and BPO (business process outsourcing) deals in telecommunications, financial services, retail and government sectors more aggressively in the Asia Pacific region this year.

The aim is to grow at a much faster pace than the overall market growth in the outsourcing space, HP Services' Singapore-based vice-president of managed services for the Asia-Paci fic, Soh-Keng Tan, told BizIT.

'Over the last six months we have closed managed services deals close to US$500 million in total contract value in the Asia-Pacific region outside of Japan,' Ms Tan said. 'This includes global contracts in the Asia-Pacific, as well as our Asian wins. Our managed services business in the Asia-Pacific has grown 33 per cent this fiscal year. We intend to build upon this momentum and grow faster than the market rate.'

In FY03 ended October, about 5,000 staff transi tioned to HP from its outsourcing customers, including 1,000 in the Asia-Pacific. 'Over the last four months, we moved 1,000 people to our rolls, including 200-odd in Singapore,' Ms Tan said. 'Singapore is the headquarters for a lot of MNCs, so a lot of deals are done here. The MNCs see HP as a strong service provider to help them roll out outsourcing in the region.'

She cited GE Medical as a good example of a deal won and signed in Singapore. GE Medical Asia signed a three-year, multi-million dollar deal to outsource helpdesk, support infrastructure and server and network management to HP. The contract has HP manage 6,000 computers, 300 servers, voice, wireless and local area networks.

HP's largest outsourcing win so far is with Procter & Gamble. The 10-year deal is worth US$3 billion and has resulted in 1,850 P&G employees in 50 countries moving to HP worldwide. P&G outsourced its data centre operations, network management, desktop and end-user support and applications development to HP in a concerted bid to cut costs and boost efficiency in its core manufacturing business.

'We selected HP for its global IT expertise, services quality, cost and collaborative approach,' said Filippo Passerini, P&G's global business services officer. 'HP will help us substantially lower costs and accelerate innovation through out P&G.'

HP's Palo Alto-based senior vice-president of managed services, Uli Holdenried, told BizIT that the company's managed services grew 36 per cent in its Q4 ended October 2003 year-on-year. 'For the whole year, it was 22 per cent,' Mr Holdenried, 52, who was recently in Singapore, said.

The overall services business - including consulting, integration, managed services, and customer support - contributed US$12 billion to HP's US$73.1 billion in global annual revenues.

Another mega-win was with Swedish telcom giant Ericsson AB. This multi-year deal was worth US$1 billion and was the largest outsourcing deal in Sweden. It has HP taking over Ericsson's global IT infrastructure and mainframe opera tions in more than 140 countries, with about 1,000 Ericsson staff moving to HP.

'Most of these large deals - Agilent, Ericsson, P&G - were won earlier in the year, but their implementation and transfer of employees happened in July, August and September,' Mr Holdenried said. 'That's why it's kind of backend-loaded. The growth rate of the business has accelerated because the deals and therefore the revenues came on line towards the end of the fiscal year.'

The market for IT services - of which outsourcing is the biggest component - crossed US$10 billion in eight key Asian markets - Singapore, Malaysia, Hong Kong, Taiwan, South Korea, China, India and Australia - in H1 2003, up 7.6 per cent over H2 2002, according to IDC Corp. IBM Global Services took the lion's share of 10.3 per cent in revenues in the eight Asian markets, followed by HP's 6.5 per cent, Electronic Data Systems' 5 per cent, Samsung's 3.7 per cent, and Computer Sciences Corp's 3.6 per cent.

IT services is an umbrella term that includes IT outsourcing, infocomm consul ting, systems integration, data hosting services, customised application development, software deploy ment and support, training, hardware support, and network integration.

Singapore's market for such services was worth US$598.9 million in H1 2003, up some 2 per cent over the previous six-month period, IDC added.

TheBusinessTimes

By Peter Bendor-Samuel

The biggest event in outsourcing last year -- and the biggest event since outsourcing's inception -- was the growing use of offshoring. Both buyers and suppliers realized the profound power of labor arbitrage.

The move to offshore work to take advantage of low cost labor is affecting every area of outsourcing. In the IT space, offshoring is making major inroads in the applications development and management area. The offshore service providers have made this area extremely competitive. I predict every company needing applications will have to outsource or create its own offshore captive if it is going to have the work done cost effectively. This year the same will probably be true for IT infrastructure.

Offshoring also enabled a big push into BPO, the second major trend of 2003. Offshoring allowed suppliers to outsource many business processes they couldn't touch before because they couldn't drive down cost. Last year the universal mantra for buyers was: cut our costs. Offshoring finally allowed suppliers to do that.

For that reason, BPO suppliers expanded their capabilities last year, moving higher up the value chain.

The combination of these two trends has significant consequences for the future of the outsourcing industry.

Trend 1: Offshore Suppliers Come Into Their Own

Last year offshore labor arbitrage finally got some respect, as Rodney Dangerfield used to say. Offshore firms created a new credibility in IT applications work and data center operation. On a recent trip to India I visited a number of suppliers who could support substantial data centers in India while leaving the assets in North America or Europe. This is a very interesting development with serious implications for the IT market; it allows buyers to retain their assets and still drive out cost.

Last year offshore service providers moved from project work to true outsourcing. Now that they have earned the respect of their buyers, the offshore suppliers are entering into long-term outsourcing relationships. I expect to see substantial migration of work to India, the Philippines, and Eastern Europe.

Moving work offshore presents different risks. How do you think about governance when the supplier is eight times zones away? Buyers had to revamp their governance models to deal with a different set of challenges.

Trend 2: The HRO Transaction Model Gained Traction

Transaction engines rule in human resources outsourcing (HRO). Transaction engines are rules-based outsourcing where a supplier uses technology, people, and a new process to automate routine and recurring transactions like payroll and benefits administration. Offshoring is a key part of the transaction engine success story. 2003 was the year that proved they work.

This is good news for both buyers and suppliers because the engines allow for more value capture. For buyers, they reduce cost and improve the service; for suppliers, they can spread their investment over a lot of clients.

Trend 3: The BPO Market is Dividing

We see the BPO market dividing in two: some buyers just want to outsource transactions, while others want to achieve a bigger business impact. For example, an Everest survey released in December 2003 found the finance and accounting outsourcing (FAO) market segmented almost equally into two distinct pieces - full service and transaction-based. The study found 44 percent of the last 85 FAO transactions signed were full-service in scope.

Trend 4: Niche Outsourcing Is Thriving

Various industries are enjoying big wins thanks to outsourcing. One of the big winners is the insurance industry. Outsourcing third-party administration and claims processing produces both cost reduction and high business impact. Outsourcing can dramatically reduce the cost per claim while improving customer service and retention.

Banking is benefiting from outsourcing clearing functions. Healthcare is outsourcing its revenue cycle for greater profit, to name a few.

Trend 5: American ITO Slowed Down

There was also a slowdown in the American IT infrastructure and applications development outsourcing market. Historically, companies outsourced their IT infrastructure to save money. Today, sending that work offshore to take advantage of the labor arbitrage is becoming the best way to cut costs. Companies unwilling to deal with suppliers that use offshore labor are not receiving the value they expect from outsourcing these processes. This led to last year's slowdown.

What's Ahead in 2004

This year offshoring will gain even more traction. We expect more and more companies to focus on the benefits labor arbitrage can bring. At the same time, we believe service providers will take their successful offshore models in established processes like HR and finance and accounting and apply them to other business processes. We expect a rapid adoption across all BPO processes.

How long will the offshore providers be able to provide an economic advantage through low cost labor? That debate began last year and will continue this year. We predict the offshore providers can maintain this advantage for at least 15 years and maybe considerably more.

We also expect one of this year's high impact areas will be in the order to cash space. Outsourcing this payment and fulfillment process will result in substantial wins for buyers by reducing their required working capital. Automating this process allows the outsourcer to move buyers from simple cost reduction to business impact, creating more value.

This year we expect the transaction engine process will expand to three other processes. One will be indirect purchasing. It's too early to determine who the winning suppliers will be. It may be the firms specializing in logistics. But it may be the big finance and accounting providers like Accenture, ACS, IBM, or EDS. All are assembling compelling offerings in this space. For example, if you combine the offerings of A.T. Kearney, an aggressive sourcing company, with EDS, together they can create a very strong value proposition.

Another candidate for transaction engines is customer relationship management (CRM) for use at the call center. A third possibility is commercial real estate (CRE), an extension of the traditional outsourcing offering.

We don't expect the indirect purchasing transaction engine to be fully validated this year, but it will make great strides. We predict by year's end it will have evolved to where F&A outsourcing is today.

Predictions for 2004:

• Offshoring will grow faster and gain more traction in 2004.
• Offshoring will spread to other BPO processes.
• Order to cash, customer relationship management, and commercial real estate may become prominent outsourced processes using a transaction engine this year

Outsourcing Journal

Investors need to pay attention as more companies outsource to offshore entities.

By Eric Hellweg

NEW YORK (CNN/Money) - The term "offshore" has long had unsavory connotations.

Environmentalists have railed against offshore oil drilling; prosecutors lambaste companies for creating offshore tax entities; and today, a backlash is forming against tech's infatuation with offshore outsourcing.

Tech investors should pay close attention to how U.S. companies implement offshore outsourcing. It's a trend that could introduce some fairly radical changes into the economic makeup of the software and services industry.

Investors should also monitor public and political opinion of moving offshore. With job growth not yet apparent in the country's nascent recovery, offshore outsourcing is an easy target for public outcry. Finally, there may be investment opportunities in offshore outsourcing.

One thing's for sure: nary a week goes by these days without a high-tech company launching or adding to an offshore outsourcing initiative. As recently as Monday, the Wall Street Journal reported that IBM is planning to offshore 4,730 jobs starting in 2004.

Big Blue joins a veritable army of tech heavyweights, including Accenture (ACN: Research, Estimates), Google, Oracle (ORCL: Research, Estimates), SAP, Verizon (VZ: Research, Estimates) and dozens more, that contract with, or run, offshore operations.

The ugly side to this, of course, is that workers here will lose their jobs. Who wouldn't shudder at the specter, reported by the Journal, of soon-to-be-displaced IBM (IBM: Research, Estimates) workers training their offshore counterparts to take over their jobs? But this is business, and sending jobs offshore makes a lot of bottom-line sense.

The fact is, offshoring has been going on for some time, and according to every analyst I spoke with and every report I read, it will only grow in the foreseeable future. Research firm IDC predicts that offshore outsourcing will grow from 5 percent of IT jobs today to 23 percent in 2007.

In the short term, going offshore can help a company realize 20 to 40 percent savings in operating expenses, primarily through lower operational overhead. However, widespread use of offshoring could have a negative impact on revenues as software and service prices begin to drop, taking the same path technology hardware has trod for the last 10 years.

When 20 to 40 percent of operating expenses is removed, companies can -- and likely will -- begin competing on cost. Long term, revenues could increase in a volume play as aggressive pricing leads more corporate customers to purchase software and services.

"The cost of a PC has free-fallen in the last few years," says John McCarthy, a Forrester analyst. "But it opened up the market by millions of PCs. If the price of software or of implementing a system drops by 25 to 40 percent, that allows a whole set of smaller businesses to implement the software and services that couldn't afford to before."

One variable in the offshore equation is the public response. Right now, public opposition is in the embryonic stage, and with the affected workers -- IT staff -- not unionized, it's unclear whether the outcry will be truly threatening.

"Companies need to be wary of a [public] backlash," says Andrew Efstathiou, an analyst with the Yankee Group. "If a firm goes offshore, they need to engage in scenario analysis to map out what could go wrong, and a backlash is one thing that can."

Investors should watch for more developments along the lines of what occurred last month, when public protest forced the state of Indiana to cancel an offshore outsourcing contract with a firm based in India. Note that in this case, the government was involved. Its outsourcing programs have a different set of rules, and the union representing state and federal workers is the largest in the country.

So are there opportunities to invest in the companies that provide offshore outsourcing assistance to U.S.-based companies? Shares in three of the leading offshore outsourcing outfits, Cognizant (CTSH: Research, Estimates), Infosys (INFY: Research, Estimates) and Wipro (WIT: Research, Estimates), are all very expensive right now, trading at or near 52-week highs and at price/earnings ratios of at least 50.

The offshore outsourcing trend and the corresponding hype -- combined with these companies' healthy profit margins -- have been kind to their stock prices. Recently, however, the companies have suffered from some high-profile client defections.

Lehman Bros. (LEH: Research, Estimates) and Dell (DELL: Research, Estimates), for example, announced that it is cutting back on some offshore operations, citing quality concerns. If more defections cause the stocks to come down significantly from their nosebleed levels, some investment opportunities may arise.

The problem most frequently cited as the reason for the defections -- concerns related to call-center expertise and quality -- is thought to be correctable.

CNNMoney

By Justin Pope

BOSTON - The corporate spending that drives the technology sector is as strong as it has been since the end of the 1990s boom, giving the industry optimism as it heads into 2004.

"This is not a burst. This is a sustainable interest," said Bill Zadrozny, chief executive of Siemens Financial Services, which helps businesses to finance new technology investments. "There were false starts before, but this one looks for real."

In the third quarter, equipment and software expenditures jumped 17.6 percent, helping to fuel the 8.2 percent increase in gross domestic product, the Commerce Department said.

Most of the recent forecasts that focused more specifically on technology spending predicted a 4 percent to 6 percent increase in 2004, notably healthier than previous years, when corporate stinginess weighed down overall spending.

But that hardly amounts to another boom, and the momentum is uncertain, experts warn. In fact, there appears to have been a slowdown in the fall, perhaps because newly confident information technology managers realized they had overspent budgets set last year when times were tougher.

"I don't think it's going to return to the boom days of five years ago anytime soon," said Tom Pohlmann, who follows technology spending at Forrester Research.

And the growth that comes won't necessarily be across the board. Experts offered their view for the shape of tech spending in 2004:

Software

The buzz word for 2004, recycled from dot-com jargon, is "enterprise" software. Broadly speaking, companies are expected to shift away from software that targets cost-cutting - the overriding priority of the past three years - and move toward software that backs up genuine "enterprise" or "strategic" moves.

Basically, it means that companies will buy software to support initiatives involving supply chains, security, data storage and the way they interact with customers over the Internet.

Forrester expects overall information technology spending to grow 4 percent this year, but such "strategic" spending to rise 9 percent.

The growth will be concentrated in industries such as retail and insurance, Forrester said, where technology goes to the heart of how businesses interact with customers.

But the software industry faces big problems, as well, notably an absence of "killer applications." Nobody doubts products are getting better, but it has been several years since the industry has come up with anything so innovative that customers simply must buy it.

Hardware

Tech budgets and hiring are inching up, and the equipment purchased during the last boom is aging. In short, the pieces are in place for a strong year.

Forrester checked with 818 companies in North America with revenues exceeding $500 million and found that 40 percent of them considered computer replacements and Windows upgrades to be priorities this year.

When companies bring in new workers, they don't put them to work on old equipment, said Gary Beach, publisher of CIO Magazine. New hardware purchases will trickle down to other sectors.

"That new machine is going to take up a little more network bandwidth. So, eventually, they might be looking for new routers," Beach said. "More importantly for the software community, new employees take up a seat license."

Wireless

Look for more companies to embed tiny computers and radio tags in their trucks, crates and factories to provide more accurate information and to run more efficiently. Many companies discovered the cost-cutting virtues of tight inventory tracking during the downturn, and many companies are starting to look more seriously at wireless as the way to get there.

Many companies don't have a choice. Wal-Mart Stores Inc. is forcing its suppliers to invest in radio-frequency identification tags to help the retail giant with tracking inventory.

Telecom

Look for more businesses and consumers to connect telephones to an Internet-based service using the technology known as voice over Internet protocol, or VoIP. Last month, three major communications companies - Time Warner Inc.'s cable TV unit, Qwest Communications International Inc. and AT&T Corp. - announced plans to sell Internet phone services to consumers.

"It's not a tidal wave, but people are saying, 'OK, we've hit the reliability level,'" with VoIP connections and quality, said Zadrozny, of Siemens.

Also, the experts pointed to some areas where growth might not be forthcoming, despite expectations.

One is Linux and other open-source software. Forrester found relatively few companies considering such technologies crucial next year.

Another is outsourcing. Companies that embraced sending their technology elsewhere, including overseas, are starting to realize that it might be more expensive than they thought, analysts say.

Finally, information technology spending on the humans who keep systems running isn't likely to budge. With the labor pool plentiful and companies too cautious to start big hiring sprees, salaries aren't expected to grow much, if at all.

STLtoday

By Wei Gu Reuters

NEW YORK - Once upon a time, an entry-level job in the mailroom of a large company might serve as the launching pad for a great career in Corporate America.

But mailrooms - nerve centers for big businesses - are being reinvented and, in some cases, closed down completely as companies look to cut costs through outsourcing and by utilizing new software.

Big companies are cutting mailroom employees by adopting software that converts letters and faxes into electronic files and then automatically sorts them.

For example, American Express Co.'s financial advisory group, a customer of Captiva Software Inc., reduced 50 employees - or more than half of its mailroom staff - to save $1.5 million a year in salaries.

"We don't need as many people because the scanners we use can sort a lot of the documents, whereas before, people had to manually sort them," said Glenda Swinford, portfolio architect of American Express Financial Advisors.

According to the U.S. Department of Labor, there are currently about 152,000 U.S. mailroom jobs, with some 4,000 eliminated during the first nine months of this year. Analysts say many more jobs are at risk.

The trend to automate mailroom jobs compounds workforce reductions already being made as back-office operations are handed over to outsourcing firms.

"There is no question that mailrooms are being automated," said John Challenger, chief executive of outplacement company Challenger Gray & Christmas Inc. "The technology today allows companies to not only handle backroom operations through fewer personnel, but it can also be outsourced much more easily."

About 41 percent of mailroom work is currently sent to third parties for processing, up significantly from last year, said industry publication Mailing Systems Technology.

For example, film maker Eastman Kodak Co. uses Pitney Bowes Inc., the world's largest postage meter producer, to manage its mailroom.

Pitney Bowes is also venturing into the digital mailroom market with software that helps create mailers and manages shipping. Kofax Image Products Inc., a division of DICOM Group Plc., also has a similar product.

INFORMATION EXPLOSION

Companies are facing an explosive amount of information as the number of documents generated, both electronically and on paper, will soar to 20 trillion in 2005, according to Xerox Corp. Digital documentation promises to rein in costs of dealing with all that paper.

"We are converting all that paper to a digital world," said Captiva Chief Executive Reynolds Bish.

The company, whose shares have soared more than five-fold this year, expects its digital mailroom software to bring in $1.5 million in its first year. Its 2003 revenue is projected at $56 million.

Adding to the need for high-tech data storage are new corporate governance rules which require companies to retain more information.

"Companies are trying to get their hands around all the information," said Steve Lidberg, an analyst at Pacific Crest Securities. "A lot of regulatory and compliance issues have been put in front of them ... and they have to become much more structured."

Mailroom software is just the tip of the iceberg. Software companies have their eye on selling content-management programs, which allow companies to organize stored documents.

That market is growing at 11 percent a year, higher than the software industry's average of 7 percent, according to consulting firm Bain & Co.

That growth makes companies in the digital documents business attractive takeover targets. Hardware maker EMC Corp. recently offered to buy software maker Documentum Inc. at a premium to expand into the fast-growing market.

"Paper-based information is very costly," said Mitchell Gross, chief executive of Mobius Management Inc., which makes content management software.

Even though the percentage of documents that are printed will decline to 40 percent of all documents in 2005 from 90 percent in 2000, according to Xerox, that does not mean less paper.

In fact, paper usage will actually increase. Paper only declines as a percentage of the total exploding number of documents produced, electronically or not.

DailyHerald

By Rachel Fielding

An opportunity to improve business processes, or a danger to the UK's IT industry? The jury's still out...

Outsourcing is hardly a new concept, but 2003 was the year that it became the issue companies simply could no longer afford to ignore. In the past 12 months hardly a week has gone by without a household name jumping aboard the bandwagon.

In the past few months alone, BAE Systems and numerous financial services players including Bank of Ireland and Barclays have all nailed their colours to the outsourcing mast.

And while the UK's software and IT services industry has spent another year in the doldrums, things would have been far worse were it not for outsourcing, which it seems has almost single handedly prevented the sector from nose diving into recession.

But alongside the success stories come the warnings, in particular that outsourcing is not a 'one size fits all' solution, and that careful consideration needs to be given to internal practices, culture, business objectives and strategy.

Gartner warned that companies need to spend up to 10 per cent of outsourcing budgets on managing the projects.

And while analyst Ovum believes companies should expect outsourcing to cut costs by up to 20 per cent, other groups have warned that low wage rates among Indian outsourcing providers tell only a fraction of the story about the true cost of offshore outsourcing.

If that wasn't enough, the cost of outsourcing contracts is likely to go up after Chancellor Gordon Brown hinted that a tax loophole allowing outsourcing firms to avoid charging VAT on contracts would be closed.

But despite concerns about where outsourcing leaves in-house IT departments and the role of the chief information officer, IT directors are nonetheless warming to the concept.

Most companies plan to increase the number of IT functions they outsource next year, according to a report from investment bank Merrill Lynch.

The focus of concern has shifted from keeping a job to concerns about losing vital knowledge and managing such huge projects.

Whatever your view on outsourcing - opportunity to improve business processes, or a danger to the UK's IT industry - one thing's for sure. The outsourcing issue will continue to provoke lively debate for the foreseeable future.

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