Filipino cities gain in outsourcing ranking

BANGALORE: The Philippines, led by its capital Manila and followed by secondary cities such as Cebu, Mandaluyong and Taguig, has emerged as a key IT/ITeS destination, posing a challenge to India’s outsourcing story.

The latest annual ranking of the top 100 global outsourcing destinations by Tholons, an advisory firm for global outsourcing and research, places Manila at No. 3, up from No. 4 in last year’s survey. It has pushed Delhi down to No. 4. Cebu City too went up one rank in the top 10, pushing Dublin (Ireland) down. Indian dominance continues though, with six Indian cities in the top 10 and Bangalore still the No. 1.

The critical factors that are adding momentum to Philippines are its cultural and accent similarities with the US, cost competitiveness, and a strong positive perception of BPO careers (they are not stop-gap careers like in India). The Philippines government is also keeping its focus firm on the development of the industry through grants and infrastructure developments.

Salil Dani, practice director at outsourcing advisory and research firm Everest Group, said the Philippines is cheaper by up to 70% for US companies. “The country is the leader in voice (call centres). But its non-voice story is still untold. A lot of Indian and global BPOs in the financial, analytical, HR and people-based services are expanding in the country. The Philippines’ current IT/ITeS market is $14 billion, of which IT is only $2 billion. But remember, a few years ago the total market was barely $7 billion. Look at the way it’s catching up,” said Dani. Ankita Vashistha, managing director, Tholons, said costs are rising in India. “Infrastructure and quality of life are also under pressure in Indian cities and these could impact growth in the future,” she said.

Convergys, a US-based customer management solutions company, has 18 call centres in the Philippines. UnitedHealth, a US-based healthcare provider, has back-office operations in Taguig City. EXL is opening its third centre in Cebu City. IBM is planning to grow its BPO services in the country, focusing on higher value analytics and high-value customer support services. Wells Fargo & Co is setting up a business support centre in Taguig City to provide customer service and back office services. JP Morgan Chase has recently expanded in Manila by establishing a 1,000-employee facility.

Sanjay Dhawan, executive director at PricewaterhouseCoopers, said local government had created a lot of momentum. “More and more corporations are keen to expand to the country as no one wants to put all their eggs in the same (India) basket.”

Pradeep Udhas, executive director at KPMG, said the Philippines had learned lessons from India in terms of best practices, talent management and handling taxation challenges. Som Mittal, president of Indian IT/ITeS industry body Nasscom, dismissed concerns that India had reasons to worry: “Our own companies are expanding to the region. Outsourcing is a global play. So it’s less about competition and more about partnership.”

Malaysian cities have also moved up in Tholons listing, as have Latin American cities. Montevideo, capital of Uruguay, has moved up six places to No. 37, Bogota, capital of Colombia, has moved up six places to No. 49, and Medellin, Colombia’s second largest city, has moved up seven places to No. 53. This indicates a sense of urgency in Latin American countries to explore new industries like outsourcing, said the Tholons report.

Indian IT Companies Sharpen Claws For Deals Worth 2.7 Lakh Crore

Bangalore: 2013 is going to witness almost 2.7 lakh crores worth software outsourcing deals coming up for renewal, which constitutes almost half the size of the Indian information technology industry. The Indian service providers are eagerly approaching this prospect in what is expected to be, a fierce fight for contracts, reports TOI.

Price discounting is nothing new, but the coming battle seems be to a serious one as some of the restraints that kept rivals under control seems to have scrapped away.

Besides all underlying factors, it is the shape in which the software service is in entering 2013 after leaving behind one of the most forgetful years in its history.

According to N Chandrasekaran, CEO of India’s largest software exporter Tata Consultancy Services, “being irrational depends upon the situation one is in. TCS which is steady towards industry growth looks forward to be optimistic about the sector’s prospect and is in good shape among other Indian information technology companies.”

The top four IT services companies – TCS, Infosys, Wipro and HCL technologies have their results announced for the October – December quarter.

Corporations Demanding Outcomes

TO I reports that the top four IT service companies are being seen as indicators that the phase of slow growth may come to an end. However, India’s software exports may barely grow by double digits, while the company copes with fundamental, technological and business model transformation. The certainties of linear growth where revenue is directly proportional to the number of employees is fading away and corporations are demanding outcomes rather than showing efforts.

As an example of aggressive discounting, analysts cite HCL Technologies recently winning a contract worth several million dollars from Deutsche Bank. Although not clear of the discounting happened, executives aware of the deal negotiations, described the pricing offered as ‘significantly lower’. Once a major client of Infosys, Deutsche Bank now brings in excess of $50 million in business to HCL Technologies.

Competition seems to be heated further as large outsourcing contracts from Procter and Gamble, American Express, Bank of America and Unilever which were first signed during 2002-03, come up for renewal this year. Deep pricing discounts and even paying money upfront are becoming commonplace with associated negative implications for margins, say senior executives.

According to Wipro’s CEO, TK Kurien, fierce fights exist between the rational and irrational players. In a recent interview, as per his observation, he feels that some which were categorized as rational have moved on to the other side.

Analysts believe that Infosys which has been extremely profit-margin conscious is now beginning to show increased flexibility on pricing and a greater willingness to take on deals which it had earlier shunned. Infosys seems to be under pressure to grow faster as compared to how it was being outpaced by partners previously.

However, analysts on seeing the company’s strong performance in the December quarter say that Infosys is being led by a desire to protect turf in a slowing market with enhanced competition. A deal wins for Infosys means a deal loss for another vendor, who may necessarily get their share of business and can drive a competitive response.