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Latest outsourcing trends from Equaterra


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January 16, 2007

Latest outsourcing trends from Equaterra

Steve Hamm

Equaterra, one of the leading outsourcing advisory firms, just came out with its latest survey results. It paints a picture of an industry whose growth is slowing and competitive dynamics are changing. Equaterra surveys its own advisors at the end of each quarter and aggregates the results. Here are a couple of chunks of its press release, which I got today:

Chunk #1:

Forty-six percent of EquaTerra advisors indicated that demand levels were up for the quarter, but this represents a 13 percent decrease from 3Q06 and 4Q05. Service providers citing “up” pipelines rose to 61 percent from 48 percent in 3Q06, but this is down from the 4Q05 level of 67 percent. These findings illustrate that overall outsourcing demand is generally growing, but at a slower pace than in previous years, and points toward slow market growth for the first half of 2007. Stan Lepeak, EquaTerra’s Managing Director of Research, noted, “The drivers behind this finding are continued BPO supplier capacity constraint, comparisons to historically high levels of demand, more multi-sourcing leading to – in some cases – smaller, less visible deals, and more prudent, sophisticated and selective buyers.”

Chunk #2

--Outsourcing of non-traditional functions such as document and imaging services, legal processing, “knowledge process” outsourcing, and logistics services is on the rise, which signals an increase in both supply and demand

--A continuing increase in multi-provider sourcing that can benefit buyers if it allows them to engage the best service providers for each of the processes being outsourced, but can also be more complicated and expensive to manage than sole-sourcing

--Most buyers continue to underestimate the cost and complexity associated with performing Outsourcing Management and Governance (OM/G) activities, and shortcomings in: 1) the staffing of the governance organization; 2) costs associated with the use of third-party services such as lawyers, advisors and benchmarking firms; and 3) the costs for software tools to support OM/G efforts are often one of the root causes for problems with outsourcing transitions and dissatisfaction with ongoing outsourcing."

What we're seeing here is the gradual maturing of an industry and a marketplace that's adjusting to the entry of a host of new players from India and elsewhere. While the Western incumbents still get the majority share of the business when their contracts are reopened, there's no sign that the Indians' momentum is slowing.

That's clear in the quarterly financial performance of TCS, which came out Jan. 15. With revenues of $1.1 billion (up 41% year over year), TCS became the first Indian company to break the $1-billion-a-quarter barrier. The company added a net of 5,562 employees in the quarter. In spite of growing so fast, TCS's profit margins actually increased. It's also landing ever-larger contracts. It logged two deals worth more than $100 million and three more above $50 million.

The maturing market may be slowing (though not disastrous) for the Western incumbents, but it's hotter than ever for the Indian up-and-comers.

12:21 PM

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Steve

Just a simple question...have you ever tried just to interact with a customer representative from India??

We are not talking about advanced math skills and other widardy....just basic, normal, human common sense.

I'm dealing with one right now (supposed to be a "Technician") working for a major American company...and I deal with them very often...

Sometimes I feel I get a better interaction with the still buggy and rudimental AI tools out there....

Just try sometimes would you???

Posted by: Domenico at January 20, 2007 02:41 PM

Domenico - not to defend poor customer service or communication skills, but remote call centers are just one small part of the outsourcing landscape.

To turn your point around - prior to the growth of the outsourcing industry - did you ever try and staff a call center with skilled, enthusiastic and helpful US workers? I did call center benchmarking in the late 1990's and early 2000's. We had a running joke - what are the three things you need to know to benchmark domestic call center workers? "I hate my boss. I hate my job. I'm underpaid."

To the broader outsourcing market. Have you tried to staff an internal IT group with skilled workers - or any workers for that matter - if 1) you work for utility in Ohio? 2) pretty much any public sector organization? 3) any legacy industry when there's an economic boom (like occured in the late 1990's) when everyone's jumping ship chasing money and stock options?

A big piece of IT outsourcing isn't just cutting costs, it's trying to find talent that doesn't exist locally or that an end-user can't afford.

Posted by: Quentin at February 26, 2007 08:51 PM


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