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Offshore outsourcing can lower some costs, but it comes with additional expenses like vendor selection and the cost to transition work to outsourcing providers. While application development is sent offshore more frequently than other IT activities today, business process and help desk/support are areas where offshore outsourcing will grow dramatically in the coming 12 months.

The majority of the 101 CIOs surveyed said their offshore outsourcing contracts would increase in the coming year and that on average, offshore outsourcing contracts will increase by 18.7%. Currently, application development is far and away the most frequently outsourced activity. Other functions frequently sent offshore include call center, system administration/support and help desk.

The majority of IT executives surveyed cited lower IT costs as the main reason for outsourcing offshore, and further reported that the greatest savings were realized in the areas of labor costs and reduced project timelines/time to complete work.

While offshore outsourcing can lower some costs, it creates new expenses for the organization, including vendor selection costs, legal/contract costs and transition costs. Additionally, sending IT functions offshore creates challenges for CIOs like managing communication, cultural differences and a lack of internal processes for specifying work.

Key Findings according to CIO Mag (Netgains)

The Three Ws of Offshore Outsourcing – When, What and Where
The majority (67%) of respondents say their company began outsourcing offshore after 2000. Twenty-three percent said they started offshore in 2000 while 17% said 2001. Twenty-seven percent started outsourcing in 2002.

Eighty-six percent of IT executives surveyed said they currently outsource application development offshore and 26% outsource the call center offshore. Other applications frequently sent offshore include system administration/support (23%), help desk (17%) and business process (such as HR or financial applications) (17%). On average, the value of current offshore outsourcing contracts is $16.2 million in the 101 organizations included in this study.

When asked if there were processes or applications that their organization would not outsource offshore, IT professionals most frequently answered systems and architecture planning (45%), research and development (43%) and business process (38%).

India was the most frequently cited country for offshore outsourcing, with 89% of respondents saying they outsource in that country. Other countries listed included the Philippines (10%), China (8%), Ireland (7%) and Russia (6%).

Project Management
When asked how the offshore outsourcing relationship is managed, 38% said the relationship is managed by a dedicated manager within the IT department and 35% said it is managed by a project sponsor for the IT department. More than half (54%) of those surveyed said their organization has a steering committee of senior IT and business executives that governs offshore outsourcing decisions.

Costs of Offshore Outsourcing
Survey respondents report that vendor selection costs, legal and contract costs and transition costs were in-house costs for the most part whereas the costs for application development and ongoing application maintenance costs were more frequently paid to the offshore outsourcing provider. The table below indicates what percent of costs were in-house versus paid to a provider:

Benefits of Offshore Outsourcing
According to 78% of the IT executives surveyed, lower cost was the main reason for outsourcing offshore. The greatest savings were realized in the areas of labor costs (86%) and reduced project timelines/time to complete (37%). Other benefits experienced as a result of offshore outsourcing included increased IT department productivity (44%), competitive advantage (30%) and internal customer satisfaction (20%).

Challenges of Offshore Outsourcing
Survey respondents said their greatest challenges in offshore outsourcing were managing communication (67%), cultural differences (51%), a lack of internal processes for specifying work (40%) and a lack of internal customer management skills (32%).

The Year Ahead
The majority (68%) of survey respondents said their organization’s offshore outsourcing contracts would increase in 2003 compared to 2002. IT executives surveyed expect their offshore outsourcing contracts to increase by 18.7%, on average. Thirty percent said their offshore outsourcing to stay the same year to year while 2% expect it to decrease.

According to the 101 IT professionals surveyed, offshore outsourcing will increase over the next 12 months in all areas. The chart below lists what functions or processes are outsourced offshore currently, the percent of this function that is outsourced offshore (versus in-house) today and the percent of this function that will be outsourced offshore in 12 months:

Survey respondents expect to outsource 35% of their application development offshore in 12 months.

Netgains PHP Development Team, India has been working with L.A.M.P. technology since 6+ years. We have been one of the early adopters of some of the open source processes which have become standards today. We have a sizeable team of PHP developers, which is well-versed in Linux Apache MySQL PHP (LAMP) & Ajax. You can hire PHP/MySQL developers from us for all your offshore web application development requirements.

Netgains has been investing in customizing and deploying Open Source Applications and frameworks since its inception. Our rich portfolio of web applications on LAMP platform & covering different subjects is enough to prove our capability & knowledge base.

Experience gained through a variety of projects enables us to expand our offshore development solutions to the Ecommerce, Real Estate, Store Management, Healthcare, Mobile, Logistics, Telecom, Mattresses,Solar Energy, Consumer Electronics, Photography, Cosmetic, Banking, Utilities and various other industries.

We have a pool of web developers dealing in all the open source technologies including PHP, Java, and Linux. All of our PHP developers work on Linux using the robust Open Source IDE, Eclipse and test the application on all the browsers from Mozilla to IE.

Our development in PHP

With hardly any publicity, PHP has swept the Web. PHP can now be found on close to 8 million domains, and is growing at a rate of up to 15% each month. PHP is available on over 42% of Apache Web servers – the most common server on the Web.

Netgains provides timely, efficient and affordable PHP Programming Services , in order to provide outsource PHP programming services for both new and existing dynamic websites running on the PHP , Apache and MySQL combination becoming choice of masses for delivering dynamic web content

Advantages Of PHP

Our main features implemented

Netgains has produced high-quality, secure & dynamic web sites with back-end CMS (Content Management System) to control various parts of the front-end web site. Features of CMS varies depend upon the requirements of the project.

For the development methodology, we extensively use Joomla, Mambo, PostNuke, Smarty & PEAR (PHP Extensions & Application Repository) for all our PHP projects.

Netgains CMS (Content Management System) Features developed:

Netgains Interaction made by

Netgains LAMP Development Team in India Experience: At Netgains, we have extensively worked on following open source technologies.

Cognizant Technology Solutions (CTSH) is on a tear. On Feb. 9 the company surprised investors with fourth-quarter 2005 earnings of $57.7 million, a year-over-year increase of 89%. Even without the benefit of a one-time tax gain, earnings were still 50% higher than in the comparable period of 2004. The 12-year-old former Dun & Bradstreet (DNB) unit, based in Teaneck, N.J., had fourth-quarter sales of $257 million and a market cap of $7.6 billion. Its shares are trading around $55, up 31% from a 52-week low of $42. No wonder the company ranks on BusinessWeek’s IT 100.

Cognizant’s powerful growth comes from its exposure to two inexorable global trends. As an information-technology services outfit, it can help corporate clients meet their technology needs without taking risky bets on which hardware or software will dominate the volatile market. And as an outsourcing company that helps Western businesses farm out tasks to high-quality, low-cost workers in India, Cognizant is in a market where clients are racing to spend money. Analysts like the company. Goldman Sachs rates it “attractive” (see BW Online, 10/10/03, “Cognizant: Riding the Outsourcing Wave”).Cognizant Chief Executive Lakshmi Narayanan, 53, oversees the growing empire, which is focused on clients in 14 areas, ranging from financial services and insurance to health care and technology. Services include custom-software development, integration, application design, and maintenance. BusinessWeek Online Senior Writer Steve Rosenbush spoke to Narayanan about the company’s prospects and the future of outsourcing. Here are edited highlights of their conversation:

Why are Western companies like General Motors (GM) shifting work to India and other countries at such a fast pace (see BW Online, 2/2/06, “GM’s Landmark in IT Outsourcing”)?
Outsourcing started as a way for companies to realize the benefits of lower costs. Later, they realized they could improve the quality of much of their work by taking advantage of excellent workforces. Now they are coming to understand that companies like Cognizant can help them assemble teams and projects much faster than they could in the U.S. That’s the real value, time to market. It can take six months to assemble a team in the U.S. We can have a problem solved in six months.

Is the trend toward outsourcing anywhere near its peak?
No. The amount of IT outsourcing is small right now. The global IT spend is $400 billion to $500 billion a year. Some of that can’t be outsourced. The addressable market is about $200 billion. But the current value of IT outsourcing is about $20 billion a year.

How will outsourcing affect economies such as the U.S.? Will they suffer?
An insurance company’s IT system typically handles millions of members and transactions. A good IT system can process those transactions much faster, allowing the company to grow quickly. And the company also benefits as outsourcing develops a larger global market for its services.

That may be good at the company level, but how will this play out for countries and the people who live in them?
When it comes to areas such as innovation and development, the U.S. still is unchallenged. As other countries develop, the demand for higher-end U.S. services will grow. The U.S. needs to make sure its workforce is trained to meet that demand.

How quickly is India growing right now?
The rate of growth in India is rapid, about 7% to 8%. It is likely to grow in the 6% to 8% range for the next four to five years.

Which industries account for the bulk of outsourcing?
It’s mostly IT. But companies such as Goldman Sachs (GS) and McKinsey are starting to outsource some financial analysis to MBAs in India.

Why has outsourcing taken off in India?
Education has improved. The literacy rate in India was 20% in the ’80s. Today it’s 70%. That’s because of government mandates and reforms

AJAX – Asynchronous Javascript And XML

Netgains provide programming and web development in AJAX, which is used to create applications with improved responsiveness:With Ajax, we are able to do away with the traditional “Click-and-Wait” Web-application architecture (like g-mail), enabling us to provide the responsiveness and interactivity users expect from desktop.

Using AJAX enhances the user experience and the application performance by having

• Substantially Improved Response Time
• Partial Page Refresh
• Fewer Clicks
• Drag and Drop Feature

Web Services

A Web Service is a library providing data and services to other applications over the Internet.  Software applications written in various programming languages and running on various platforms can use web services to exchange data over computer networks.

N-tier Architecture:

Our N-tier architecture has the following benefits:

• We change the underlying database and data access methods hence they don’t have any effect on the presentation layer or client application.
• The application is divided into logically isolated pieces reducing tight coupling between the UI, business processes and database.
• It becomes easier to modify or extend the applications, without breaking or recompiling the client-side code.
• The business logic object can be used by multiple user interfaces.

XML:

• We choose to store client side data using XML and use XSLT to reduce the database access thereby improving application performance.
• We use XML format and parse the XML response to publish it in the applications.
• Use XML to interchange product information in e-commerce applications.

Widgets:

• A widgets is a reusable module, which is highly independent like products but can easily communicate/integrate with other widgets.
• Widget modules are fully parameterized, so can customize their properties and functionalities without the need for re-programming
• Eliminates the need for integration testing.

System Migration & Architecture.
Legacy systems transformation into modern systems built on cutting-edge technologies/architectures.

Business Analysis.
Real-time business decision made using massive amounts of data.

Custom Application Development.
Web or Client/Server software systems built on C#.Net, VB.Net, C++, Java and MS SQL Server.

eCommerce Services.
Development under a wide variety of standards: EDI x12, EDIFACT, XML, ect.

Open Source.
Application development under Linux platforms, Database Servers, Application Servers (Tomcat, PHP), Web Servers, IDE SCM, Firewalls, ect.

Mobile Compatibility.
Based on an architectural driven development, we provide enterprise solutions built on top of a robust platform/framework, with ready to use application modules for vertical industries and set of adapters to practically any packaged application or custom development. This way, we enable integration capabilities covering full-integration brokers, interfaces, and application servers, and support for most of the mobile platforms, from Research in BlackBerry, PalmOS, and Microsoft Windows Mobile, to phone, handheld, and Tablet PC devices.

by Nandini Lakshman

Earlier this decade, one of the biggest fads in global management was to set up offshore business processing outsourcing (or “BPO” in industry jargon) in India to handle a myriad of tasks, from payroll and in-house technical support to sourcing procurement, in the name of saving cash. Along the way, big multinationals built up sizable and profitable units. Now there’s a new fad: A number of them are divesting their outsourcing units, cashing out while maintaining their outsourcing relationships or hooking up with bigger firms in the field.

British Airways (BAB) might have been the first to do it in 2002 when it spun off its Indian outsourcing unit, today known as WNS Holdings (WNS). The company offers comprehensive data, voice, and analytical services, and its stock is listed on the New York Stock Exchange. Two years ago, General Electric (GE) sold off its Indian outsourcing operation to two private equity firms for $500 million.

Investment bankers see more deals in the offing. And the names being touted range from Hewlett-Packard’s (HPQ) Global e-Business to German publisher Springer Science + Business Media’s outsourcing operation. There is even talk of ICICI Bank divesting ICICI One Source. “Everybody is finding that they have an asset that they can monetize,” says Raman Roy, the father of BPO operations in India, who sold his Spectramind BPO to Wipro (WIP) two years ago. Roy now says that he is talking to a host of captive BPOs for a possible buyout.

Scale is Everything

What’s clear is that BPO has emerged into a huge business. A report by McKinsey and Indian trade association Nasscom says India’s BPO export revenues will surge 37% by 2010, to touch $25 billion, from the current $7.5 billion. According to Sourabh Kaushal, who leads the ICT Practice at research firm Frost & Sullivan, of the 600 BPO companies in India, 65% are captive and 35% are third-party vendors.

One incentive for multinationals to sell is that there are big global outsourcing firms that can now easily handle their needs, so maintaining an in-house unit makes little business sense. “Businesses are looking to the scale, scope, and experience of global BPO providers, rather than operating as in-house units,” says Baru Rao, chief executive officer of Capgemini India, the French computer service and outsourcing provider.

Last July Capgemini bought out Unilever’s majority stake in Indigo, a captive finance and accounting services BPO, for an undisclosed sum. And on Oct. 27 it bought out a pure-play IT services outfit called Kanbay for $1.25 billion, in one of the largest deals to date in India.

Tough to Retain Talent

Why are captives increasingly being put on the block? The offshore delivery model pioneered by Roy in India in the 1980s was taken forward by British Airways and General Electric. “First and foremost, captives were set up at a time when there were no third-party service providers,” says Neeraj Bhargava, group CEO of WNS Holdings.

His travel and financial services company evolved from a third-party provider to a successful, publicly traded company in July. An outgrowth of British Airways, WNS was set up as a captive in 1996 and has since upgraded to knowledge-process outsourcing. In 2002, private-equity firm Warburg Pincus picked up a majority stake. “As captives evolve, you have a hard time holding on to people,” adds Bhargava.

With no exciting growth opportunities, these captive service-providers are increasingly finding it tough to retain talent, particularly top management.

Attrition rates run from 60% to 80%, and third-party providers are growing faster (over 25%) than captive ones.

General Electric Spin-off

Take the case of Genpact, another captive turned third-party company, which is sprucing itself up for a possible U.S. listing. Set up by General Electric at Gurgaon outside New Delhi, it was divested in December, 2004. Today, GE owns a 33% stake, with private equity firms General Atlantic and Oakhill holding 30% each, while Wachovia (WB) has a 7% interest.

So how has life changed for Genpact? “As a standalone company, we can now pursue third-party business, make acquisitions, build products and services, and expand our geographical presence faster than we were doing earlier,” says Pramod Bhasin, CEO of Genpact. He claims that as India moves up the value chain the “outflow of knowledge vested in the top-level professionals will have to be retained.”

Computer maker Hewlett-Packard set up its captive BPO Global e-Business Operations in Bangalore three years ago. With 60% of its revenues from captive business, it began transforming into a high-value provider of outsourcing services some 15 months ago. Today, despite market speculation, those close to the company deny a spin off is being considered. Instead, they say, HP is ramping up headcount from the current 6,000 to 8,000 in the next 18 months.

The Future of Captives

So is it the end of the road for Indian BPOs? Not really. “It is an acknowledgement of the maturity of the industry,” says Sunil Mehta, vice-president of Nasscom. Even as many captives are being spun off, other sectors like insurance and publishing are setting up in-house outsourcing units. Frost & Sullivan’s Kaushal says that more than 30 companies including Fidelity, Reuters (RTRSF), AIG (AIG), and Prudential (PRU), have set up captive centers in India since 2003.

Moreover, captives abound in the banking and financial services sector. “When the growth of the bank is robust, you need to scale up and cater to internal demands,” says Sreeram Iyer, CEO of Scope International, Standard Chartered Bank’s (SCBFF) BPO. With 5,000 people on its payroll, it added 1,000 more slots this year. But Iyer is realistic about the fact that the model could become challenging in the coming years. “The business will depend less on people and more on efficiency and scale,” he says.

Lakshman covers India business for BusinessWeek

Businesses are increasing the risk of offshore outsourcing disaster by failing to draw up tighter contracts when dealing with overseas service providers, according to analyst Gartner.

Out of the 18 key areas in a standard outsourcing contract – or master services agreement – Gartner has identified 15 that need significant review and modification when going offshore.

The most critical areas that need specially adapting for offshore outsourcing contracts include proprietary rights, security and confidentiality, legal compliance, fees and payment terms, and auditing.

Intellectual property (IP), in particular, is a major issue because different countries and cultures have different attitudes towards IP protection – IP rights enforcement is, for example, weak in China and Russia but strong in Ireland.

The Gartner report warns: “Find out what IP rights enforcement is like in the provider’s country. In some areas, data and IP rights are lax and little is done by the foreign government to monitor and control IP.”

Before signing an offshore outsourcing deal organisations must determine what legal system, and which country, will govern and have jurisdiction over any contract disputes. Gartner advises that companies insist the contract is governed by the laws of their own country and not those of the overseas service provider.

Gartner said: “Be aware, though, that some courts in foreign countries will claim jurisdiction, regardless of what the contract says.”

Security and auditing are also key considerations in any offshore outsourcing contract negotiations. Gartner’s advice is to establish the right to audit whatever locations are being used to deliver the offshore services, and to stipulate who will be performing audits.

Gartner analyst Helen Huntley said in the report many organisations that are looking to establish global outsourcing contracts with offshore service providers mistakenly believe the terms and conditions are about the same as onshore contracts.

She said: “This can lead to contractual risk for liability, regulatory compliance, legal enforceability, service performance and privacy breaches, among other things, when outsourcing to a foreign service provider. Outsourcing contracts structured with in-country providers will not work as templates for global outsourcing without significant modification.”

by Isabelle Chan

The Asia-Pacific outsourcing market grew strongly in 2006, with contract volume and value reaching record numbers.

According to the latest report by outsourcing advisory firm TPI, the number of contracts valued at more than US$25 million increased by 43 percent last year. The total value of these contracts increased 67 percent, representing a five-year high in outsourcing activity for the Asia-Pacific region, TPI said in a statement Wednesday.

However, the region paints a different picture compared to the global numbers. Although the number of contracts signed globally increased by 3 percent, the value of these deals declined by 8 percent compared to 2005, the report found.

According to TPI, the Asia-Pacific region is showing consistent year-on-year growth in annualized revenues–the total revenues available annually for service providers to capture. The compound annual growth rate (CAGR) for the region stands at 10.5 percent, more than double the global rate of 4.5 percent.

Arno Franz, managing partner of TPI Asia-Pacific, said in a statement: “2006 was a stand-out year for outsourcing in Asia-Pacific. The region accounted for 13 percent of the global outsourcing market in 2006, the first time its market share has exceeded 10 percent since 2002.

“However, because the relative immaturity of the Asia-Pacific market makes it prone to spikes in activity, it remains to be seen if this is the start of an on-going growth trend,” Franz noted.

Competition will continue to be rife in the Asia-Pacific market among the Big Six outsourcing vendors–Accenture, ACS, CSC, EDS, Hewlett-Packard and IBM–and smaller, specialized service providers, which are getting a bigger piece of the action.

According to TPI, the Big Six are winning a decreasing proportion of deals valued at over US$25 million. This group won 40 percent of the region’s total contract value, compared with a 60 percent share in 2002.

“The increasing level of competition confirms that clients in Asia-Pacific are following the global trend, and are becoming more receptive to doing business with non-Big Six providers,” Franz said.

Provided by ZDNet Asia—Where Technology Means Business