Infosys expects demand pick-up in early 2010

Infosys Technologies Ltd expects outsourcing demand to pick up in early 2010, but the current business environment was challenging as a slowing world economy crimped spending, its chief financial officer said.

"At the macro level there is some confidence back, people are slightly more comfortable, but on the ground things are still the same," V. Balakrishnan said, referring to the global economic downturn that has battered information technology spending.

"People want a clear direction that there could be an economic recovery for them to get confidence and start spending. That is some way to go," Balakrishnan told the Reuters Global Technology Summit in Bangalore. India’s second-largest software services exporter is looking to spend between $200 million to $300 million to acquire firms in the technology infrastructure management, consulting and backoffice outsourcing to boost growth, he said.

Last month, Infosys forecast its first decline in annual revenue as global demand for outsourcing slowed in a harsh economic climate, halting growth for India’s once burgeoning technology services sector.

Source: http://www.reuters.com/article/technology-media-telco-SP/idUSSP48851220090518

End Of The Outsourcing Party?

The global recession has thrown a spanner into the unrelenting growth of the $60 billion Indian outsourcing industry, which, by some accounts, generates more than 5 percent of India’s gross domestic product and employs nearly two million people.

As job losses in the US mount, opposition toward outsourcing, most notably to India, is gathering steam. In his first address to Congress in February, Pres. Barack Obama vowed to crack down on tax breaks for American companies that outsource jobs to India and elsewhere around the world.

The political backlash was abetted by an untimely $1 billion accounting scandal at Satyam Computer Services. The World Bank also banned another Indian outsourcing services provider, Wipro, from bidding for its contracts for four years, accusing the Bangalore-based firm of providing “improper benefits” to bank staff. India’s BPO industry has also been buffeted by quality control issues and recently companies, such as Delta Air Lines, Chrysler and United, have curbed or halted the use of Indian call centers following customer complaints about language skills or to placate growing protectionist sentiments in the US.

Is the outsourcing party coming to an end? Morgan Stanley projects an erosion in demand for Indian IT firms, and warns that the impact of budget cuts, mergers and bankrupt clients has not yet been fully reflected in the share prices of Indian providers. Smaller companies, especially those focused on a single market or service, are likely to be at risk in this environment.

Earnings reports filed in recent weeks by the top three Indian outsourcing companies, Tata Consultancy Services, Infosys and Wipro, point to a significant slowdown. Wipro’s revenues slipped by 3% over the previous quarter and Infosys posted its first decline in quarterly revenues over the previous year and warned of weaker results ahead.

Infosys’ North American growth, which makes up 64.6 percent of revenues, declined by 4.14 percent sequentially in the fourth quarter. Ashok Vemuri, Global Head, Banking & Capital Markets Practice for Infosys, says: “The economic downturn has had an impact on two critical factors which directly affect outsourcing: size and speed. Though there have been no cancellations of existing contracts, clients have been wary of signing large, multi-year outsourcing deals. Furthermore, deals that do not have an immediate business benefit or are not initiated to solve a mission critical problem are often left by the way-side. In addition to reductions in the size of outsourcing deals booked, we have noticed a slowing in the speed with which outsourcing conversations transition to outsourcing deals. There is a delay in decision making, and the deal pursuit process has, in many cases, slowed to a crawl.”

Sid Pai, managing director and partner at IT outsourcing consultancy TPI Advisory Services India told India’s Mint newspaper: “One can split hairs over the numbers of Infosys and TCS or Wipro and HCL, but the trend is clear. There is continued weakness in the market. In the calendar year, market size is going to be smaller, (and the) number of deals awarded will be less. Given the weakness and reduction in IT spends in major markets, there is no organic growth to be expected in the next two quarters at least, and that is evident in the forecasts Tier 1 players have been giving.”

However, Rohit Kapoor, CEO of ExlService Holdings, remains sanguine: “Outsourcing, particularly BPO will grow even in this recession. This is an industry that does well during good times and bad times. In bad times more companies seek the value provided by outsourcing in terms of cost cutting and efficient services.” Most businesses, Kapoor says, typically view software as a money saving tool and therefore even if tech spending declines by the forecasted 3% in 2009, it will affect hardware purchases more.

In December 2008, HCL Technologies completed the largest acquisition in the tech space by an Indian company with Axon Group. It signed a $350 million 7-year contract with Reader’s Digest Association (RDA) to handle its technology services in March following it up with a $100 million data center deal with document management company Xerox. Nevertheless, the $2 billion company saw first quarter profits fall by 44% over the previous quarter.

R Srikrishna, vice president, Business Operations (North America), HCL Technologies says, “Slowdown is not good news to anyone. However, I would say that HCL is doing well for itself and the interest continues to be good for our services. An engagement like the one RDA brings enterprises benefits such as cost optimization, service improvement and process efficiencies in their IT operational landscape. Organizations keep their lights on through partners like us.” Srikrishna remains optimistic about outsourcing, “We are seeing newer verticals opening up such as media, publishing and entertainment (MPE), legal, hospitality and government.”

WNS North American Managing Director Steve Reynolds is also undeterred by the economic crisis: “While some of our customers have reduced volumes, it’s been balanced by an equal increase for new services. As an example, while insurance applications and claims are down, our insurance customers are starting to move work offshore that was historically out of scope due to complexity or client sensitivity. In addition, we are receiving a large number of queries from potential customers and advisors assisting clients in moving work offshore. In the long run, it will be a good thing for WNS as new customers and new processes ramp up.”

The company recently announced a voluntary prepayment of its outstanding debt, “WNS is working to maximize usage of facilities, minimizing attrition, and keeping a close eye on all variable and fixed expenses relative to our revenues.” Going forward Reynolds expects the most active markets to be insurance, healthcare, banking, and financials.

Infosys’ Vemuri says: “Though clients have cut IT spending in many areas, they have also ramped up spending in areas which they deem critical for future growth. For example, deposit accumulation is viewed as a priority for many banks; as such, we are seeing demand for technology which will spur deposit growth. New online branches, improved bank branch technology, and search engine optimization have all emerged as priorities and potential priorities.

“As healthy companies look to acquire at low valuations, and less healthy companies look to spin-off units to raise cash, we are also seeing significant opportunities surrounding M&A and divestiture activity. The energy and utility industry verticals are other areas where we are seeing increases in outsourcing opportunities. As the US government expands its stimulus initiatives, we would also expect to see further opportunities to capitalize on.”

Does this mean that the outsourcing industry has reached a credible bottom yet? “It’s too early to tell,” says Reynolds. “Most are predicting a slow 2009 with a recovery coming in early 2010.” Infosys issued a weak guidance for revenues and earnings in 2009. The decline in the rupee, which fell 19% in 2008 against the dollar, is propping up profit margins of software exporters.

ExlService’s Rohit however expects 2009 to be a good year for outsourcing companies, anticipating revenue for his pure play BPO firm between $170-175 million and profit margins to be maintained at 10-12%: “We are benefiting from the ramp-up in areas like insurance, finance and accounting, risk management and corporate governance.” His annuity-based firm added five new accounts in the last two quarter of 2008 and has seen no scaling down of its 120 US employees.

Nevertheless, the company is tightening its belt to maintain margins. “We had to significantly reduce wage inflation, moderate increments, rationalize transportation for employees, eliminate waste and make our infrastructure and capacity utilization systems leaner,” says Rohit.

Infosys is also taking aggressive cost-cutting measures, Vemuri says, “There will be no wage hikes this year for existing employees and we will take measures to reduce travel and other G&A expenses.”

What about the criticism that Americans are losing jobs to outsourcing? In the past, Indian companies sent Indian employees to work in the United States on temporary visas. Now in a kind of off shoring in reverse, big companies, such as Infosys, hire US workers.

Infosys, The Essar Group, HCL Technologies, Tata Group, Ranbaxy Laboratories, Mahindra and Wipro are estimated to have generated over 30,000 jobs for US citizens in recent years. The Tata Group alone employs 19,000 Americans and has invested over $3 billion in its 16 US businesses, according to a report by the US-India Business Council. None of the Indian companies has announced any layoffs in the US market yet. Wipro, a NYSE-listed firm with more than 95,000 employees at the end of 2008, is coping with the slowdown by slashing expenses in areas such as travel and marketing.

TCS, one of India’s largest IT employers with a staff count of 1,000 in North America, a majority of which are local hires, has avoided layoffs by deploying “some specific control measures,” according to Surya Kant, President, TCS North America. “These include improvement of TCS business operations by moving more work out of client offices, increasing employee productivity, reducing unnecessary travel spending, lowering employee attrition and great project execution.”

An industry survey by Vivek Wadhwa, of Duke University’s Pratt School of Engineering, and the Kaufmann Foundation, found that large companies, such as the Citi Group and JP Morgan, who have laid off thousands of US employees may hire the same people in India, for a fraction of the US price. “This will give outsourcing tremendous momentum over the next couple of years, because a lot of skilled talent will be available in India more cheaply. Therefore reverse brain drain is a boon for India and a big loss for the US Plus there are workers with a wide range of skills in new areas, so you will see more types of outsourcing,” Wadhwa says.

Source: http://www.littleindia.com/news/127/ARTICLE/4987/2009-05-05.html

Global clients increase IT outsourcing to Indian companies

Indian IT companies have found a silver lining in the midst of the global economic turmoil. The number of clients that are outsourcing
their technological requirements has increased in the last few months. This comes on the back of the companies’ need to curb costs and yet remain competitive with their global peers.

Those adopting the outsourcing practice are a handful of small companies located in the US and also some based in continental Europe.

These companies, which earlier preferred only local IT vendors, are now shifting their IT needs to Indian players like Wipro, Cognizant, Mindtree, Syntel and WNS.

“Mid-scale companies with revenue below $5 billion are now outsourcing as most have realised that Indian IT service providers can offer a larger services portfolio at an affordable cost,” said Ernst & Young Partner (technology practice) Milan Sheth.

These companies mainly outsource maintenance work and a little bit of application development with these contracts being of a 3-5 year duration.

Due to their competitive pricing, mid-sized IT and ITeS companies tend to be major beneficiaries. Mumbai-based BPO WNS recently bagged a fiveyear finance and accounting deal from a large entertainment company in the US. In the last two quarters, WNS has got at least four contracts from first time outsourcers in the BPO space.

Mid-sized IT firm Mindtree too has seen more deals coming from first time outsourcers in the US and Europe despite a financial turmoil in these regions. It has signed four such deals in the banking, manufacturing, travel and transport and telecom segments.

“We have seen a fairly good transaction across the US and Europe. The companies start by outsourcing work related to payroll and insurance claims. Most of these are fixed priced contracts,” said Mindtree VP (application maintenance services) Ramesh Arun.
Most projects start off on a small scale and are gradually extended. “Maintenance projects are typically 2-3 years in duration with a contract value of $3-5 million. Development projects are usually 6-12-month long and $1-2 million in size,” said Syntel CEO Keshav Murugesh.

The KPO relationships are longer (5-7 years) with contract values varying based on the number of processes and transaction volumes. A few years ago, most firms adopted a cautious approach by offshoring the low-risk parts of their businesses. Today, however, clients are pursuing offshoring more aggressively.

Source: http://economictimes.indiatimes.com/Infotech/ITeS/Global-clients-increase-IT-outsourcing-to-Indian-cos/articleshow/4527532.cms

Wipro bags LIC’s 5-yr IT outsourcing deal

In another affirmation of its growing clout in the domestic market, Wipro Infotech, the India and Middle East information technology services business of Wipro Ltd, has clinched an IT outsourcing deal from Life Insurance Corporation (LIC) by piping its large Indian rivals.

The contract, which involves upgrade of LIC’s front-end IT application programmes (FEAP) to make these accessible through the web, is said to be worth about Rs 200 crore, and will be done over five years, a highly-placed source told Business Standard. By making applications accessible through the web, LIC expects to reduce the load on its servers and improve the processing time.

Sources said LIC expected to drastically reduce the cost of running the applications by making processing happen on the desktop.

It is understood that most large Indian IT outsourcing companies, including TCS, Infosys and L&T Infotech, had competed for the contract. It was considered prestigious, not because of its size but because it involved a prestigious public sector organization like LIC.

Anand Sankaran, head of the India and Middle East business of Wipro, said, “Discussions are still under way and therefore it won’t be possible for me to firmly comment on this.”

Analysts say the recent deals that Wipro has won, coupled with the strong pipeline the company has in the domestic market, is expected to make it the second largest player in the domestic market after IBM, which earns over $2 billion revenue from India. Sources in Wipro say that if one discounts IBM’s product revenues in India, the gap between it and Wipro’s services business in India is only about 10 per cent.

LIC is an existing customer of Wipro, which has implemented all the entire data warehousing for the insurance major. In the financial services sector in India, HDFC Bank and Dena Bank are two large customers.

Wipro has become aggressive in the domestic market as deal flows from the US and Europe have waned during the past two quarters in the wake of the global financial meltdown. Last quarter, Wipro won a six-and-a-half year mega outsourcing e-governance deal from Employees State Insurance Corporation (ESIC), beating TCS and Infosys. The deal, valued at Rs 1,182 crore, involves modernization and automation of the entire healthcare benefits administration set-up of ESIC.

Recently, the company bagged a nine-year contract from telecom services provider Unitech Wireless to set up and manage the company’s entire IT applications. The deal, said to be worth over Rs 2,200 crore, is the largest-ever win by the company in the Indian market. It is also understood to be in the race for a large outsourcing deal from Swan Telecom.

The price quoted by Wipro in most of the recent bids is said to be below industry standards. For instance, the company’s quote of Rs 1,182 crore for the ESIC bid was much lower than TCS’ Rs 1,530 crore and Infosys’ Rs 1,791 crore.

“Wipro was always present in India through Wipro Infotech and is now looking towards the domestic market due to the pressure from other geographies, which is helping them to win significant deals in the domestic market,” said Sabyasachi Satpathy, co-founder and director of Mindplex Consulting. Wipro derives about 22 per cent of the IT business’ revenue from India.

Infocrossing gets $34 million contract extension from Sunoco

Wipro subsidiary Infocrossing has gained a $34-million contract extension for four years from petrochemical company Sunoco, according to a Wipro release on Wednesday.

Infocrossing has been a Sunoco vendor since 1996, providing managed infrastructure outsourcing services, including servers, storage and network devices, to the latter.

Source: http://www.business-standard.com/india/news/wipro-bags-lic%5Cs-5-yr-it-outsourcing-deal/358057/

Outsourcing Mobile Infrastructure

Sharing and outsourcing networks is not new in the wireless industry, but the flurry of recent agreements – spearheaded by Vodafone Group plc and Telefónica SA – is a clear sign of greater cooperation ahead.

A growing number of operators in Europe and other mature markets no longer consider owning and operating networks to be their most precious assets or core competencies, and they seek to share or outsource their infrastructures. Also in emerging markets, operators share sites, towers, and power to accelerate network rollouts and extend coverage into rural areas. Money is unquestionably a big factor as well.

To date, most of the sharing has been for passive, non-electrical, civil-engineering elements of telecom networks, such as sites, masts, and equipment rooms. Some operators, such as T-Mobile International AG and Hutchison Telecommunications International Ltd. have chosen a much deeper sharing of active electronic components, in a move to establish still greater savings. Until recently, most regulators have prohibited such active sharing of radio access networks (RANs) but, given the healthy competition at the services level and the financial crunch, many are now receptive to the idea.

A new research report from Unstrung Insider, "Mobile Infrastructure: Keep, Share, Outsource? Operators Ask, Vendors Act," analyzes the evolving market for infrastructure sharing while addressing the growing interest in outsourcing. It provides insight into the various types of sharing – RAN, core network, roaming, and spectrum – as well as managed network services and full network outsourcing. The report also examines the opportunities and challenges of sharing and outsourcing for operators and vendors, in addition to covering some of the primary technical and regulatory issues.

Indeed, many forward-looking mobile communication companies now see their future more in services and less in the underlying technology that delivers them. Their focus is gradually shifting toward developing innovative services, attractive pricing schemes, and powerful brands.

At the same time, the move away from running networks will create a wealth of opportunity for companies to help mobile operators squeeze more out of their network assets through infrastructure sharing and, in a next step, through managed network services and outsourcing.

As with any new strategy in the fast-moving wireless industry, however, the decision to share, outsource, or even outright sell network infrastructure is not without its risks. Moving in the direction of services and content will bring mobile operators into direct competition with Internet powerhouses like Google. The search engine giant has undeniably shown how to offer highly competitive – and profitable – services without owning any infrastructure.

Some operators, of course, will want to keep their networks. But, ultimately, many will choose to share or outsource them – in mature and developing markets alike. In many cases, infrastructure will become a commodity shared by "mobile service providers" focused on developing and selling services and content, and will be increasingly run by the vendors that build it. That appears to be the vision of Vodafone, Telefónica, and T-Mobile on the operator side and Alcatel-Lucent, Ericsson AB, and Nokia Siemens Networks on the vendor/service side. Their vision is certain to open the eyes of rivals in both camps.

Source: http://www.unstrung.com/document.asp?doc_id=176513

The Truth About Obama’s "Tax on Outsourcing"

US President Barack Obama had barely finished his seven-minute speech decrying a tax code "that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York," when the press reports started pouring out. Headlines referred to the President’s plan to close overseas business tax loopholes as a ‘tax on outsourcing’ and proclaimed that he was taking direct aim at Indian offshore outsourcing firms —and the American companies who hire them. Misconceptions about offshoring and outsourcing littered their initial analysis of Obama’s plan.

To clear up those misperceptions, CIO.com separates fact from fiction, pointing out what is known and—just as important—what isn’t clear about the White House’s proposal and what it means for IT vendors, their customers, and for IT jobs.

Perception: Outsourcing and offshoring are synonymous.

Reality: More than a decade into the age of offshore outsourcing, people still get these two concepts confused.

Outsourcing is the practice of contracting out of goods or services to a third party. You can outsource IT services anywhere in the world—from Bangalore to Buffalo.

Offshoring refers to the practice of completing work at a non-domestic location, whether by workers at a company’s own offshore subsidiary (often called a "captive" center) or by a third-party. When you combine the two—offshore outsourcing —you’re getting more specific, referring to contracting with an overseas vendor for goods or services.

Understanding the difference between the terms is more than just good semantics; it can create clarity around what Obama might actually be proposing and whom it will affect.

Perception: Obama wants to tax offshore outsourcing.

Reality: In his remarks last week, Obama said his budget will end tax breaks for companies that "ship jobs overseas." But no one is quite sure whether Obama is talking about companies with captive offshore operations or companies that outsource to third-parties based overseas, or both.

"I still don’t know what the President is referring to when he talks about eliminating the tax benefit associated with offshoring jobs," admits Daniel Masur, an outsourcing attorney and partner in the Washington, D.C. office of Mayer Brown.

Masur, like most, assumes Obama wants to eliminate US multinationals’ ability to deduct business expenses associated with overseas operations while deferring tax payments on profits earned abroad.

The confusion stems from the fact that there’s more than one way to ship a job overseas (see the difference between offshoring and offshore outsourcing above).

In fact, Obama’s plan addresses only those US companies who operate subsidiaries overseas (the captive centers.) In the IT vendor community, that would include, for example, IBM Global Services and Accenture. It would also affect a good number of non-vendor Fortune 500 companies who maintain a presence abroad, such as GE and Proctor & Gamble, some of which provide their parent companies with IT services.

Obama’s proposal would not impact US companies who "ship jobs overseas" by hiring an offshore company, such as Tata Consultancy Services or Wipro. The only offshore outsourcing customers this plan could have any bearing on are those who work with US-based IT services companies like IBM, which then deliver those services offshore. It’s unlikely the customers would see much of a trickle-down effect.

Perception: India’s IT services industry will take the biggest hit.

Reality: Initial reports that India Inc. was crying in its chai over Obama’s tax plan have been corrected. Based on the President’s remarks, US -based outsourcing providers have the most at risk. "Although the announcement was unclear, it will presumably make it more expensive for all American multinationals to operate on foreign soil," says Lee Ann Moore, chief marketing officer for outsourcing consultancy EquaTerra.

If there were any remaining confusion, Som Mittal, president of India’s National Association of Software and Services Companies (NASSCOM), tried to clear it up in remarks to reporters last week: "It has nothing to do with India."

Perception: Obama’s plan will lead to less offshoring and more US job creation.

Reality: Aside from the 800 IRS agents the president would like to hire "to detect and pursue American tax evaders abroad," it is not clear how the administration’s plan to tighten lax tax laws would lead to an increase in American hiring.

Obama stated that he’d like to transform some of the revenue that would come from taxes on foreign subsidiaries into tax credits for companies that invest in domestic research and development "so that we can jump start job creation, foster innovation, and enhance America’s competitiveness," but he offered no additional details.

"It is hard to tell if [Obama] is going to push to merely eliminate loopholes that allow tax-benefits for foreign-based subsidiaries, or actually regulate where companies perform their tasks," says EquaTerra’s Moore. "The challenges to implement the latter will be immense."

No companies with offshore subsidiaries have indicated that they would decrease their foreign presence if US taxes on those operations increased. Setting aside those companies that relocate their corporate headquarters to Bermuda or the Cayman Islands, most multi-nationals set up shop overseas to access cheaper labor or new markets, not merely to dodge taxes. (They pay taxes—though often at lower rates than in the US—to the foreign governments where they operate.)

In fact, some experts say if the US government does seek more tax revenue from US multi-nationals, the outcome could be more offshoring, not less, as those corporations use labor arbitrage to offset the bigger tax bill. The IT trade group Tech America called the plan "one step forward and two steps backward for the US technology industry," and warned that it could inadvertently encourage technology companies to relocate entirely overseas.

Perception: This new international tax policy is a done deal, and a sign of more protectionist policies to come.

Reality: The passage of any significant change in US international tax policy is unlikely. "It would be viewed by the rest of the world as protectionist and would trigger a wave of retaliatory legislation," says Mayer Brown’s Masur. "And it would be bad for American business."

US multinationals and industry lobbyists are hard at work to make sure the proposal dies an early death on Capitol Hill.

"However, given Congress’s propensity in recent months to write major legislation over a weekend and Congress’s preoccupation with populist sound bites, such a provision could be buried in the next stimulus or budget bill," says Masur. "Even then, I think it would suffer the fate of the AIG bonus legislation—enacted by one house with much hoopla and then buried in committee by the other."

Instead, Masur thinks similar legislation aimed at limiting offshoring—and perhaps even offshore outsourcing  too—will pass at state or local levels across the country.

Meanwhile, Senators Dick Durbin (D-Ill.) and Charles Grassley (R-Iowa) are pushing "The H-1B and L-1 Visa Fraud & Prevention Act of 2009," aimed not at lowering the number of skilled worker visas awarded by the US government each year, but at increasing program oversight.

Source: The Truth About Obama’s "Tax on Outsourcing" – CIO.com – Business Technology Leadership

KPMG China to help stimulate service outsourcing industry

KPMG China, the first international accounting firm to be granted a joint venture license in China, recently has signed a memorandum of understanding (MOU) with China’s Ministry of Commerce (MOC) to stimulate the development of the service outsourcing industry in China, the Shanghai Securities News reported.

The MOU is part of the Chinese government’s "Thousand-Hundred-Ten Project" plan for enhancing the service outsourcing industry, which aims to promote the service outsourcing industry and help coordinate the economic development of different regions in China so as to enhance the country’s economic strength.

Ning Wright, who is the partner in charge of Sourcing Advisory for KPMG China, said that the MOU enables the company to directly contact decision-makers at the MOC. The company will be one of the main consultancy services for China’s service outsourcing industry.

The government has also decreed other stimulus measures, including tax concessions, financial subsidies and intellectual property right protection, to support the development of the service outsourcing industry.

KPMG China has 12 offices in Greater China employing more than 8,500 professionals.

Source: http://www.chinaknowledge.com/Newswires/News_Detail.aspx?type=1&NewsID=23448

Experts: Tax changes won’t curb offshoring

Analysts and tax experts contend that federal tax-code changes proposed by President Barack Obama last week likely won’t meet his goal of persuading IT vendors to curb plans for opening and expanding offshore facilities.

The proposed tax changes, which must be approved by Congress, would affect IT vendors that run various operations overseas by disallowing deductions for various offshore expenses, including payroll, said Alan Appel, a tax attorney at Bryan Cave LLP in New York.

"By denying the [payroll] deduction, the hope is that it will be more expensive to operate offshore and it will give incentives to create jobs in the US," Appel said.

However, Peter Bendor-Samuel, CEO of Everest Group, an outsourcing consultancy in Dallas, noted that the major motivation for IT vendors to move work overseas is the wide gap between salaries in the US and those in many other countries. A job that pays $100,000 in the US may cost only one-sixth that amount in India, Bendor-Samuel said.

Siddharth Pai, a partner at outsourcing consultancy Technology Partners International in Houston, said that IT vendors also establish software and services operations in countries like India because it’s easier to find talented technical workers in sufficient numbers there. He added that India has a young population, where as the US’s is older — demographics that work in India’s favor when companies are debating whether to expand overseas operations.

"If there is a tax consequence, it’s de minimis to the overall impact" of outsourcing, Bendor-Samuel said. In any case, "this idea that people are doing outsourcing to avoid taxes is simply wrong."

Obama didn’t address the wage gap in announcing the tax proposal, but he argued that the tax code has played a role in the growth of offshoring, including the outsourcing of jobs for highly skilled professionals.

In his remarks, he said that major Indian IT outsourcing center Bangalore has been a strong beneficiary of current US tax laws. The US has developed "a tax code that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, NY," Obama said. Current tax laws give companies that create jobs overseas the ability to take deductions on expenses "when they do not pay any American taxes on their profits," he added.

Several top US IT vendors, including Cisco, Dell, IBM, Hewlett-Packard and Microsoft, run software development and services subsidiaries in India.

The proposed tax-code change is about as close as the White House has come to addressing the controversial issue of IT offshoring. In fact, the administration has yet to address the H-1B visa program, which is heavily used by Indian outsourcers to bring foreign workers to the US Experts say it’s unknown how or whether Obama will tackle that issue.

Sang Kim, a partner in the international tax practice in the East Palo Alto, CA., office of law firm DLA Piper, said that if anything, the tax code changes could have unintended consequences that could accelerate the flow of jobs overseas. A foreign country could, for instance, encourage US companies to create jobs by offering subsidies that would mitigate the impact of changes to the US tax code, he said.

"The argument is that it should stem the flow of jobs leaving the US, but the reality is I don’t think the jobs are moving outside the US because of tax policy," Kim said.

Meanwhile, India’s National Association of Software and Service Companies responded responded to Obama’s proposal by contending that US businesses with global operations would have a harder time competing with their European and Japanese counterparts as a result of the tax changes.

Source: http://www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=338850&intsrc=news_ts_head

ACS buys hosting and outsourcing firm

Advanced Computer Software, the owners of out of-hours software provider Adastra, has bought a hosting and outsourcing firm to accelerate its roll-out of hosted software services.

ACS has acquired Business Systems Group for £15.5m. The company said the acquisition would enable it to provide hosting, managed services and outsourcing capabilities to its customers across primary care.

Vin Murria, chief executive officer of ACS, told EHI Primary Care that Adastra was facing increasing demand for hosting solutions, which the purchase of BSG would help it meet.

“We decided to buy it rather than build it,” she said, “because that will allow us to get where we want to go quicker.”

ACS said the acquisition will allow for the expansion and faster roll out of its core products for out-of-hours care, walk-in centres, polyclinics and urgent care centres, and for the rapid roll-out of its iNurse and end of life applications launched earlier this month.

Murria explained: “ACS has progressively moved to providing hosting services to its out-of-hours customers and the acquisition of BSG will provide greater bandwidth to drive this process more effectively.

She added: “The board of ACS is looking forward to working with the BSG team to deliver the cross selling opportunities and synergies that have already been identified.”

BSG is a hosting and outsourcing business with customers including not-for-profit and corporate organizations and ACS said it hoped it would also be able to expand into the market for comparison analytical tools including business intelligence and data warehousing.

Murria, who is also chairman of BSG, said the deal was good news for ACS because although it had paid £15.5m for the company, BSG had £9.3m cash in the bank so the effective cost was £6m of which only £2.5m was paid in cash with the rest in equity.

ASC acquired Adastra in August last year for £13.2m and last month announced http://www.ehiprimarycare.com/News/4794/acs_announces_big_increase_in_adastra_profits that it made profits of £2.6m in the six months to February 2009 and £1.1m in the previous six months; a 142% year on year increase.

ASC said it had £14.7m cash in hand and its goal was to be the leading consolidator of software and services to the primary care market. It has identified more than 100 possible targets for acquisition including software companies for GP practices and community services.

Murria told EHI Primary Care: “I’ve been involved in 18 acquisitions over the last five years and I don’t expect to stop now.”

She said the company’s focus was on technology in the primary care, domiciliary care and social care markets and that it was only interested in companies with high levels of recurring revenues.

She added: “What we do is help companies to focus on their core competencies and make companies that at very good at what they do become fantastic.”

Source: http://www.ehiprimarycare.com/news/4825/acs_buys_hosting_and_outsourcing_firm

Anil Ambani firm enters media outsourcing business

Adlabs Films, a cinema and entertainment services company in the Reliance Anil Dhirubhai Ambani Group, Thursday announced its entry into the outsourcing industry for the media space with plans to employ 1,200 people within a year.

The new venture will primarily focus on two segments, digital restoration and content processing, as per the norms of Motion Pictures Association of America, and proposes to work out of 90,000 sq ft of space here. Some 300 employees are already on its rolls.

The group already has secured orders for 1,000 films preserved by the Pune-based National Film Archives of India and will help the valuable footage to migrate from analogue to digital and from physical to digital media, the company said.

"Globalization of media services is well underway," said Adlabs chief executive Anil Arjun. "Coupled with the optical fibre network, the comprehensive services of media outsourcing enable a distinctive and complete offering to Adlabs’ worldwide clients."

Over the past four months Adlabs has been transmitting several films over its optic fibre network to distribute films in the US. This opens the gate for similar services in India for global clients.

"The fibre backbone also means greater encrypted security, more flexibility, time savings and price advantages," the company said.

Adlabs also has one of India’s largest chain of cinemas with 430 screens spread not just across the country but also in Malaysia and the US. It also has a major presence in film distribution space with offices in London, New York, Los Angeles and Kuala Lumpur.

Source: http://economictimes.indiatimes.com/News/News-By-Industry/Media–Entertainment-/Entertainment/Anil-Ambani-firm-enters-media-outsourcing-business/articleshow/4495208.cms