2007 Global Services 100
It's evident in the blistering growth of Indian firms, even as the choices for global outsourcing expand in Eastern Europe and countries from China to Mexico. It can be seen in the widening types of services that vendors offer and how buyers of such services are changing their internal operations.
At Time Warner, the roles of employees have changed as a result of outsourcing, says David Bass, manager of application development and maintenance. The emphasis is on cutting-edge technology and making tech-related business decisions. Says Bass, "We need employees to be system analysts, business analysts, and architects, and not to do software coding anymore."
The pace of change makes tracking the world market for business and technology service providers a complicated and expensive undertaking. In this spirit, InformationWeek's sibling publication Global Services teamed with outsourcing consulting firm neoIT for the third consecutive year to field an in-depth study of service providers spanning four continents. The result is the Global Services 100 list, along with top 10 rankings by a number of categories. Global Services and neoIT vetted providers much the way a program management office engages in a request for proposals and selected winners in 11 categories based on the strengths of the information they provided, plus what they gleaned from customers and industry analysts.
What makes these companies more special than the ones that ranked just behind them, or those that finished out of the running in our respective categories? They demonstrated a pattern of market leadership, innovation, and outstanding customer service. If your company conducts a similar program to select service providers, your results will almost certainly vary--no two customers' weighting systems are the same. But you can be sure these companies are worth considering.
PRICING AND PROJECTS ON THE MOVE
Most service providers aspire to do high-margin, transformational consulting, but the lure of steady hosting and maintenance work, back-office paperwork, and customer contact centers is hard to pass up. No consensus exists about industry consolidation. There's widespread evidence that executives with global sourcing experience will be much in demand. "The globalization of services is at a torrid pace, with focus on greater value generation," says Atul Vashistha, CEO of neoIT.
Demand's been so strong that many offshore vendors have been able to raise prices in the last six months, says James Friedman, a senior analyst covering business services at Susquehanna Financial Group, an institutional research, brokerage, and trading firm. Perennial Global Services 100 leaders such as Cognizant, Infosys, Ness Technologies, Patni, and Satyam are among those on his list of service providers with higher prices.
But some see prices getting squeezed down as companies outside India become more viable options. "A buyer's market looms in 2007," predicts Rick Saia, IT services analyst at Aberdeen Group. "Providers in other parts of the world, particularly Eastern Europe, are finding better seats in the IT services arena."
Near-shore options will grab more IT work, Saia says, to allow easier communication and to access hard-to-find talent. While Canada has come to be synonymous with "near shore" in the United States, increasingly, Mexican companies are competing for work that might have gone north--or all the way to Asia. Friedman also predicts "significant acceleration" in the amount of outsourcing by small businesses, though they'll likely continue to be more inclined to do that onshore.
BUSINESS IS BOOMING
Not surprisingly, life looks good for the top-tier outsourcers. Tata Consultancy Services hit a milestone for Indian IT vendors recently, becoming the first to notch $1 billion revenue in a quarter. TCS added more than 7,800 employees last quarter, bringing its total to 83,500 employees, and it's working to expand beyond U.S. deals, including building a service center in Calcutta, India, to focus on the Japanese market.
N. Chandrasekaran, TCS's executive VP in charge of global operations, contends his company's customers are consolidating their IT-services providers. Companies may be contracting with fewer providers, but it's rare to hear a large corporate customer putting all of its IT projects with one provider. In fact, the trend is going the other way, with multisourcing deals becoming quite common.
As far as vendor consolidation, 35% of the 147 service providers who responded to the Global Services 100 survey had acquired a service provider in the last 12 months, and 16% had bought a consulting firm. But it's not all contraction, as about one in five had received venture capital or private equity financing, a sign that investors see growth potential. The long-expected blockbuster consolidation of service providers hasn't come to pass.
DEMAND STAYS STRONG
In a typical scenario of companies tapping the global labor market, the driver has been cost savings or expansion into a new region. This year, look for a lack of available skills to become a more common justification. Companies appear to be pleased with outsourcing. Eighty-five percent of companies are saving at least as much from outsourcing as they're investing in it, a recent report by Capgemini and IDC finds. Of those, 63% say they're investing the savings back into the organization to improve operational performance, drive innovation, or support growth.
Beyond cost cutting and regional expansion, there are some reasons for outsourcing that aren't talked about as much. One is the long-term slide of the U.S. dollar against curren-cies such as the Indian rupee and the Philippine peso, Friedman says. And then there's that standby of business reasons: looking over your shoulder. "Customers are increasingly aware that their competitors are outsourc-ing," Friedman says. Nothing like competi- tion and paranoia to keep a market grow- ing. As companies look for outsourcing op- tions to keep up with rivals, the Global Services 100 suggests that the range of choices has never looked better, or broader.