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Guy Kirkwood's BPO Backchat

30 jul 2004

According to the latest figures published by TPI, during the first six months of 2004 the number of large outsourcing deals in excess of EUR40m reached 50 in Europe with total contract values of EUR11.6bn. In the US there were only 43 contracts signed although their combined value reached EUR11.7bn. Outsourcing in the Asia Pacific region is also ramping up.

The most interesting sign in the study was to be found in the fact that for the first time the interest in outsourcing deals in Germany outstripped those in the UK, the market that has been at the forefront of European IT Outsource services.

28 jul 2004

Having criticised CSC in recent months for not being active in the market, the news that the firm has signed a USD1.3bn deal with Zurich Financial is happily received. More to the point, although the deal is IT-led, a large percentage of that USD1.3bn is in the provision of BPO, and it is global (encompassing the US, UK, Switzerland and Germany).

27 jul 2004

The SBPOA is organising HROWorld Europe, the largest HR outsourcing event of the year at the Conrad, Brussels, Belgium November 23 and 24, 2004. Take a look at the programme. If you are interested in attending, please contact the SBPOA direct, or through Borderless. Maybe we can meet there?

26 jul 2004

I had an interesting meeting with a company I knew nothing about Capco. The firm has some 300 consultants, is headquartered in Brussels, turns over some USD100m and focuses exclusively on the financial services markets. I suggest you check the firm out if you operate in the FS area; I was impressed.

24 jul 2004

298 HR professionals have just been surveyed and over three-quarters thought that HRO provided them with the opportunity to focus on what really mattered for their businesses.

Perhaps this indicates that the HRO firms should now be talking to the HRD's rather than ignoring them.

22 jul 2004

In response to a request from Evalueserve, I was asked for my thoughts on growth areas on the next couple of years in HRO. I believe the top HR processes that are being outsourced or are particularly ripe for outsourcing are:

  • payroll
  • compensation and benefits
  • recruitment
  • workforce or field force management
  • M&A integration
  • training and management development
  • relocation services

21 jul 2004

The worldwide F&A outsourcing market will reach USD47.6bn in 2008, a new IDC study reveals.

7 jul 2004

Today's chart from Chart of the Day compares S&P 500 earnings with the capacity utilization rate. Since 1970, capacity utilization has bottomed (and peaked) six to 15 months before earnings. Recently, however, earnings have soared while capacity utilization has merely inched its way up. Why? Some have voiced concern over the quality of earnings as a similar divergence occurred in 1999-2000. Some believe that the recent surge in earnings is due in part to the "carry trade". The carry trade refers to financial institutions borrowing heavily at very low short-term rates and then loaning out that same money at higher long-term rates. Another school of thought is that a significant number of US companies are outsourcing to low cost countries (ie India and China), which is driving up profits at the expense of US manufacturers.

7 July 2004 Chart of the Day

6 jul 2004

In the latest CIO Jury, Andy McCue reports that 11 out of 12 CIOs are seeing a consumer backlash to offshoring which is affecting their strategy. The one lone voice who thinks this is a non-issue is JP Rangaswami, global CIO at investment bank Dresdner Kleinwort Wasserstein.

In a response to the article, I posted:

JP Rangaswami is totally correct on the backlash issue. Consumers like to know "with whom they are dealing" and the Indian service businesses, at least today, lack that recognition. Lack of a brand will cease to be an issue when either the Indian firms become embedded in the consciousness of European and US markets, or (which is probably more likely) when they are bought by the existing "western" brands. The increase in M&A activity seen in the past 12 months is but the start of this process.

5 jul 2004

In an article for the Outsourcing JournalPeter Bendor-Samuel explains what the Exult/Hewitt merger means for the HRO market and why it is a "good thing." His conclusions are:

  • Buyers must be careful when selecting an HRO supplier because they have to select one that will survive the coming industry consolidation. The new Hewitt looks like it will be one of the surviving players.
  • Other suppliers will have to upgrade their offerings to compete with this strong new player. Improving supplier offerings should bring more value to buyers who outsource HR.
  • Exult benefits from the merger by gaining access to capital to continually upgrade its transaction engine services and achieves more wallet share through Hewitt's offerings. Hewitt gains by being able to tap into Exult's integrated HRO services.
  • The currently fractured HR supplier industry will begin to consolidate with a few strong players emerging.

Independence Day 2004

Firstly, happy Independence Day to the four or five Americans who read these missives.

It is always nice to see convergence in the market which makes my life easier. Borderless for which I work, is an executive search boutique focused on three market sectors: BPO and shared services, pharmaceuticals and chemicals. The latest report from Ernst & Young entitled, Progressions, its global pharmaceutical report 2004 released in Mumbai on Friday neatly encompasses two of these areas:

"Many global companies are confronted by a value crisis as they try to sustain a business model based on high costs of manufacturing, R&D, marketing and sales, increasing regulatory scrutiny and reimbursement pressures. Countries that can combine lower cost manufacturing with adequate regulatory protection of intellectual property are well positioned to attract large pharmaceutical companies, India being a prime example."

There is a 30-50% cost saving opportunity possible in India, added to this has been a spate of well-timed strategic overseas acquisitions in 2003 such as Ranbaxy's acquisition of RPG Aventis' French business, Wockhardt's acquisition of CP Pharmaceuticals, UK and Zydus Cadila's acquisition of Alpharma, France. This has catapulted these Indian companies into the global league.

3 jul 2004

EDS is really not having a good time of it at the moment. The news all seems to be negative. UK Government accounts have been lost, the CSA is complaining about "regrettable" service:

"Problems that have arisen with the computer system have affected every part of the process. In particular, new cases, which have connections to others already being dealt with by the Agency under the old legislative rules, have been subject to persistent system failures."

I think it is only a matter of time before the business is broken-up and sold in chunks to the highest bidders.

1 jul 2004

July's BPO Notes is now available. In it we explode Six myths of offshoring.

I am also changing the front page slightly. Only the last five entries of the BPO Backchat will be visible, the rest are now archived.