The global sourcing industry is entering a new phase of evolution
By Samad Masood
18 Nov 2008
Last week separate announcements from UK staffing services firm Harvey Nash and Indian offshore vendor Satyam confirmed how offshore services provision is no longer about Indian operations delivering low-value project-based services, and how industry-specific expertise, in this case in the telecoms industry, is now the name of the game.
Harvey Nash has entered the ‘big time’ in IT services with the announcement of a €54 million, 27-month deal with Alcatel-Lucent to provide wireless technology maintenance, and research & development services. The deal is Harvey Nash’s largest ever in IT services, and as part of it the company is setting up a wireless communications development centre in Ho Chi Minh City, and taking control of Alcatel-Lucent’s strategic R&D centre in Nuremberg with 180 staff.
Meanwhile, Satyam announced that it is acquiring 128 of Motorola’s software development staff in its Malaysian development centre. The centre is part of Motorola’s Home and Networks Mobility business and focuses on network management system development. Once the deal has passed regulatory approval, Motorola will contract directly with Satyam for development services around its network management software.
The acquisition is the latest in a long string of purchases by Satyam, which is proving to be one of the most acquisitive Indian offshore services vendors. Other recent acquisitions include US management consulting firm, Bridge Strategy Group, and UK-based infrastructure management services firm Nitor Global Solutions.
The global sourcing industry is entering a new phase of evolution
Both of the above exemplify the four key trends we expect in offshore in 2009. That they both happened in the same week only strengthens our views.
New geographies – expansion into new low-cost geographies outside of India will accelerate in 2009, moving beyond the planning phase into action for most client and vendor organisations. Those early movers into new geographies will begin delivering strategic work from them, and be able to differentiate their services significantly.
Rise in M&A – consolidation among offshore and onshore vendors will accelerate, with a new swathe of captive client organisations being sold off to IT services vendors as the global economic crisis hits bottom lines. M&A will be used to access new geographies, new clients and new intellectual property. Both the deals above achieve all three of those points.
Importance of depth – these two deals are just the latest in a string of contracts and acquisitions that have seen offshore vendors increase their capabilities in the areas of R&D, consulting and engineering – all areas that are significantly more strategic to the client, and which require much deeper expertise than typical offshore IT services. This sort of work will continue to define the industry over 2009, helping to further differentiate and move offshore vendors up the value chain.
Rise of new competition – competition in the offshore industry is becoming much more diverse, with many Western vendors having established globally sourced operations that can match or in some cases beat the leading Indian vendor offerings. Moreover, as the offshore model expands into new geographies and the requirement for depth of expertise continues, we expect to see many more opportunities for smaller IT services players globally. Harvey Nash is a perfect example, having beaten Wipro and India-based Aricent for the Alcatel-Lucent deal.
Ultimately, we see these trends supporting the global sourcing industry to become deeper, in terms of expertise and strategic relationships, and broader, in terms of spread of geographic reach and services provision. And it’s all part of global sourcing becoming the standard practice amongst IT services vendors. We’re not there yet, but deals such as these two, and the many more we expect in 2009, are accelerating the progress.
