International Business Opportunities

In the speech - Feb 22, previewing his next trip to India and Pakistan, the President Bush found outsourcing helps the US economy, saying that the loss of jobs in U.S.A. due to outsourcing to foreign countries contributed to create markets for American businesses.

“”…India’s growth is creating new opportunities for our businesses and farmers and workers.India’s middle class is now estimated at 300 million people, that’s greater than the entire population of the United States……Younger Indians are acquiring a taste for pizzas from Domino’s, Pizza Hut….And Air India ordered 68 planes valued at more than $11 billion from Boeing” President Bush said.

Now it’s the turn of Thomas F. Siems, senior economist at the Dallas Federal Reserve, in underlining the economic gains in the long run achieved with offshore outsourcing.

In his newly released “Beyond the Outsourcing Angst: Making America More Productive” - in Federal Reserve Bank of Dallas’ Economic Letter, Thomas F. Siems writes that although offshore outsourcing can negatively impact jobs and wages for some workers, it is better for the economy to accept the challenge of competition.

Lower consumer prices, better products and higher productivity growth are among benefits of outsourcing to other nations.

According to a survey performed by Deloitte Touche Tohmatsu, increasingly financial institutions are looking to move portions of their investment banking operations abroad.

After outsourcing technology support and other back-office operations to countries like India and China for years, financial institutions got more interested in moving their investment banking and research activities abroad,

JPMorgan Chase plans to have a total of 9,000 employees in India by the end of 2007, with one-third of those employees working for the company’s investment banking unit.

Among the financial institutions have moved their research analysis operations offshore also are: Citigroup, Morgan Stanley, and Lehman Brothers.

A few figures about this trend: the Deloitte Touche Tohmatsu report predicts financial services industry will move 20 percent of its total costs base offshore by the end of 2010, compared to the current average of 3.5 percent; Forrester Research predicts that within 10 years, at least 3.3 million U.S. jobs across industries will be outsourced to developing countries.

The analysts estimate cost savings of up to 60 percent and say banks can also take advantage of offshoring to Asian destinations to better approach emerging markets where there are interesting revenue opportunites for their financial services.

Richard Bove, analyst at Punk Ziegel & Co. said:

“I believe the industry has reached such a level of globalization that it matters less and less where the actual (research) is generated and matters more what the cost of generating those products are. Banks can’t afford not to do anymore.”( Source )

Daniel Marovitz, a top tech executive at Deutsche Bank says:
“The issue is that if you don’t do (offshoring) it, you won’t survive”

Following the opening of its office in Frankfurt, Germany, EPAM Systems, a provider of software engineering outsourcing services in Central and Eastern Europe, explains the advantages of the Nearshore software development on the German market.
Karl Robb, EPAM Executive VP for Global Operations, said:

“Although we already have a larger than average number of German speaking project managers and architects in Budapest and Minsk, we see a clear need for a permanent local team to intensify our activities on the German market”

“Having used software development service providers at different Off- and Nearshore locations in a number of sizeable software projects for many years I am convinced that the acceleration in this area is finally picking up momentum in Germany. Besides the already experienced big corporations more and more mid-size companies are catching up trying to use the advantages of the flexible, high-quality and cost-effective Nearshore software development. The proximity and the cultural compatibility give Nearshore a clear advantage over Offshore, especially in incremental, iterative projects, which are more common these days,”

He added that Germany plays a crucial role in EPAM’s growth; last year, 17% of EPAM’s revenue came from German companies.
( source )

British telecoms firm BT Group Plc is planning to set up a research and development center in India.

The announcement was was given by Clive Ansell, BT Group Strategy Director, at a software industry conference in Mumbai.
He said:

“Given the skill base it makes real sense to look at India very seriously to do some of our research. The average skill set per dollar outsourced is rising all the time and at the moment, India seems able to deal with that.”

Mr. Ansell added BT already spends about $450 million on offshore outsourcing in India and the figure is expected to rise. BT also has technical support centres in some east European countries.
( source Reuters )

UK and Ireland based companies currently outsource 8% of IT operations to offshore partners, versus a average of 2% of European companies.

This is the result of a survey conducted by Capgemini, IT and business consultancy company. These figures are expected to increase to 24% for British and Irish and to 5% for the European companies by 2008.

Andrew Taylor, vice president of Capgemini, explained the cause of this gap between UK and Europe:

“The rest of Europe is definitely a step behind, because of social and cultural issues, but increased competition will not give them an option,”

According the Capgemini’s report, British and Irish companies are mostly focused on cost-reduction and less aggressive than US companies in terms of reinvesting the savings made through outsourcing.
That would cause a difference in productivity: US productivity has grown by 1.8 percent in 2005, compared to 0.9 percent in Ireland and Britain.

The survey shows that companies that reinvest the savings from outsourcing in in new technology to become more competitives get a 10% higher rate of productivity than those who simply use outsourcing to cut costs.
( source )