Divestures not a trend; firms are no longer in distress.

While 97 new captive announcements were made in the last 12 months, only 10 captives were actually divested

Captives can triple their value on EBITDA basis by managing complete service lines and the demand for parent

They are much more effective in getting lower pricing in terms of contracting with third party providers

New Delhi, March 26

Offshore captive IT/BPO units that transition into mature roles such as governance of third party suppliers, and undertaking risk and demand management functions can become up to three times more valuable to their parent entity, according to Mr Peter Bendor-Samuel, CEO of outsourcing advisory firm Everest Group.

Debunking the industry perception that the 2009 trend of captive divestures would continue, Everest has pointed out that against 97 new captive announcements in the last 12 months, only 10 captives were actually divested.

“Historically captives have been seen as a platform to reduce costs. But in this maturing environment, we can see that captives can potentially can triple their value on EBITDA basis by managing complete service lines and the demand (for parent), and by providing a vehicle to do vendor management of the third parties,” Mr Samuel told Business Line recently.

The first quarter of 2009 witnessed 20 new captive announcements and one divesture and the following quarter 27 new captives and one divesture. In the third quarter, against four captive divestures 28 new captives were established – an 18 month high.

Despite the few divestures announced in fourth quarter of 2009, Everest expects continued momentum in the market going forward.

Notable divestures

Some of the notable divesture announced recently include Cognizant Technology Solutions’ acquisition of UBS India Service Centre Pvt Ltd, the Hyderabad-based captive service provider to the Swiss UBS Group; EXL’s acquisition of the back-office centre of American Express Business Travel; and Integreon’s acquisition of Grail Research, the captive unit of the US-based management consulting firm, Monitor group. “For a while there, captives were being valued very highly and it made commercial sense if a company was in need of capital…Firms were in severe distress. The situation has changed now. The valuations have dropped precipitously and firms are no longer under significant distress,” the Everest CEO said.

Relook at strategy

This, in turn, has prompted companies to re-examine their strategy and look at the value creation.

Explaining the changing face of captives, he said that these units started off as a platform for labour arbitrage, but are now moving onto more complex functions right from offering expertise to build reciprocal operations in other geographies, to managing third party suppliers. Captives can advise parent organisations on how to optimise the sourcing programs and mitigate risk, in the process becoming a strategic partner to the parent.

Being an offshore unit themselves, captives are suitably placed to manage the dynamics of offshore sourcing, believes Everest.

“They are much more effective in getting lower pricing in terms of contracting with third party providers. They can become a hub in the ecosystem – so now not only are they doing work themselves but they are also managing third party ecosystems,” Mr Samuel said adding that hybrid models would gain traction as companies outsource part of the work to third parties and retain certain capabilities in-house at comparable price points.

Source: thehindubusinessline.com

Filed under: Blog, Blog@mobileHome by admin
No Comments »

Cambridge, Mass., January 12, 2010 . . . After a dismal performance in 2009, the technology sector will see a recovery in 2010 as businesses and governments in the US and around the world begin spending again on information technology, according to a new report by Forrester Research, Inc. (Nasdaq: FORR). After declining 8.2 percent in 2009, US IT spending will grow 6.6 percent in 2010 to $568 billion. Global IT spending, which dropped 8.9 percent last year, will rise 8.1 percent in 2010 to more than $1.6 trillion. Software and computer hardware will see the greatest growth, as Forrester forecasts a new multi-year cycle of technology investment growth and innovation defined by Smart Computing. The Forrester forecast provides Vendor Strategy professionals with recommendations regarding how to align their sales and marketing efforts to the current and future environment for IT spending.

“The technology downturn of 2008 and 2009 is unofficially over,” said Andrew Bartels, Forrester Research vice president and principal analyst. “All the pieces are in place for a 2010 tech spending rebound. In the US, the tech recovery will be much stronger than the overall economic recovery, with technology spending growing at more than twice the rate of gross domestic product (GDP) this year.”

With regard to sector growth, hardware and software will lead the charge. Measured in US dollars, global purchases of computer equipment will be up 8.2 percent, communications equipment buying will rise by 7.6 percent, software spending will increase by 9.7 percent, purchases of IT consulting and systems integration services will grow by 6.8 percent, and IT outsourcing services will be 7.1 percent higher.

On a regional basis, Europe will be the strongest performing region. Measured in US dollars, the strongest growth in 2010 will be in Western and Central Europe, where tech purchases will rise by 11.2 percent, boosted by the dollar’s decline against the euro. IT purchases in Canada will grow by 9.9 percent, Asia Pacific by 7.8 percent, and Latin America by 7.7 percent. The weakest market will be Eastern Europe, the Middle East, and Africa, rising by just 2.4 percent. When measured against local currency, however, the US will actually post the strongest growth of all the regional tech markets.

“We are entering a new six- to seven-year cycle of IT growth and innovation that Forrester calls Smart Computing,” said Bartels. “New technologies of awareness married to advanced business intelligence analytics make computing smart. Smart Computing rests on new foundation technologies such as service-oriented architecture, server and storage virtualization, cloud computing, and unified communications. 2010 marks the beginning of this next phase of technology advancement.”

Select Forrester clients can access the 38-page “US And Global IT Market Outlook: Q4 2009″ report, which includes a more detailed breakdown of IT spending by sector and region.

About Forrester Research

Forrester Research, Inc. (Nasdaq: FORR) is an independent research company that provides pragmatic and forward-thinking advice to global leaders in business and technology. Forrester works with professionals in 20 key roles at major companies providing proprietary research, customer insight, consulting, events, and peer-to-peer executive programs. For more than 26 years, Forrester has been making IT, marketing, and technology industry leaders successful every day. For more information, visit www.forrester.com.

©2010, Forrester Research, Inc. All rights reserved. Forrester is a trademark of Forrester Research, Inc.

Source: Forrester

Source:  THE HINDU-Business Line

India has become the top offshore destination for European enterprises traditionally thought to be shy of sending work to the country, a recent report by Forrester Research said.

Forrester’s survey of 300 European enterprises shows that more than 60 per cent of firms intend to send their work to India. This count is more than any other obvious single country or grouping of countries — for example the CIS region or Central Europe, the report said.
Budget cuts likely

Forrester also said that European companies plan to increase their India spend substantially. Nearly 50 per cent of the firms that currently offshore or plan to offshore in the next 12 months plan to increase their spend on Indian resources. Twenty per cent of these firms plan to increase their spending by more than 10 per cent of what they spent in 2008.

However, most firms are expecting moderate budget cuts as economic pressures and cost-cutting drivers are visible in their budgeting decision. All three top European markets including UK, France and Germany would pare budgets. More than 60 per cent of UK firms are cutting their budgets, the report said. While there is talk of economic recovery, it is not yet reflected in firms allocating money for technology expenses.
Fewer first-timers

Also, very few first-time users will try offshore services, the report said. Compared to Forrester’s survey in 2008, the current research shows a drop of more than 20 per cent in the number of companies that were thinking about starting an offshore initiative for the first time, it added.

But experienced offshore clients would extend their usage further. The companies that saw offshore benefits in the past are optimistic about continuing and expanding their offshore usage, the report said. These firms report that they will either continue ramping up their offshore work or will use offshore resources wherever possible, the report added.

Overall, compared with the US, Europe still offers a lukewarm response to offshore. The majority of European companies are keeping their offshore budgets flat. Furthermore, compared to North American firms, fewer Europeans are increasing their offshore budget, and a higher percentage of companies are reducing their offshore spend, the report said.

Filed under: Blog, Blog@mobileHome by admin
No Comments »