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Offshore deepens and broadens in 2009

Samad Masood | Nov. 18, 2008
The global sourcing industry is entering a new phase of evolution

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 Nashs 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-Lucents strategic R&D centre in Nuremberg with 180 staff.

Meanwhile, Satyam announced that it is acquiring 128 of Motorolas software development staff in its Malaysian development centre. The centre is part of Motorolas 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.

 

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