Mega-deal outsourcing deals - those contracts with a value of $1 billion or more - picked up in the second quarter of 2012, according to the quarterly Global TPI Index.
Five mega-deals were signed during the quarter compared with just one each in the second quarter of 2011 and the first quarter of 2012. All five were awarded outside of the mature U.S. and Western European markets-three of them in India and Brazil.
Mega-deal activity is always fairly uneven quarter to quarter, said John Keppel, partner and president of research and managed services for outsourcing consultancy ISG, which produces the index. But the location of the awards is worth noting.
"In the future we expect most new scope growth to come from emerging markets," said Keppel, "while the U.S. and Western Europe will generate the bulk of restructuring activity."
The mega-deals awarded by companies in the telecom, banking and consumer goods industries with a combined value of $6.3 billion, accounted for nearly 30% of global contract value signed during the second quarter. Four of them were entirely new deals, while one was a restructuring.
Additionally, 11 mega-relationships-those with an annual contract value of $100 million or more--were initiated in the quarter, the most since 2009 and an increase of four signed the year prior and seven in the previous quarter.
Keppel doesn't expect the mega-deal activity to return to decade-ago levels of robustness. "Some mega deals in the past year, especially those that are restructuring-related, are being broken up and returning to the market in the form of multiple smaller contracts with shorter durations," said Keppel. And the bellwether for large outsourcing deal affairs is likely to be the mega-relationship category of deals as contract durations continue to get shorter. The average deal length so far this year is 4.85 years, compared to 6.48 back in 2000.
"We expect mega-deals and mega-relationships will continue to make up an important part of the market," said Keppel. "We also expect more mega-deals to be awarded in less mature regions but mega-relationships to continue in mature and less mature regions."
Taking into account all outsourcing contracts worth $25 million or more, $13.1 billion in IT outsourcing business took place in the second quarter, up six percent year over year but down five percent over last quarter due to light contracting activity.
TPI is predicting a softer outsourcing market in the third quarter. "Historically, third quarters have been softer than other quarters, and current industry pipelines suggest this will hold true in 2012," Keppel said. "The fourth quarter will likely pick up, with some help from larger deals in the pipeline ready to go to award."
Meanwhile global outsourcing vendors continue to battle it out for business. American multi-national service providers have held 53% of total market share since 2010, down 10% from the 2007 to 2009 period.
European, Middle Eastern and Asian (non-Indian) vendors held 25% of the market since 2010, up three percent from the 2007-2009 period. While the Indian-heritage firms gained seven percent in market share, from 15% in the 2007 to 2009 period to 22% today.
Source: IT World
- BPO company Serco in talks with Agon for outsourcing deal (timesofindia.indiatimes.com)
- HCL inks $200 million deal with Disney (timesofindia.indiatimes.com)
- HCL bags Citibank BPO deal, to hire 800 (timesofindia.indiatimes.com)
- Indian IT services industry is at a crossroads: HCL Tech CEO (timesofindia.indiatimes.com)
- IT Outsourcing Predictions in 2012 (satpute.wordpress.com)
Mitsubishi Heavy Industries (MHI) and Suhail Bahwan Group (SBG) of Oman have set up a joint venture whose initial aims include developing business in transporation systems in the fast-growing Indian market.
The company, MHI Engineering & Industrial Projects India Private Limited (MEIP), was set this month. It will undertake business development, design, engineering, procurement, construction management, after-sale services and other roles for industrial and infrastructure projects handled by MHI's Machinery & Steel Infrastructure Systems division. It will start by developing business related to chemical and environmental plants (and transportation systems. Future plans call for MEIP to expand its business coverage to include the Middle East and Africa.
The initial capital of MEIP is about US$20m (£12.5m), with heavy machinery manufacturer MHI holding 51% and SBG owning 49%. SBG encompasses more than 40 companies engaged in a businesses including engineering and construction and the operation and maintenance of desalination and power plants.
Source: The Construction Index
The India Imperative Road Show.
India’s GDP growth has returned to a level in excess of 8.5% p.a. despite the issues within the broader global economy. This positive growth generates significant ongoing opportunities for UK plc. The UK coalition government has placed India at the heart of its global economic dialogues and through the upgraded diplomatic language of ‘special relationship’ is focusing on increased bilateral trade with India.
According to Ian Gomes, Chairman of High Growth Markets at KPMG in the UK, there are three compelling reasons why India should prominently figure in every business’s strategy – (i) it’s a market for all products, (ii) it serves as a cost reduction platform and (iii) it is a source of innovation and technology.
The potential rewards for doing business in India are thus significant and quite obvious. There are however domestic nuances that companies looking at India need to be aware of. The Indian market requires thorough preparation and a long term view.
The India Imperative road-show, which follows from a joint report titled ‘The India Imperative’ published and launched by UKIBC and KPMG at the UKIBC Annual Summit in March , aims to highlight some of these nuances and provide a roadmap to UK companies looking at doing business in this rapidly emerging market.
Some of the issues that our panel of India experts will be looking at addressing include:
- How India can be a platform for future growth and revenue opportunities
- What the competitive landscape looks like
- What the challenges are and how can these can be navigated
Who should attend?
International directors and senior executives of UK companies looking at doing business in India or expanding their existing presence in the market
When and Where?
Wednesday 22nd June - Leeds
KPMG Leeds Office
1 The Embankment
Thursday 23 June - Birmingham
Radisson Blu Hotel
12 Holloway Circus
Attire: Business Attire
View Event Summary
At the outset, we would like to thank Alexander for his time and sharing his deep understanding on the challenges and opportunities presented by the wider property market in India.
Where does one start when looking at the Indian population demographic and how it will affect the local property industry ?
Let’s begin with the sheer volume. The population of India is close to 1.2 billion people, second only to China who currently stands at over 1.3 billion.
By 2025 India will surpass China as the most populace place on earth, and by 2050 India will have over 20% more people than China – a difference of almost 500 million people (this difference being larger than the entire US population). Current growth rates are some 20 million new Indian citizens per annum, and rising. We already have a shortfall of over 22 million dwellings (supply v demand), this being the starting point before we consider any of these demographic changes taking place, and the effect they will have on demand. But the age distribution of the population is the really important statistic for India over the next 40 years. 30% of India’s current population is 14yrs and below, with a median age of only 25.9 years – this is 26% lower than the median age in China and 32% lower than the US.
Whilst the developed world has had a gradual slowing of population after the post war baby boom years, China has had a policy induced change which has resulted in an abrupt shift in the population bell curve. China is nearing the end of a period of massive expansion driven by a huge labour pool and consumer demand. The median age of the Chinese population is getting older at a very rapid rate, before long the equation of those producing against those needing support will turn upside down. China will then be with the developed world looking at a situation where there are too many dependants and too few producers, low (if any) population increase, and minimal (in any) demand for new property. In India we find that by default we are one of the very few places where we can rely on massive demand for property well into this century and beyond.
At present it is accepted that around 25% of the population are middle class consumers (of property and the like) with the balance of close to 1 billion people making up an aspirant class who would all like to participate in the new economy, and who are all looking for the means to do so. India has 29% of its people currently in the urban cities with an urbanisation rate of 2.4% per annum. This means India has one of the worlds least urban populations with massive slabs of the population able to change over to an urban and consuming profile. Let’s look at some of the underlying statistics that will affect the property market in India over coming years;
- Starting point of unmet demand that exceeds 22 million dwellings
- Population growth of over 20 million per annum
- Shrinking household sizes (currently over 5.5 pph) with a world average of only 2.4 pph.
- Massive urbanisation underway. Starting at only 29% and rising at better than
- 2.4% per annum.
- A current non consuming aspirant population of close to 1 billion people.
- A very young population that is entering a production phase.
The demand side of the equation in India is all but assured. The question is “what exactly is the demand going to be for, and how and when will the demand profile change ?” As a developer you can still go broke if you produce the wrong product. This is the conundrum for our industry, accurately predicting the exact profile of the demand, and doing so 3-5 years ahead of the market. Too often we see the development community taking a herd mentality, and based on not much more than hearsay, producing large volumes of the wrong product - either in the wrong price point, wrong location or wrong format. The market has to be met. More and more developers are now looking at sound research based decision making that really analyses the market, carefully looks at where the demand should be, and then delivers suitable product.
This is the challenge for companies like LJ Hooker, getting partnered with development companies early enough so we can provide significant relevant input to allow the formation of intelligent well thought through decisions.
The Indian market will deliver in spades over coming years to those companies that can produce the product that the market requires.
Why did you think of India as an entrepreneurial destination?
The rapid development and surge of India as a major economic player on the global stage has echoed in business circles in the West for several years now. The nation’s young profile (not in history but in terms of workforce), combined with its huge pool of talent are attractive factors for any young entrepreneurs. My native passion for Construction and Information Technology, coupled with Indian contacts I worked with, has naturally attracted me to India.
How has working out of India been beneficial to building your business?
What are the unique inputs/facilitating factors that your business has leveraged here?
Simply put, our whole business model is based on operating from a developing country. Our model would not have been viable from within Europe. So in this regards, the Indian context is essential for our business planning and growth. It is essentially giving us the ability to reduce the cost of our services, be extremely competitive and to offer additional resources. The huge domestic market represents potential for longer term growth. Interestingly, the Indian context has also enticed us to expand our business propositions, offering a wide range of services that we weren’t even promoting at first.
Can you give us an idea of the challenges, the difficulties faced in doing business in India?
To my surprise, the biggest hurdle for me to conduct business in India isn’t cultural. The biggest difficulty faced is to find a network of reliable contacts for asking questions and getting the right information. For many westerners, India seems disorganised and un-institutionalised.
Your business is also focused on reaching some of the most under-served segments of the market - how much more challenging has this been - any anecdotal examples to describe your experiences?
Our business is focused on SMEs primarily, as it represents the biggest segment of the market and also because most SMEs are companies that still have to experience and enjoy the benefits of outsourcing; the big players have been doing it for years. As western economies have become stale in recent years, SMEs are the ones most targeted by this downturn.
We have realised that many SMEs have a psychological apprehension to embrace new offshored business models, due to the fact that most of them don’t trade globally yet, and therefore are not used to work with companies in foreign markets. As a company It is our mission to overcome this problem; we work hard to make ourselves available “ears open” and make the workflow as fluid as possible. Based on our commitment to quality and international standards of our deliverables, we ought to fill the cultural gap between different markets.
Some European SMEs were offended when we approached them, because they thought we were trying to steal their jobs. If anything, we are actually trying to collaborate to boost their productivity and help them retain their jobs!
There is much talk of the intersection of social good and for-profit businesses - how do you view the growth of your company from this perspective?
Social Entrepreneurship runs a long way in India. The Indian market creates unique scenarii for innovative business models and pursuing social justice. Our ultimate company ethos is to grow organically and remain commercially sound, while contributing to develop the social context we operate from. That implies working with local communities, collaborating with charitable bodies, recruiting talent at the door steps of universities, sharing knowledge with similarly-minded companies, launching new ventures with aspiring Indian entrepreneurs, as well as empowering our team members.
Longer term, we aim to become a catalyst for multicultural collaboration – poised to create opportunities for western companies to benefit from the Indian context, whilst opening doors for up-and-coming Indian designers whiling to work on projects in western markets.
Does selling to the poor offer a large scalable business opportunity?
Are there examples/illustrations that you can offer from the experience of building your company?
The “Bottom of the Pyramid” represents a huge pending opportunity for businesses operating in emerging economies. It is arguably an essential component of the Indian engine. Hundreds of millions of people live with modest means, but represent the larger piece of the consumers’ pie.
By working with charitable organisations that operate at the lowest levels of the pyramid, we have started an initiative for our clients to plant trees in the state of Karnataka, around greater Bangalore. This incentive offsets some of our company’s carbon footprint, and we are hopeful to become carbon neutral by 2012. This has generated positive reactions from some of our clients; by working with us, they can save time, money and combat climate change.
How much has doing business in India helped define products/business models that your company can take to other emerging markets? Any examples?
Emerging markets present unique business patterns, in terms of need, revenue model and saleability that are quite different to conventional old pastiche models. Emerging markets offer different societal constraints, which in return, creates opportunities for new models.
For example, in emerging markets, not everybody his connected to the internet, however mobile phones are affordable and widely used. So mobile phones represent a unique medium for consumption, transfers and transactions. Some of the ventures we have launched in East Africa could, with minor customisation, be suitable for the Indian market, and vice-versa. So for each new venture we work on, we try to tackle solutions from a wide and scalable perspective, while respecting the authenticity and sensitivities of the local market.
Do you expect to see more expat entrepreneurs such as yourself building businesses out of India in the future?
As India opens up economically and socially, coupled with a softening of the laws and regulations, it will inevitably become home for more foreign entrepreneurs. Already we are observing a shift in perception, as India is recognised as an engine of growth in Asia after decades of economic stagnation due to poor management and uneven commitment to tackling corruption. And this transformational phenomenon will only be accelerated, the faster India’s economy opens up to other markets.
What are the sorts of businesses that you expect will be built out of here? And why?
The Service and ITeS sectors will continue to be essential to the growth of India, accounting for at least 15% YOY growth till 2020, according to moderately conservative studies (source: LSE). Tourism, Hospitality and Leisure industries are still lacking and way behind in India and we’ll observe dramatic improvements in the coming years in those sectors, as well as a sustained growth of the wider construction industry.
What is the reaction from investors - angel, venture capitalists to such business models - where expat entrepreneurs seek to build business in markets such as India?
We haven’t sought the financing back up of Angel and Venture Capitalists so far, simply because we believe in a slower more organic growth model. However, those that have approached us seem at first puzzled to see western entrepreneurs running businesses in India, but as we expose our vision and longer term ambitions, they all seem to share our views. Once our mindset on global goals is exposed, they all seem to agree with our positions and practices for business.
What are the networks, ecosystems that you have connected with in your entrepreneurial journey and how have they helped?
Since our inception, we have been affiliated with the Royal Institute of British Architects (RIBA) in Europe, which gives us international exposure and credentials, and helps us on achieving “best practice” procedures. Locally, we have approached the entrepreneurship cell of IIM Bangalore and have attended numerous networking events and brainstorming sessions with Indian talent. We have also actively collaborated with “Jaaga”, a community-led social incubator that is a wonderful place to meet talent and share ideas, essential for the growth of our company.
Source: Economic Times