Outsourcing Insider's  Instablog

Company leaders are compelled to creatively move their businesses to profitability by unloading excess baggage and looking for new markets. Hence, a growing number of companies are divesting to achieve a leaner structure and at the same time looking for new markets to tap into.

IT Outsourcing Providers Tap into Domestic Market

With the current pressures faced even by Outsourcing Providers especially the IT service providers as the demand for it this year is expected to decline by 1.7 percent according to Gartner, they are continually challenged to develop sharper eyes for new markets to target and new ways to make it more cost competitive.

Infosys Technologies Limited (NASDAQ:INFY) and Wipro (NYSE:WIT) are tying up with rural service providers to be able to create a service offering for India’s domestic market. By recruiting rural talents, Infosys and Wipro will be able to offer cheaper services to the domestic market. This strategy then will allow them to cash in a similar gross margin for domestic and international business.

This kind of local partnership will be an interesting phenomenon to keep an eye on. Aside from achieving cost efficiencies it also expands talent pool diversity as well as decentralization of economic growth in outsourcing hubs like India, China and Philippines.

Manila and Cebu for instance are the major outsourcing hubs in the Philippines hosting the offices of TeleTech Holdings, Inc. (NASDAQ:TTEC), Convergys Corporation (NYSE:CVG),   eTelecare Global Solutions, Inc. (PSE:ETEL)  and Aegis Group plc (ADR) (Public, OTC:AEGSF) to name a few. These providers should consider partnering with other provincial companies or even provincial governments. Although investing on rural talents should not be merely an attempt to reach head count and put quality at risk. High standards should be maintained by scrutinized hiring and continuous employee training otherwise risking global deals and reputation.

IT Divisions Transfer to Outsourcing Providers

Aside from tapping into new market, IT service outsourcing providers also enjoy growth from company divesting.

Lloyds TSB (NYSE:LYG) announced two weeks ago that in order to attain cost efficiencies, it will be outsourcing a major part of its IT division, replacing 80 percent of its local IT workforce with those from top Indian tech outsourcing firms such as Wipro and TCS . Similarly, Barclays (NYSE:BCS) will also be moving its global infrastructure and service delivery (GISD) to India, Hungary and Singapore as a move to become leaner. More job cuts in IT jobs globally are expected to come according to Ralph Silva of Towergroup.

Carrefour (EPA:CA), a  French retailer operating supermarkets expects to cut costs by EUR4.5 billion over the next three years. This news increased its stock price by 5.7 percent. As part of its leaning process, Carrefour signed a EUR 180 million IT management and maintenance deal with technology outsourcing giant IBM (NYSE:IBM). The outsourcing deal is expected to make Carrefour cut down energy expenses and increase its security and upgradeability levels.

If companies are looking for new markets beyond its geographical zone, individual talents and even governments should exercise the same keenness as well. Outsourcing is an evolving business which not only changes companies but also people.

Author: Chris V.

Disclosure: No positions.