The British Telecommunications group seems to be following international trends in its recent decision regarding outsourcing. The group has some captive centers in Malaysia and India and is planning to be shifting some outsourcing processes to these centers. Most large multinational corporations have been consistently pulling back on outsourced technologies and seem to be holding tight to sensitive or crucial business processes in house rather than sending them overseas.
The international trend of curbing on sending business processes offshore
Much like British Telecommunications, there have been numerous corporations over the last year have begun reeling in process they had set in outsourcing contracts. General Motors in a press release last year spoke about their intentions of near-shoring 90% of the work they had given to HP as a part of outsourcing contracts. Procter and Gamble, a consumer products company and Citi Corporation, a financial services company are also following the trend and reversing outsourced process back to their own centers.
Companies looking to retrieve control
British Telecommunications, based in London, was one of the early birds to the outsourcing bandwagon. Being one of the earliest, however, may have made the company uneasy about how long and how much control they have given up. Their decision to bring back the processes to centers they own, might just be a measure to take back the baton of control. The plan when it reaches fruition will adversely affect companies like Tata Consultancy Services, Tech Mahindra and Accenture as their contracts with British Telecommunications might have to be terminated.
British Telecommunications speaks about the issue
An industry executive in a senior position spoke about the issue on the condition of anonymity. He said, “BT is moving work selectively to the captive. Over a period of time, it has outsourced so much that they don’t have the skills within the company. So nobody knows the system within BT because TechM has built and run it for more than a decade.”
The executive pointed out that the process of retrieving control would start small. The insourcing as such had been happening on a small scale for quite some time now. The past five or six quarters have seen numerous companies have to give up certain processes they were hitherto held responsible for.
Tech Mahindra and British Telecommunications – an ancient relationship
British Telecommunications began in many ways the outsourcing trend with a contract that was inked in the year 1986 with the then Mahindra and Mahindra. The joint venture was directed to set up an offshore center in India, managed by Mahindra and Mahindra, called Mahindra British Telecom or Tech Mahindra as it is known today.
British Telecommunications remains to be Tech Mahindra’s biggest client till date contributing nearly $350 million to the company’s revenue.
The Vice-President and Research Analyst at Deutsche Bank, Aniruddha Bhosale in a client note said, “Currently, Tech Mahindra is the largest vendor at BT but has witnessed a 12% year-on year decline in revenues from the company due to pricing and volume re-negotiations undertaken by BT in calendar year 2011. As per our recent discussion with BT management, the real threat to Tech Mahindra’s revenues from BT is not from competition, but BT’s own decision of increasing its usage of captives.”
Bleak forecast for the Indian Outsourcing industry
The period between 2013 and 2014 is expected to see the Indian outsourcing industry grow by a depressing rate of only 12-14%. The companies that have chosen to retrieve some of the outsourced processes might not signal any alarming pandemic just yet, but the trend certainly does not help the already low expectancy for the industry.
With the enterprise technology changing at a rapid pace, many companies are rethinking their business process strategies. The technology contracts worth many billion dollars inked between 2000 and 2003 will be shortly coming up for renewal. With the whole atmosphere undergoing a sea change, most of those contracts can be recalled.
Everest Group, an outsourcing consultancy group pinned the total value of the contracts that will come up for renewal at $100 billion in this year alone. The company also went on to say that companies like Infosys, Tata Consultancy Services, Wipro, HCL Technologies and Cognizant will be in the sidelines waiting for chunks of work that they will take from incumbents like IBM, HP and Accenture.
A positive outsourcing industry
The industry experts and insiders in India are not frazzled by the talk of a reversing trend. The Vice President of Nasscom, the industry body was clam and was adamant of the model of outsourcing sticking around. He spoke of the cost cutting measures and optimizations that drove outsourcing. He was also aware that regulatory issues was the main nemesis to the issue of outsourcing.
KS Viswanathan, the Vice President of Nasscom spoke of a cycle where companies would outsource large chunks of their business model and then revert some areas in order to restore some semblance of accountability and control. Therefore, although some companies like British Telecommunications are set to insource their processes, there will be some companies that will outsource as the competition will increase.