Although Brazil’s IT sector has frequently been compared as an up and coming challenger for India’s share of the offshore pie, Brazilian vendors are keener to position themselves as potential local partners rather than as nearshore alternatives. The reasoning is simple - with tremendous opportunity for growth existing locally, there is less motivation to pursue growth in untested and unknown markets. According to statistics provided by Brasscom, the domestic market for ICT is pegged around $123 billion in 2012 with a growth rate of about 10% year-on-year[i]. Moreover, the vendors lack serious muscle in terms of scale, and factors like limited availability of resources and an inability to differentiate on cost adds to this reluctance to compete with Indian offshorers.
Brazilian vendors differentiate on expertise in local market
The raison d'être of the Brazilian IT sector is quite different from that of India and is heavily focused on providing solutions and services to the huge domestic market that exists both within the country and in the rest of Latin America (Latam). Some key features of Brazilian vendors are:
Strong focus on local business’ needs. Most of the businesses in Brazil fall in the small and medium enterprise (SME) category and require a high level of customization of solutions and services to meet requirements, especially around local language interfaces and support. Most Brazilian vendors are very flexible and accommodative of these small clients’ needs for customization and for individually tailored pricing and delivery models.
On June 6, iSoftStone announced plans to make the company a wholly owned subsidiary of China Asset Management Co., Ltdand delist from the U.S. stock market. This is the fifth IT services (ITS) provider headquartered in China to announce plans to go private in the past 9 months. The others were Yucheng Technology, AsiaInfo-Linkage, Camelot and Pactera.
Why are these firms going private? Despite ambitious global growth plans, Chinese ITS providers have largely failed to articulate a compelling value proposition to U.S. and European clients. By focusing mainly on low-end application development services they have instead primarily competed with much bigger and much more experienced Indian providers – but without the ability to offer lower costs. In fact, the average profitability of Chinese ITS providerswent down from 10-15% to less than 5% over the past 2 years, when most large Indian firms are in the 15-25% range. Going private will give these5companies a chance to transform their current model relieved from the quarterly pressure to meet Wall Street analyst expectations.
Existing and potential customers of these ITS providers may have concerns seeing these providers going private, particularly regarding overall company transparency, including financial strength and corporate governance. I believe clients will have to balance their concerns against the potential benefits that going private may deliver, which include:
Organizations in growth markets across Asia have not traditionally been heavy consumers of outsourcing services. Having lots of on-premises hardware still carries some prestige for local CIOs, particularly in China and India. The availability of relatively inexpensive IT staff in local markets has also helped them deliver acceptable service levels to the business. Until now, that is. The combination of quickly rising IT salaries, increased competition from regional and even global expansion, and growing demands among business stakeholders to more effectively engage customers has put pressure on CIOs to increase the performance of their organizations.
More and more CIOs I speak with are struggling with how best to effectively transform their IT capabilities and meet fast-changing business requirements. In particular, whether to embark on this transformation journey alone or leverage outsourcing partners. In a recent report, I profiled organizations in Asia that are leveraging external service providers to accelerate their IT maturation. One example is a manufacturer with 10,000 employees and operations across Asia that outsourced its entire IT infrastructure environment to improve and homogenize service levels. Another is a large Indian bank that outsourced its entire IT department to a service provider and improved its maturity level from a 3 (on a scale from 1 to 10) to a 6 in less than a year.
Over the past three years, multinational companies’ (MNCs’) approach to outsourcing in China has steadily matured as they seek to leverage broader outsourcing models and source from a combination of global providers and local Chinese providers.
In my latest report, Lessons Learned From Outsourcing In China: Part 2, I analyze the key outsourcing trends and approaches to help sourcing and vendor management (SVM) professionals at MNCs select the right local outsourcing suppliers. As part of this analysis, I’ve highlighted the main service capabilities of local Chinese vendors broken down by service model and profile the different types of service providers that currently operate in China.
Key findings from the report include:
MNCs are adopting sophisticated outsourcing approaches in China. Many MNCs are shifting away from a pure global service provider approach to a broader shortlist that also includes Chinese providers. SVM professionals at MNCs appreciate local providers’ broader geographic coverage, lower outsourcing cost and more flexible service deliverables.
MNCs are also diversifying their outsourcing requirements. After signing the first wave of outsourcing contracts in the past five to 10 years, MNCs are becoming increasingly comfortable considering more sophisticated outsourcing contracts, such as best-of-breed selection, vertical outsourcing, etc.
Local outsourcing service providers are continually improving their capabilities. To approach more MNC clients in China, local providers have enhanced their geographic coverage in remote cities, accelerated consolidations, recruited senior talent for improved depth at key positions and aggressively recruited fresh graduates to manage costs.
In November 2011, Atos and Yonyou (formerly Ufida) announced the creation of a joint venture dubbed Yunano™ aimed at the European SMB market. The two companies are at it again, this time focusing specifically on the Chinese domestic market. I recently met with Herbie Leung, CEO of Atos in Asia Pacific, to discuss the partnership and future market opportunities in China. This new agreement essentially covers three areas of collaboration:
Bringing PLM and MES expertise to Yonyou customers. With more than 1.5 million customers, Yonyou is one of the largest software providers in China with strengths in ERP and CRM solutions. However, the company lacks capabilities in adjacent areas like product lifecycle management (PLM) and manufacturing execution systems (MES). Following the SIS acquisition, Atos has significantly strengthened its capabilities in these domains and will offer them to Yonyou clients.
Helping Yonyou’s customers migrate to private cloud architectures. The lack of private cloud technical skills in China led Yonyou to leverage Atos’s expertise to develop private cloud assessment workshops and ERP migration services targeting the China market. Atos will in turn leverage Canopy, a company it recently created in partnership with EMC and VMware to provide cloud solutions to its clients globally.
Helping Yonyou expand into new markets in Asia. Like many Chinese companies, Yonyou has global aspirations.While theYunano joint venture focuses on bringing Yonyou’s ERP solutions to the mid-market in EMEA, the new partnership will leverage Atos go-to-market capabilities to take the Yonyou solutions to other markets in Asia.
During a recent global analyst event in Paris, Capgemini presented its strategy to a panel of market and financial analysts. It hinges on two main objectives: improving the resilience of the organization in an uncertain economic environment — especially in Europe — and finding new levers for margin improvements.
From an operations point of view, Capgemini intends to continue leveraging the usual suspects: industrialization, cost cutting, and accelerating the development of its offshore talent pool. It also aiming to optimize its human resource pool via a pyramid management program aimed at, among other things, allocating the right experience level to the right type of work.
More interestingly, the company showcased some of the global offerings it has put together or refined over the past 12 months. Capgemini’s strategic intent is to develop offerings addressing three major client-relevant themes – customer experience, operational processes, and new business models. The offerings will be enabled by a combination of cloud, mobile, analytics, and social technologies. Among the set of offerings managed globally, I found the following of particular interest due to their emerging nature and Capgemini’s interesting approach to developing them:
I recently had the chance to spend some quality time with Dell in Singapore at their event for Forrester analysts in the Asia Pacific region. As Dell is a company traditionally known for its hardware products, I had low expectations – to date, few of my CIO clients would consider Dell a “strategic” supplier.
However, I was pleasantly surprised – Dell is reinventing itself from a PC and server supplier into an IT solutions provider. The benefits of the acquisition of Perot Systems and various software assets in North America and around the globe are starting to pay dividends in Asia Pacific.
As a late entrant into many of the newer markets they play in, they have the rare advantage of being able to do things differently – both from a solution and a pricing standpoint. From data centre transformation through legacy migration and application modernisation, to networking solutions, Dell is attempting to be disruptive player in the market – simplifying processes that were typically human-centric, and automating capabilities to reduce the overall burden of owning and running infrastructure.
Their strategy is to stay close to what they know – much of their capability is linked directly to infrastructure – but their open, modular, and somewhat vendor agnostic approach is in direct opposition to the “vendor lock-in” solutions that many of the other major vendors push.
I would like to take couple of minutes to introduce myself and the research topics I’m working on. I came to Forrester through the acquisition of Springboard Research and specialize in helping Vendor Strategy Professionals understand trends in IT services and outsourcing in Greater China.
With my latest research paper, “Driving Outsourcing Success In China,” I want to help vendors raise awareness on the Chinese outsourcing market, which will grow at 17% CAGR over the next five years. Nonetheless, entering this lucrative market will pose several challenges for international newcomers. In my research, vendor strategists will find insights about:
Introduction to the market dynamics with drivers and inhibitors.
Possible go-to-market approaches for outside vendors entering into China's IT services market.
I'd love to hear from you. Feel free to share your own experiences and ideas with me. Are there other questions that you would like me to address in my upcoming research?
The past few years haven’t been kind to software developers. Having the equivalent of a US master’s in computer science and having spent the first 20+ years of my professional life developing mission-critical software products and applications, I have had a hard time adjusting to the idea that developing software applications is a cost to avoid or a waste of time for many CIOs and application development leaders. It seems to me that we have been giving more emphasis to contracts, legal issues, SLAs, and governance concerns but forgetting about how IT can really make a difference – through software development.
Nevertheless, outsourcing kept increasing, and packaged apps exploded onto the scene, and software developers “outplaced” from enterprises. People started to believe they could get more value and good-quality software cheaper…but could they really?
With BT, digitalization, and customer centricity exploding, today is the perfect moment for application development leaders to review their application development sourcing strategy and align it to their BT strategy.
Why? Many reasons, including:
Software is the most important enabling technology for business innovation.
Clients use software every day. It’s become part of their life, and they enjoy the experience. Better software makes a better experience.
The Canadian market for purchases of information and communications technologies (ICT) by businesses and governments is about 10% the size of the US ICT market, and only about 3% of the global ICT market. Still, it is an important market because of the sophisticated level of its tech adoption (i.e., its readiness to adopt advanced technologies) and its proximity to the US market.
Canada's ICT market growth rates of 6.2% in 2011 and 2012 growth of 8.1% in Canadian dollars will be very similar to the US ICT market growth in US dollars in the same periods. With the Canadian dollar having gained strength against the US dollar, that means that US vendors will see even stronger Canadian revenue growth when they convert their Canadian sales back into US dollars.
Communications equipment and software will have the strongest growth in 2011, at 10.5% and 8.4%, respectively. Computer equipment growth of 4.4% and telecommunications services growth of 2.2% will be the weakest product categories.