DALLAS, March 11, 2010 ─ The multi-process Human Resources Outsourcing (HRO) market is expected to regain traction in 2010, moving towards US$3-3.1 billion in annual contract value (ACV), driven by contract extensions and the re-emergence of new deal signings, according to the Human Resources Outsourcing Annual Report 2010 by Everest, a global consulting and research firm.

In 2009, the HRO market reached US$2.9 billion in ACV on marginal growth mostly driven by deal extensions. Last year marks the only year in which total contract value (TCV), signed through deal extensions, exceeded TCV realized through newly signed deals.

As the economy climbs out of the recession, market growth will be greatly impacted by end-of-term decisions over the next three years for engagements valued at US$5 billion. Additionally, Everest expects market growth will be influenced by projections that include:

• Single-process HRO activity will increase in the near-term and put downward pressure on the multi-process HRO deal adoption.
• Buyers will favor options that effectively combine platform-based, pay-as-you-go solutions that leverage global sourcing.
• First generation deals worth US$1.2 billion are coming up for renewal this year, and up to 80 percent will be extended with the incumbent supplier while the remainder will be repatriated or transferred to a new supplier.
• Adoption resurgence will occur in the financial services sector.

“While the economic slowdown had a negative impact on the outsourcing market last year, the impact on multi-process HRO was more severe due to its longer payback period of HRO as compared to other outsourcing engagements,” said Katrina Menzigian, Vice President, Research. “With an improving economy, we expect new deal signings to gradually increase this year as the buyers’ decision-making cycles improve and budgets become available to fund the upfront investment required for multi-process HRO initiatives.”

The 2009 HRO market witnessed some fundamental shifts in the market including:

• Platform-based solutions became the dominant technology model in new deal signings.
• While the adoption of componentized model continued to increase, several deals utilized the “offshore led” lift and shift model.
• North America leads multi-process HRO market adoption; however, Europe and Asia Pacific saw an increase in deal signings from 2008-2009.
• The mid-market sector, facing reduced workforces that diluted viable business cases for multi-process HRO, witnessed a significant fall in deal signings from 2008-2009 after outpacing adoption by the large market from 2005-2007.
• Multi-process HRO market traction in 2009 was significantly stronger in the healthcare and government sectors; financial services saw a drastic decline.

While ADP led deal signings in 2009, Hewitt, IBM, Accenture, and Convergys account for a little over half of the overall HRO market share in terms of ACV. Other suppliers in the report analysis include: ACS-Xerox, Caliber Point, Capita, Ceridian, HCL, Logica, Lockheed Martin, Neeyamo, NorthgateArinso, TCS, Wipro and Xchanging.

In this year’s report, Everest highlighted five suppliers as “2009 HRO Market Star Performers”: ADP, IBM, NorthgateArinso, TCS and Wipro. These suppliers demonstrated the strongest movement forward across the following two dimensions in 2009:

• Market success in 2009 based on ACV growth, number of contract signings, and value of contract signings in 2009
• Capability advancements in 2009 based on expansion of scale, scope, delivery footprint, and technology investments

The Star Performers designation relates to year-on-year performance for a given supplier and does not reflect on overall market leadership positions. Those identified as the 2009 Star Performers include both leading suppliers and major contenders.

“The supplier landscape in 2009 was impacted by three key developments: the exit of ExcellerateHRO and Fidelity, acquisition of ACS and profitability improvements of Hewitt and Convergys,” said Rajesh Ranjan, Research Director. “The market also saw new suppliers making their mark. This year, we expect to see one or two suppliers exit the MPHRO market to be replaced by suppliers discreetly and successfully delivering SPHRO. Suppliers will also aggressively pursue new deals, driven by stabilization of existing deals and the need to add new clients after the two-year lull period of 2008 and 2009.”

To read an extract of the Human Resources Outsourcing Annual Report 2010, purchase the report, or inquire about other research services, please visit www.everestresearchinstitute.com, email  info@everestresearchinstitute.com or call +1-214-451-3110.

Patni is moving from its temporary facility into a permanent location in a high-rise building at ITESM Technological Park of Tech de Monterrey. The new center occupies 11,000 square feet on two floors in ITESM Technological Park –- more than eight times the capacity of its temporary location. Patni currently employs 40 in Queretaro. The company has plans to increase employment in the local facility to 200 by the end of 2010, with the bulk of the new hires coming from the local area.

“For the last year, Patni has been systematically increasing its focus on regional operations to enhance responsiveness to customer business requirements,” said Naresh Lakhanpal, president, Patni Americas. “The opening of the Queretaro facility represents an important step in our corporate strategy, showcasing our ability to invest locally by building regional delivery centers that leverage the talent base of local communities.”

Cutting the ribbon at the March 12 grand opening ceremony will be Lic. Jose E. Calzada Rovirosa, Constitutional Governor of the Queretaro State. The more than 400 attendees will include representatives from the state and federal governments and local industry. Patni representatives will include Asim Malik, a vice president with one of the company’s leading account groups; Ganesh Iyer, head of the company’s insurance and financial services business units; and Enrique Austria, director of operations and country head, Patni Mexico.

“Patni’s investment in our community illustrates how Mexico is gaining stature as a global IT hub,” said Rovirosa, the Queretaro governor. “Our regional government has supported this project, and we stand ready to welcome other IT providers with our skilled talent pool, competitive costs, improved language skills and other business benefits.”

The location offers Patni preferential access to customers in North and South America and within Mexico, the world’s 13^th largest economy with an IT market of $5 billion. Customers will be able to leverage a “near-shore” engagement model and global delivery system simultaneously, allowing for seamless interaction on IT development projects, easier management of customer relationships and greater oversight on project tracking. This will reduce engagement costs while accelerating time to market.

“This move allows us to serve an increasing demand from clients in North America and Latin America for near-shore resources,” said Austria, head of Patni Mexico. “We plan to use our Queretaro facility as the launching point for our business activities within the country and the region.”

Queretaro is Patni’s 22^nd development center, expanding a global presence which already features near-shore centers in the United States and Europe.

Picture this: Over the next four years Mexico rises above China, the Philippines and Brazil to claim worldwide recognition as the second largest outsourcing hub in the world, behind India. Delivery centers in Guadalajara, Monterrey and Mexico City  become service-focused powerhouses for thousands of American businesses. Enabled by the free-moving benefits of NAFTA, offshore provider professionals traverse back and forth between Mexico and the US, free of the visa burdens that might slow rivals in other Latin American countries and others from around the world. Could it really happen?

If you ask the top executives in the Mexico outsourcing industry, the answer is a confident – ‘yes, we can do it.’

Alfredo Pacheco, the CEO of MexicoIT

The Mexican government and private industry are clearly trying to stay coordinated and seize this important ranking. The tech sector in the country is growing at a pace of at least three-times faster than the annual gross domestic product, according to Alfredo Pacheco, the CEO of MexicoIT, a trade promotion group, who sat down with Nearshore Americas for an interview earlier this week in Mexico City.

Mexico can clearly boast about its “growth story.” The country exported about $2 million in IT services in the year 2000. This year, Mexico expects to export $3.5 billion, with 85% of that going to the US. Close to 25 Mexico IT firms have established on-shore offices or facilities in the US, many of them in Silicon Valley.

But what about that challenges?

Violent crime, as much as it may be isolated in the border areas and in “no go” sections of large cities, still remains a major perception issue for the country. “The government is committed to tackling this issue and be up front with it,” says Pacheco. “And I think the government is doing a pretty good job.”

Other challenges include English proficiency, overall costs vs. India and working with existing labor laws.

On the English question, the government continues to offer grants to providers who oversee training in English and other disciplines; on cost, Pacheco estimates that indeed Mexico is probably about 10% higher on average that India (note: our estimate is more like 15-25%); and in terms of labor, there is growing awareness through Mexican society of the rich benefits in the tech sector, especially at a time when Mexico’s manufacturing sector continues to decline.

Finally, Pacheco indicates MexicoIT and other government and private  trade-promotion groups are driving more of their focus on creating service expertise in distinct vertical industries, specifically in finance, multimedia, healthcare and BPOs.

Despite Mexico’s rise, it’s important not to completely count out Brazil. The president of Brasscom, Antonio  Gill, recently said that Brazil has a legitimate shot at second place. But with a vast domestic market, will Brazil be as inclined to promote its sourcing industries the way Mexico is?

By the time the World Cup 2014 arrives, we will all know the answer.

“The Latin American market is poised to sustain strong growth,” said John Legere, Global Crossing’s CEO.  ”The investments we are making are in response to the continued demand Global Crossing is experiencing across our global network for broadband services such as video over IP, social media and content delivery networks.”

Global Crossing’s MAC undersea system includes approximately 4,600 route miles (7,500 Km) of fiber-optic cable and landing stations in Brookhaven, N.Y., Hollywood, Fla., and St. Croix, U.S.V.I.  MAC connects Global Crossing’s PAC, SAC and Atlantic Crossing-1 (AC-1®) subsea systems to provide full connectivity between North America, Latin America and Europe.  The MAC system provides IP and Synchronous Digital Hierarchy (SDH) services at rates up to 10 Gbps or STM-64.

The PAC submarine cable network spans more than 6,000 route miles (10,000 Km), connecting the United States to Mexico, Central America and South America. It has landing stations in Grover Beach, Calif., Tijuana, Mexico, Mazatlan, Mexico, Esterillos, Costa Rica, and Fort Amador, Panama.  It comprises a self-healing ring and Wavelength Division Multiplexing technology.

Global Crossing’s SAC system includes approximately 12,000 route miles (20,000 Km) of fiber-optic cable and landing stations in St. Croix, U.S.V.I.; Fortaleza, Brazil; Rio de Janeiro, Brazil; Santos, Brazil; Las Toninas, Argentina; Valparaiso, Chile; Lurin, Peru; Fort Amador, Panama; and Puerto Viejo, Venezuela. Fort Amador and Puerto Viejo are shared by Global Crossing’s PAC/Cook’s Crossing undersea systems. The SAC system is a four-fiber-pair repeatered system providing 10 Gbps transport.

We all know that labor market regulations are an important part of the decision to outsource to a foreign country. They standardize the rules for employer and employee, and make factors like labor costs much more predictable. At the same time, consensus is that excessively strict regulations do not allow the labor market to function efficiently.

The question for US companies eyeing the LATAM outsourcing industry is, when do these regulations become too rigid?

The current situation in many Latin American countries could be ‘too rigid’. Enterprise Surveys, a firm that specializes in company-level data collection in emerging markets,  conducted a series of surveys done last year across 14 countries in the region to test for the effects of strict labor regulations on the workforce. The subsequent report by David Kaplan, from Enterprise Surveys, states that laws such as high legally mandated severance payments, mandatory retraining of redundant workers, and restrictions on hours worked not only prevent the labor market from operating efficiently, but also cause lower levels of workforce participation, and higher levels of unemployment. He concludes that making regulations more flexible would lead to an average net increase of 2.1% of total employment.

The irony is these laws are often union-driven requirements to protect workers, but they sometimes end up doing the opposite. “We had many employees who legitimately wanted to work two or three 12-hour shifts during the week rather than five 8-hour shifts, but because of the overtime rule we couldn’t allow that” — Maggi Williams, VP Corporate Development, KM2

The Situation for Companies

So how do US companies already invested in the area feel about LATAM labor laws? Maggi Williams, VP of Corporate Development at KM² Solutions, says that inflexibility in the labor system is definitely a problem. “There are always issues around the hiring and firing of employees”, she says. “Labor laws are often employee friendly, and there haven’t been any substantive changes in recent times to make companies’ lives easier”.

Termination of an employee is a formal process, often accompanied by large severance payments and mountains of paperwork.  Even under ‘just cause’ conditions, it can be difficult to remove workers, and in the smaller Caribbean countries the labor department tends to get involved in most termination decisions. Firms react to all this by being very careful about hiring employees.

There seems to be a severe policy disconnect between the goals of LATAM countries to attract foreign companies, and their enforcing stringent labor regulations that make it difficult for those same companies to operate freely. While the situation can be better or worse depending on the country in question, there are a few terms and conditions common to the region that you should be aware of:

The 13^th Month Syndrome

Employees in most LATAM countries are entitled to a ‘13^th month’ salary, payable by the employer in December of each year. In Brazil this corresponds to the highest compensation paid to the employee during the year, while in other countries like Colombia, Argentina and Nicaragua, it is calculated as the basic salary paid in the last month of service. Each country has its own take on the 13^th month salary – Mexican law requires minimum two weeks salary instead of a month, and Chile’s 13^th month pay is split between September and December.

It’s necessary to understand that the 13^th month salary is different from a Christmas bonus. It is a requirement that is government mandated. The firm is obliged to pay up if an employee has a year of service, and if he does not, the salary is calculated accordingly. “In total this represents a significant cost for companies, especially the smaller ones”, says Williams. “It’s so important to include it in your budget calculation”.

Termination and Severance

Brazil has by far the most onerous penalties for termination without cause. Through a mandatory welfare mechanism known as an Unemployment Guarantee Fund (FGTS), the employer deposits 8% of the employee’s monthly salary into an account that earns interest and is monetarily corrected.  In the case of unjust termination, the worker can withdraw the entire FGTS fund plus another 40% on the total amount.  Terminations are very formal in Brazil and have to be filed with the labor authority to be legal.

Other LATAM countries are also strict about severances, although less so. In Chile, Argentina and Colombia the payment is equal to one month’s salary per year of service (Chile has a maximum of 11 months), while in Mexico it is 12 days of salary per year in the company. Severance in the Dominican Republic is paid on an increasing scale from 19-23 days salary per year of service, and in Nicaragua it is a month’s pay per year worked upto the third year, and 20 days pay per year upto the sixth year.

Due to the legal approval and paperwork needed it can be quite difficult to remove employees even with cause, although most countries do not require compensation in this case. The exception is Costa Rica which still requires an indemnity of one month’s salary and vacation pay for termination under ‘just cause’ conditions.

Restrictions on Working Hours

Common to nearly all Latin American countries, and very strictly enforced, these regulations are often problematic for companies in the region. The workweek is usually 40-45 hours, divided into 8 hour shifts. When firms talk about rigid labor regulations, this is what they mean – the limit absolutely cannot be exceeded.

Overtime pay is very expensive, even upto 1.5 times the normal hourly rate. “Since the time schedules are so rigid, it’s difficult to provide services to US clients efficiently”, says an Associate VP Human Resources in Guatemala who preferred to remain unnamed. “The number of hours work you can perform for them is reduced, especially if you’re not in the same time zone as they are”.

The irony is these laws are often union-driven requirements to protect workers, but they sometimes end up doing the opposite. “We had many employees who legitimately wanted to work two or three 12-hour shifts during the week rather than five 8-hour shifts, but because of the overtime rule we couldn’t allow that”, says Maggi Williams.

The Way Forward: More flexibility?

Labor market reform is a touchy subject in Latin America. There are emerging outsourcing powers like Chile and Colombia with aggressive foreign investment campaigns, as well as established call center giants like Brazil and Mexico, all trying to balance making things easier for companies versus making things easier for their workers. The strong presence of labor unions always throws a wrench in the works, especially in countries like Argentina and Mexico where any new legislation is deeply influenced by them.

Labor laws are very necessary to preserve stability for both employer and employee, by laying down specific rules and guidelines that govern that relationship. Williams talks about choosing to open a call center for a client in either Colombia or Argentina a few years ago. “Both countries have more or less the same laws”, she says. “But Colombia doesn’t appear to  enforce every minute detail of the labor regulations as Argentina does, and that was a big part of my decision.”  She recommended Colombia.

While there is no question that more flexibility in the LATAM labor market would benefit companies and investors, it is just as clear that that won’t be happening anytime soon. But as David Kaplan writes, reform will hurt the most where it’s needed the most. If countries in the region would consider tweaking their labor laws to ensure that they are fair to the worker while being reasonable to the employer, they may see a lot more investment in the future.

If you are looking to outsource or change processes in a multisite organization, you will face a typical organizational design challenge: how do I structure and locate teams to maximize their collective performance. In this article, I will share some of the most salient points which must be considered. This is a result of our work with our most successful clients.

Let’s talk about this concept –  repeated ad nauseum by managers and HR staff all over the world like a sacred mantra — the concept of a team.

Everyone talks about teams and the team building. Inordinate amounts of money are spent on retreats, exercises and training which provide no lasting value. Rare is a job posting that does not include a requirement for a candidate to be a “team player”, which is just gratuitous in this context. Who would say that they are not one?

Aligned Win or Lose

Teams are the groups of individuals whose interests are perfectly aligned and who win and lose together, as a whole. In other words, there can never be a situation when one of the team members won and another one lost. To that end, they readily share resources and tools, and support each other.

Meanwhile, as Dr. Alan Weiss observed, most organizations have committees, not teams, meaning that while broadly referred to as a team, a group is most often comprised of people who look after their own interests or the interests of their respective home turfs. They can win and lose separately. Most project teams are committees, as are most task force groups and nearly all joint ventures.

Now, there is nothing wrong with committees and you may very well need to have a committee and not a team. The determination is made based on what you are trying to achieve. Once you know, appropriate incentives, structure and controls will have to be put in place.

Managing Multi-Sites

In terms of multi-site working groups (I’ll use this generic term for both teams and committees), you have three choices.

1. Functional collocation. Take a whole function, such as a department, and have it be present at one physical location in its entirety. This familiar approach is common to business process outsourcing (BPO) or relocation to a lower-cost site. As an example, you may outsource the entire Accounts Payable or move it to your Sydney or Nova Scotia processing centers.

Pros: advantageous setting for continuous process improvement within the group, for establishing a true team environment uninhibited by distance or time, for settings where interactions with external teams are minimal or not time sensitive.

Cons: may become disconnected from the rest of organization and in especially severe cases, develop a “them against us” attitude; an effort need to be made to keep the leader of the function engaged with her peers and the rest of the organization. From a perspective of business continuity planning, there is a risk of having an entire function reside in one location. Can you live without your AP for a few weeks if the building becomes damaged in an earthquake?

2.Skill based collocation. Outsource your programming needs to New Delhi and keep the software QA team (testers) in Reading, Berkshire.

Pros: collocation of like skills to encourage creation of best practices, and sharing of tools and resources. Allows to realize savings from moving certain occupations to a lower-cost locale.

Cons: time and distance can significantly impact communication between the holders of disparate skill sets and, as a result, timelines of projects. The author has witnessed situations where what would take an hour for collocated situation, took three days in a remote setting, with all participants doing their best. There is a distinct danger of the remote group becoming disengaged. This needs to be consciously addressed. Location risk is the same as in the first scenario.

Overall, this approach is conducive to committees, not teams.

3. Resource pools. Keep a group of developers and testers in two different locations.

Pros: Cost savings combined with resiliency (location risk reduced), potential to form collocated, well aligned project teams. Potential to locate complete project teams in proximity to the end client, external or internal.  Advantageous for projects and operations where localization of products or processes is important.

Cons: If left unchecked, prone to proliferation of divergent practices, procedures and processes.

Which of the three approaches is right for you? Define your objectives clearly, agree on the alternatives and the criteria, and design your future accordingly.

A buyer’s investment in a cloud infrastructure can save 40-50 percent over a traditional enterprise platform, according to a new Everest ITO study, Hype and Reality of Cloud Computing – Mind the Gap! The cloud proposition over enterprise setups is based on IT suppliers’ abilities to leverage scale to improve asset utilization, lower costs for asset procurement, standardize delivery and processes, and offer labor flexibility that reduces labor support ratios and delivers services from less expensive locations. On the other hand, large organizations running virtual datacenters may not find added value from cloud services unless IT demand is very volatile or through labor savings gained by large-scale sourcing options.

“The IT industry is working to woo enterprise buyers to the cloud, and many suppliers are positioned to deliver on most of the cloud’s benefits,” said Ross Tisnovsky, Vice President, Research. “However, the cloud conundrum lies in the fact that IT demand best served by the cloud is also the most challenging to serve from the cloud. While cloud services offer a strong business case over a traditional enterprise setup, the buyer’s cloud adoption strategy should not be based on cost savings alone. Buyers also must factor in associated risks, which need to be understood in the early stages while evaluating long-term strategies and approaches to cloud computing.”

Enterprises face multiple challenges to adopting cloud computing such as fragmented application portfolios, lack of cloud standards, security, system performance and management control. Security breaches, downtime, business disruption, and regulatory non-compliance issues pose significant concerns to buyers, and Everest predicts broad-based standards won’t come for 18 months or longer.

“Widespread adoption of standards will be further complicated by the notable absence of public cloud providers, such as Google and Amazon, as well as hosting and enabler product vendors. Meanwhile, suppliers are responding to buyers’ concerns by focusing attention on robust management toolsets to manage risks,” said Tisnovsky.

While internal applications workload and customer applications can be managed effectively from the cloud, the cloud hosting of customer applications is more difficult, according to the study. Hosting requires higher levels of security and risk management, presents significant integration issues, and bears more business continuity risks due to lack of control over suppliers’ recovery processes.

The Everest study also observes the common view of cloud computing overlooks Operations as a Service (OaaS), where cloud solutions are most logical and avoid several data privacy and security issues. Leveraging OaaS and building around a modular approach, the study suggests operational services such as back-up, server monitoring, and license management can be standardized and encapsulated into self-contained units of IT operations services. Operating independently, these modules would then be combined into customized solutions.

Everest outlines three potential scenarios for industry evolution of cloud computing in ITO: niche adoption, industry consensus where the cloud becomes a mainstream outsourcing option, and “hype and decline” where most services are merely branded with the cloud stamp.

The ITO study and analysis includes definitions of the cloud computing IT stack and services landscape, assessment of buyer challenges and the business case for cloud adoption, suppliers’ cloud strategies and service offerings and alternate scenarios for the evolution of cloud computing in ITO.

To read an extract of the study, Hype and Reality of Cloud Computing – Mind the Gap!, purchase the report, or inquire about other research services, please visit www.everestresearchinstitute.com.

Cognizant currently focuses on providing business application development, support and maintenance from its center, which is located in Buenos Aires. Argüello said the division will be developing business process and infrastructure management services, primarily for Cognizant’s global clients that are either expanding to Latin America or are looking to the region to complement their existing outsourcing plans.

“We are referring to value-added business processes and also device, network, server, database and operating system monitoring,” he said.

The life sciences, financial and consumer goods sectors represent Cognizant’s main regional clients, with each market accounting for 20-25% of the Argentine delivery center’s revenues. Argüello noted that market consolidation – especially in the life sciences industry – is also helping to generate new IT service business opportunities. Other 2010 priorities include beefing up Cognizant’s financial sector offering, as well as capturing new clients in the US and Europe.

Cognizant will continue to consider the construction of new delivery centers, the executive added, noting that the company is most interested in Brazil and Mexico.

“We do not rule out the possibility of opening centers in various countries or even opening more than one center in one country,” he said. “But we have not yet made a concrete decision.”

Cognizant expects regional revenues to grow at least 20% this year, but Argüello was unable to disclose the percentage of the company’s overall sales that currently comes from Latin America.

Globally, Cognizant billed US$3.28bn last year and expects overall revenues to top US$3.9bn in 2010. The company has 78,000 employees and 50 delivery centers worldwide that serve 589 clients, including 46 of the Fortune 100 companies.

The US government is planning on loosening internet service export restrictions to Cuba, the US Treasury Department said in a statement.

The Treasury Department will issue a general license for the export of certain personal internet services – including instant messaging, e-mail and social networking tools – to Cuba, as well as Iran and Sudan. The new regulation will also permit the export of software to Iran and Sudan.

“Unlike Iran and Sudan, the exportation of goods and technology, including software, to Cuba is separately licensed or otherwise authorized by the Commerce Department,” the statement read.

The changes will be implemented through amendments to the Iranian Transactions Regulations, Sudanese Sanctions Regulations and Cuban Assets Control Regulations. The New York Times reported on Sunday (March 7) that US government officials will examine requests on a case-by-case basis. The report added that the Treasury Department is likely to grant a license for the Haystack program, a software package compatible with Windows, Mac and Unix that protects internet users from government censors.

Until now, US software and internet companies have refrained from offering services in Cuba, Iran and Sudan due to existing trade restrictions.