One of the spin offs of the India-U.S. civil nuclear deal coming through will be the creation of 100,000 new jobs for the 30-odd reactors that India hopes to set up to meet its nuclear power deadline of 20,000 MW by 2020, experts say. Congress MP Rahul Gandhi highlighted the fillip the deal is expected to give to employment generation and the energy sector. Interacting with students of Ravindra Bharati in Hyderabad on Saturday, Gandhi said: "The nuclear deal means millions and millions of jobs, and lights in the houses of the poor in this country."
Union Minister of State for Commerce and Power Jairam Ramesh, visiting the Department of Atomic Energy (DAE)'s Kalpakkam campus in Tamil Nadu, said: "Nearly 10,000 MW of nuclear power would be generated from indigenous reactors, 8,000 MW from light water reactors and 2,000 MW from Fast Breeder Reactors (FBR)."
Thousands of engineers, technicians and scientists would be needed to run these establishments, he underlined. "India's 17 nuclear reactors have the capacity to generate 4,120 MW, but in 2007 they could produce only 1,800 MW due to lack of fuel," Ramesh said. By 2020, India is likely to import six light water reactors while six nuclear plants are under construction to beef up generation capacity, said Nuclear Power Corporation of India Ltd Technical Director S.A. Bhardwaj. The total expansion is valued at nearly $300 billion.
"India's Department of Atomic Energy employs about 70,000 experts today," M.R. Srinivasan, former chairperson of the Atomic Energy Commission, told the media at a function in Kalpakkam. The new nuclear power plants on the cards are expected to create at least a 100,000 new jobs in India, experts say. Not just in India, the nuclear deal is expected to give a fillip to the industry in the US also.
In 2007, Ron Somers, president of the US-India Business Council, supporting the Indo-US Nuclear Cooperation Agreement, said: "The deal would create 27,000 high-quality jobs a year for the next 10 years in the US nuclear industry." To strengthen research at universities, the DAE is providing grants for projects through the Board of Research in Nuclear Sciences. The DAE Graduate Fellowship Scheme for the Indian Institutes of Technology (IITs) has been in place since 2002 to promote collaborative research through postgraduate students.
IIT-Kanpur offers a course in nuclear engineering and technology, now IIT-Madras has also decided to offer a similar course from the 2009 academic session. The country's premier institute for nuclear studies and research - The Homi Bhabha National Institute - will provide the necessary guides and teaching staff. India has two hubs for advanced studies in nuclear technology - Mumbai and Kalpakkam. The Mumbai-based Bhabha Institute unifies 10 institutions, four premier centres and six autonomous institutes, each with a research-driven framework.
Bhabha Institute also includes DAE's top research institute, The Bhabha Atomic Research Centre where old horses of the '80s, the Cirus and Dhruva reactors, are still kept going. DAE's other research institute is the Indira Gandhi Centre for Atomic Research (IGCAR), which was set up in 1971.
"The IGCAR has an open door policy for any student keen on science," says institute director Baldev Raj."The IGCAR has tried to strike a balance between networking with institutions with expertise and collaborating with academia for harvesting fresh thoughts," he added. According to the Nuclear Energy Institute, 30 countries worldwide are operating 439 reactors for electricity generation and 34 new nuclear plants were under construction in 14 countries.
Sources: IANS and Silicon India
Showing posts with label Outsourcing. Show all posts
Showing posts with label Outsourcing. Show all posts
Tuesday, July 29, 2008
Tuesday, December 25, 2007
Forecasts for the economy & markets in 2008
Author: Abheek Barua, Chief Economist, HDFC Bank
Source: Rediff
Since this is my last piece this year I thought I would write about the forecasts I have made for the global economy and financial markets for 2008. There is an important caveat, of course. The global macroeconomic and financial environment remains terribly volatile and a number of these predictions could go wrong.
Let me get to the forecasts. The jury appears to be still out on whether the US is headed for a recession next year (going by the textbook, a situation in which GDP growth turns negative for two successive quarters) or whether swift action by the US Federal Reserve is likely to prevent such a situation. US consumption data like retail numbers occasionally surprise positively and US inflation is far from dead. However, despite this bit of fuzziness I remain somewhat sanguine about the following trends.
Whether it qualifies technically as recession or not, the US is likely to see a marked slowdown at least in the first half of 2008, which could last well into the second half of the year. Besides, despite central banks' best efforts, it will take a while for American and European banks to resume lending to each other and to even slightly risky borrowers. Thus, I see the credit squeeze in the US and Europe continuing and perhaps even getting worse in the near term.
The US slowdown is likely to have knock-on effects on the global economy and world GDP growth is likely to moderate. More specifically the result of sharp currency appreciation, harder interest rates and a credit squeeze will begin to take a toll on euro-zone growth. The UK is well into a cyclical downturn.
As I have argued in earlier columns, I think it is impossible for Asian economies to remain immune to a downturn in the developed economies and growth rates will soften in this region as well. I honestly don't know much about Latin America but I think it is sensible to assume that what applies to Asia applies to these economies as well.
Global energy and food prices are likely to remain elevated in the first quarter but are likely to dip subsequently as demand compression on the back of slowing world demand begins to reflect in prices. I am, for example, convinced that concerns about fresh oil supplies and oil peaks notwithstanding, slower global growth is fundamentally incompatible with oil prices at over ninety dollars a barrel.
The same logic might just apply to other assets including stocks. If indeed the signs of global slowdown become more acute, large investors might begin to dump equities and hold on to safer assets like treasury bonds. If there is growing aversion to equities as an asset class, Asian markets (including Indian stock markets) will also take a hit. The slide in stock prices will not be due to risk-aversion alone.
If global growth slows, the slowing down will begin to impact the top line and bottom line growth of companies across economies. That in turn will buttress the negative sentiment towards risky assets. The bottom line: be prepared for a "correction" in the Indian stock market next year.
There is a potential offset. The US Fed is likely to follow a policy of phased quarter percentage point cuts in its target interest rate - I expect the American central bank to cut the Fed funds rate thrice next year. Thus while inflation risks will weigh on the Fed's mind, I expect growth concerns to dominate and spur the Fed to cut rates some more. I expect the European Central Bank to hold interest rates until the second half and then start cutting signal rates.
My bank's research team has forecast two rate cuts next year, possibly in the second half. The Bank of England is likely to be swifter with two quarter percentage point cuts in the first half of 2008. We also expect more direct liquidity both through unilateral cash infusion by central banks and perhaps through more co-ordinated intervention.
The question is: what happens to all this liquidity when central banks turn on their cash spigots? If investors remain terribly risk-averse, a lot of it would go into low-risk government bonds.
US treasury bond prices will continue to move up and yields will decline as this process continues. Besides, if US assets keep getting cheaper and cheaper, investors will sniff a bargain and start buying these assets. In fact, some of the bigger funds have already started picking up chunks of the American financial industry where valuations have hit rock-bottom. Asian sovereign investment funds, for instance, are bailing out cash-strapped American banks, picking up significant equity stakes in the process.
Finally, there is also a chance that some of the money will start finding its way into emerging financial markets where growth rates, at least in relative terms, will remain high in comparison with the rest of the world. What happens then? My prediction is that emerging markets including India are likely to get buffeted by the crosswinds of rising global liquidity and cheaper interest rates, on one side, and concerns about slowing growth, on the other. This means two things.
Our stock markets will remain volatile for a while to come and sharp upswings could be followed by a quick downturn. Ditto for the currency markets. The interplay of these opposing forces also means that these markets will be stuck in a range. Thus I do not see the possibility of prolonged phases of decline, nor do I see the prospect of an untrammelled bull run.
What will take the markets out of the doldrums? Since the problems of the US economy lie at the heart of all the problems, it will take some clarity on the situation there to do this. Any strong signal that the US cycle has bottomed out will lead to a quick re-pricing of risk and realignment of asset prices.
Source: Rediff
Since this is my last piece this year I thought I would write about the forecasts I have made for the global economy and financial markets for 2008. There is an important caveat, of course. The global macroeconomic and financial environment remains terribly volatile and a number of these predictions could go wrong.
Let me get to the forecasts. The jury appears to be still out on whether the US is headed for a recession next year (going by the textbook, a situation in which GDP growth turns negative for two successive quarters) or whether swift action by the US Federal Reserve is likely to prevent such a situation. US consumption data like retail numbers occasionally surprise positively and US inflation is far from dead. However, despite this bit of fuzziness I remain somewhat sanguine about the following trends.
Whether it qualifies technically as recession or not, the US is likely to see a marked slowdown at least in the first half of 2008, which could last well into the second half of the year. Besides, despite central banks' best efforts, it will take a while for American and European banks to resume lending to each other and to even slightly risky borrowers. Thus, I see the credit squeeze in the US and Europe continuing and perhaps even getting worse in the near term.
The US slowdown is likely to have knock-on effects on the global economy and world GDP growth is likely to moderate. More specifically the result of sharp currency appreciation, harder interest rates and a credit squeeze will begin to take a toll on euro-zone growth. The UK is well into a cyclical downturn.
As I have argued in earlier columns, I think it is impossible for Asian economies to remain immune to a downturn in the developed economies and growth rates will soften in this region as well. I honestly don't know much about Latin America but I think it is sensible to assume that what applies to Asia applies to these economies as well.
Global energy and food prices are likely to remain elevated in the first quarter but are likely to dip subsequently as demand compression on the back of slowing world demand begins to reflect in prices. I am, for example, convinced that concerns about fresh oil supplies and oil peaks notwithstanding, slower global growth is fundamentally incompatible with oil prices at over ninety dollars a barrel.
The same logic might just apply to other assets including stocks. If indeed the signs of global slowdown become more acute, large investors might begin to dump equities and hold on to safer assets like treasury bonds. If there is growing aversion to equities as an asset class, Asian markets (including Indian stock markets) will also take a hit. The slide in stock prices will not be due to risk-aversion alone.
If global growth slows, the slowing down will begin to impact the top line and bottom line growth of companies across economies. That in turn will buttress the negative sentiment towards risky assets. The bottom line: be prepared for a "correction" in the Indian stock market next year.
There is a potential offset. The US Fed is likely to follow a policy of phased quarter percentage point cuts in its target interest rate - I expect the American central bank to cut the Fed funds rate thrice next year. Thus while inflation risks will weigh on the Fed's mind, I expect growth concerns to dominate and spur the Fed to cut rates some more. I expect the European Central Bank to hold interest rates until the second half and then start cutting signal rates.
My bank's research team has forecast two rate cuts next year, possibly in the second half. The Bank of England is likely to be swifter with two quarter percentage point cuts in the first half of 2008. We also expect more direct liquidity both through unilateral cash infusion by central banks and perhaps through more co-ordinated intervention.
The question is: what happens to all this liquidity when central banks turn on their cash spigots? If investors remain terribly risk-averse, a lot of it would go into low-risk government bonds.
US treasury bond prices will continue to move up and yields will decline as this process continues. Besides, if US assets keep getting cheaper and cheaper, investors will sniff a bargain and start buying these assets. In fact, some of the bigger funds have already started picking up chunks of the American financial industry where valuations have hit rock-bottom. Asian sovereign investment funds, for instance, are bailing out cash-strapped American banks, picking up significant equity stakes in the process.
Finally, there is also a chance that some of the money will start finding its way into emerging financial markets where growth rates, at least in relative terms, will remain high in comparison with the rest of the world. What happens then? My prediction is that emerging markets including India are likely to get buffeted by the crosswinds of rising global liquidity and cheaper interest rates, on one side, and concerns about slowing growth, on the other. This means two things.
Our stock markets will remain volatile for a while to come and sharp upswings could be followed by a quick downturn. Ditto for the currency markets. The interplay of these opposing forces also means that these markets will be stuck in a range. Thus I do not see the possibility of prolonged phases of decline, nor do I see the prospect of an untrammelled bull run.
What will take the markets out of the doldrums? Since the problems of the US economy lie at the heart of all the problems, it will take some clarity on the situation there to do this. Any strong signal that the US cycle has bottomed out will lead to a quick re-pricing of risk and realignment of asset prices.
Sunday, September 23, 2007
BPO Sector Outlook
According to:
Dick Vleesenbeek
- Talent shortages are driving labour markets to become increasingly more global, competitive, and employee-driven
- BPO predicted to be an $80B industry by 2009/10
- RPO (subset of BPO) estimated to grow into a $20B by 2009/10
- Vendor Management Solutions (Managed Service Provider) Market predicted to grow to be $4.2B by 2009/10
- Clients are searching for true global solutions and partners
- Trend toward complex, comprehensive solutions (workforce management models) to blend the expertise of internal/external partners
- The trend toward solutions providing off-shoring and shared service components continues
- Staffing and consulting firms face an environment of evolving legislation, increasing consolidation, and technological advancements impacting the business
Atul Subbiah
Manager - M&A Strategy at Deloitte Consulting
1. The coming of age of the major Indian suppliers
2. The unbundling of contracts where deal size is getting smaller
3. Contracts are getting shorter and work is being spread across multiple providers
4. Large deals are being split, with an increase in number of multi vendor contracts leveraging the near shore and offshore options
5. Large outsourcing contracts signed in the 1990s are coming up for re-bidding
Sunmeet Jolly
A Dropping Dollar may affect the attractiveness and ROI in Outsourcing Industry. The trend needs to be watched carefully over next 2-3 years. Rising wages in Outsourcing Providing Countries also adds to the marging pressures. But Demand for Outsourced Services will definitely increase as projected by Analyst firms. Its likely to become a high volume game and we can see some consolidation on vendor side.
Deverick McIntyre PMP
Industry Leader on China's IT & outsourcing industry
Packaged ITO+BPO+ Infrastructure Management Outsourcing is a significant new trend. We have seen this type of consolidation especially in the Financial Services industry, where, for example, the IT system supporting the outsourced business process is hosted and administered by the same vendor.
It makes sense for many clients to consolidate the BPO and IT contracts with the one vendor to achieve synergies and manage risks. This is not good news for pure BPO players, however for the large Indian outsourcers such as Infosys, TATA and Wipro, as well as international players IBM, Accenture, Cap Gemini etc, it is a perfect fit with their broad solution sets.
Packaged IT/BPO contracts are much larger than pure BPO deals and this trend has led to the increasing use of sourcing consultants such as TPI, Everest Group or smaller players such as TaidaL for thorough due diligence.
The other equally important new trend is contract pricing based on client business revenue/risk. Mainly seen in ITO contracts, the trend to package ITO with BPO will result in more innovative BPO contracts using client business based pricing. It is an interesting trend which has come about as clients force consulting companies pushing solutions to "put their money where their mouth is" and invest in the outcome. "If this solution is good for my business then partner with us in the upside (and downside) risk"
Hossam Elgamal
General Manager of GNSE Group
the Global Business Process Outsourcing sector and just after the launch of the latest ATKearny report, shows a tough competition between different emerging players and existing well established ones like India.
this competition is certainly in the favor of the business, shaping up the processes, increasing the quality and diversifying the options and resources in such global industry.
the result in the coming 1-3 years would certainly be a more rewarding choice to clients with less risk and a more framed quality of delivery, more important an observation that is taking place currently where giant players (indian ones like Satyam, TATA, WIPRO...) are having competency centers outside India to diversify their offering, minimize the risk, better control the cost and benefit more of the other countries benefits... thus becoming truely global... which in turn would lead those countries of choice to learn from the experience, build the expertise and start becoming important players in that market..
but mostly important is the fact that Clients will benefit further and more clearer from the BPO, which will come to a maturity stage.
a) the emerging significant developments/trends would be the diversifications of the countries for large BPO players, and the globalizations in the true meaning of the services.
b) driving this trend are: 1. the clients experience and need for better risk management, further more options and choices, better quality, managed cost. 2. the Giant BPO players need to maintain competitive advantage, and capitalizing on the globalization opportunity 3. the Awarness of the emerging countries in that industry, their government support, and their industry maturity.
c) as i said, the key players are moving more agressively into a globalized diversified offering, not standing still in one country only. example for that WIPRO and SATYAM moved recently to open competency centers with 1000s of resources in Egypt, as the government is agressively supporting the initiative by providing incentives, and building the capacity of the local resources, while cost is very competitive and mastering arabic as well as different european languages help providing a competitive advantage!!
Source: LinkedIn
Dick Vleesenbeek
- Talent shortages are driving labour markets to become increasingly more global, competitive, and employee-driven
- BPO predicted to be an $80B industry by 2009/10
- RPO (subset of BPO) estimated to grow into a $20B by 2009/10
- Vendor Management Solutions (Managed Service Provider) Market predicted to grow to be $4.2B by 2009/10
- Clients are searching for true global solutions and partners
- Trend toward complex, comprehensive solutions (workforce management models) to blend the expertise of internal/external partners
- The trend toward solutions providing off-shoring and shared service components continues
- Staffing and consulting firms face an environment of evolving legislation, increasing consolidation, and technological advancements impacting the business
Atul Subbiah
Manager - M&A Strategy at Deloitte Consulting
1. The coming of age of the major Indian suppliers
2. The unbundling of contracts where deal size is getting smaller
3. Contracts are getting shorter and work is being spread across multiple providers
4. Large deals are being split, with an increase in number of multi vendor contracts leveraging the near shore and offshore options
5. Large outsourcing contracts signed in the 1990s are coming up for re-bidding
Sunmeet Jolly
A Dropping Dollar may affect the attractiveness and ROI in Outsourcing Industry. The trend needs to be watched carefully over next 2-3 years. Rising wages in Outsourcing Providing Countries also adds to the marging pressures. But Demand for Outsourced Services will definitely increase as projected by Analyst firms. Its likely to become a high volume game and we can see some consolidation on vendor side.
Deverick McIntyre PMP
Industry Leader on China's IT & outsourcing industry
Packaged ITO+BPO+ Infrastructure Management Outsourcing is a significant new trend. We have seen this type of consolidation especially in the Financial Services industry, where, for example, the IT system supporting the outsourced business process is hosted and administered by the same vendor.
It makes sense for many clients to consolidate the BPO and IT contracts with the one vendor to achieve synergies and manage risks. This is not good news for pure BPO players, however for the large Indian outsourcers such as Infosys, TATA and Wipro, as well as international players IBM, Accenture, Cap Gemini etc, it is a perfect fit with their broad solution sets.
Packaged IT/BPO contracts are much larger than pure BPO deals and this trend has led to the increasing use of sourcing consultants such as TPI, Everest Group or smaller players such as TaidaL for thorough due diligence.
The other equally important new trend is contract pricing based on client business revenue/risk. Mainly seen in ITO contracts, the trend to package ITO with BPO will result in more innovative BPO contracts using client business based pricing. It is an interesting trend which has come about as clients force consulting companies pushing solutions to "put their money where their mouth is" and invest in the outcome. "If this solution is good for my business then partner with us in the upside (and downside) risk"
Hossam Elgamal
General Manager of GNSE Group
the Global Business Process Outsourcing sector and just after the launch of the latest ATKearny report, shows a tough competition between different emerging players and existing well established ones like India.
this competition is certainly in the favor of the business, shaping up the processes, increasing the quality and diversifying the options and resources in such global industry.
the result in the coming 1-3 years would certainly be a more rewarding choice to clients with less risk and a more framed quality of delivery, more important an observation that is taking place currently where giant players (indian ones like Satyam, TATA, WIPRO...) are having competency centers outside India to diversify their offering, minimize the risk, better control the cost and benefit more of the other countries benefits... thus becoming truely global... which in turn would lead those countries of choice to learn from the experience, build the expertise and start becoming important players in that market..
but mostly important is the fact that Clients will benefit further and more clearer from the BPO, which will come to a maturity stage.
a) the emerging significant developments/trends would be the diversifications of the countries for large BPO players, and the globalizations in the true meaning of the services.
b) driving this trend are: 1. the clients experience and need for better risk management, further more options and choices, better quality, managed cost. 2. the Giant BPO players need to maintain competitive advantage, and capitalizing on the globalization opportunity 3. the Awarness of the emerging countries in that industry, their government support, and their industry maturity.
c) as i said, the key players are moving more agressively into a globalized diversified offering, not standing still in one country only. example for that WIPRO and SATYAM moved recently to open competency centers with 1000s of resources in Egypt, as the government is agressively supporting the initiative by providing incentives, and building the capacity of the local resources, while cost is very competitive and mastering arabic as well as different european languages help providing a competitive advantage!!
Source: LinkedIn
Thursday, September 20, 2007
Future of IT / ITES / KPOs
We seem to have come a full-circle actually. Outsourcing started with low end menial data entry jobs that were discrete and modularized tasks, not interwoven into the company’s real-time environment. Then we graduated upwards to application maintenance, then onward to application development and then design and system architecture work. Call center and BPO brought about a mission-critical real-time and process driven mode of outsourcing with SLA and metrics based performance measures. With the rise of KPO, the emphasis is now on skills-based and decision-making type of work that is neither “mission-critical” nor “real-time” – yet it is more intimately tied to the top-line performance of companies than ever before in the past. With KPO, there are no metrics, no SLAs, no cultural or accent issues, no time-zone barriers and a productized consulting model that is driving a new breed of companies. With a combination of data aggregation, research, analytical, modeling and consulting skills KPO is redefining the boundaries of outsourcing.
According to me, some of the major drivers were:
• BPO found a niche customer due to a huge demand in back office customer support. BPO was and is mainly successful due to costs effectiveness and the availability of cheap labor – it found a huge pool of workforce as the unemployment rate among English speaking graduates was very high. It created a perfect sector which could find an effective solution to all its workforce requirements among the huge pool of university English speaking graduates.
Slowly countries like India found that although BPO was exploiting the general mass of graduates yet another potential pool of qualified engineering, medical, legal, financial professionals was untapped. There was a clear synergy between the mid-level staff across various companies in US & European regions and this pool in India. Gradually it was realized that the mid-level staff which is mainly involved in offering knowledge based services can be replaced with the pool of talented professionals in countries like India at a much lower cost.
• We can say that BPO has slowly reached to a stagnant point as the factor of realization of using BPO services in new avenues is decreasing. OR we can quote unquote what most industry insiders feel - With the opening of the world economy, many surprises have taken place in the business scenario. This is true for countries across the globe both from outside and within the countries.
The western world has started realizing the potential and the importance of smaller countries of Asia in providing quality services at much lesser rates and are treating this fact as a revolution. Similarly, within the Asian countries revolutionary trends are taking place in terms of expansion and spread of service providers to small cities. BPO is giving place to a new name i.e. Knowledge Process Outsourcing (KPO).
Now coming to what could be the next stage of transformation: - According to NASSCOM, KPO is expected to reach $17 billion by 2010, of which $12 billion would be outsourced to India. In the future, it is envisaged that KPO has a high potential as it is not restricted only to IT or ITES sectors, and includes other sectors like Intellectual Property related services, Business Research & Analytics, LPOutsourcing, Web Dev. Application, CAD/CAM, Finance & Accounting Management, Clinical Research, Publishing, Market Research etc.
Taking into account the huge potential of intellectual property within India, I strongly feel that next stage of KPO could be a more evolved involvement ie Consulting. As of now, we are only creating the groundwork and consultants abroad use our findings to offer advisory services to their clients. In the next 2-3 years, India could become a One Stop Shop for research, analytics as well as Consulting and Advisory services. Hence future IT/ITES SMEs in India would evolve themselves as Consulting Companies.
According to me, some of the major drivers were:
• BPO found a niche customer due to a huge demand in back office customer support. BPO was and is mainly successful due to costs effectiveness and the availability of cheap labor – it found a huge pool of workforce as the unemployment rate among English speaking graduates was very high. It created a perfect sector which could find an effective solution to all its workforce requirements among the huge pool of university English speaking graduates.
Slowly countries like India found that although BPO was exploiting the general mass of graduates yet another potential pool of qualified engineering, medical, legal, financial professionals was untapped. There was a clear synergy between the mid-level staff across various companies in US & European regions and this pool in India. Gradually it was realized that the mid-level staff which is mainly involved in offering knowledge based services can be replaced with the pool of talented professionals in countries like India at a much lower cost.
• We can say that BPO has slowly reached to a stagnant point as the factor of realization of using BPO services in new avenues is decreasing. OR we can quote unquote what most industry insiders feel - With the opening of the world economy, many surprises have taken place in the business scenario. This is true for countries across the globe both from outside and within the countries.
The western world has started realizing the potential and the importance of smaller countries of Asia in providing quality services at much lesser rates and are treating this fact as a revolution. Similarly, within the Asian countries revolutionary trends are taking place in terms of expansion and spread of service providers to small cities. BPO is giving place to a new name i.e. Knowledge Process Outsourcing (KPO).
Now coming to what could be the next stage of transformation: - According to NASSCOM, KPO is expected to reach $17 billion by 2010, of which $12 billion would be outsourced to India. In the future, it is envisaged that KPO has a high potential as it is not restricted only to IT or ITES sectors, and includes other sectors like Intellectual Property related services, Business Research & Analytics, LPOutsourcing, Web Dev. Application, CAD/CAM, Finance & Accounting Management, Clinical Research, Publishing, Market Research etc.
Taking into account the huge potential of intellectual property within India, I strongly feel that next stage of KPO could be a more evolved involvement ie Consulting. As of now, we are only creating the groundwork and consultants abroad use our findings to offer advisory services to their clients. In the next 2-3 years, India could become a One Stop Shop for research, analytics as well as Consulting and Advisory services. Hence future IT/ITES SMEs in India would evolve themselves as Consulting Companies.
Tuesday, September 18, 2007
Top 3 concerns when outsourcing to Asia - Uncensored
Excerpts from one of the discussions going on at LinkedIn. Pretty interesting stuff
Here you go
Senior Software Development Engineer, Toshiba America Electronic Components
In my experience culture, distance & communication are big issues when outsourcing.
First of all, we often outsource software dev to realize cost savings. This savings is often eaten up due to logistical and cultural issues which impede the outsourced projects.
1) Communication issues: Especially with China, communication can be difficult because of the lack of qualified English speakers. I interviewed a team that had daily 10 PM phone conferences from the US to China where only 1 guy on the China side could speak English. The Americans would talk for several minutes, then the one English speaker would translate in 15-20 seconds that content to his team members. A lot was 'lost in translation'.
In another example, members of an American software team had great difficulty working with Indian team members over tele-conference because of the accent issue. The company stateside eventually fired several members of their American staff because they would not cooperate fully with the remote Indian team due to language frustration. This damaged morale of the team, and did little to help the ongoing issues.
2) Culture. Sometimes "yes" does not mean "yes". Teams think they are on the same page with their overseas counterparts, when they are not.
3) Distance (physical and metaphorical) - Software development requires a tight interface between the developers and the stakeholders / customers. When separated by distance, time-zones, culture, and language you are adding a significant project risk that the work being done will not mesh with the (often dynamic) requirements for the end product. Not only are problems more likely to occur, but it will take more time to identify them for all of the above-mentioned reasons.
Executive Producer for Video Games
The 3 biggest concerns would be:
- Cultural background: you will experience vast differences in use of color, shapes, facial features, technical detail etc. from country to country. Don't expect Western style unless you guide extremely well.
- Language barrier: definitely an issue in Japan. Not so problematic in India. Mixed in China.
- Reliability. I don't want to say we've been disappointed so far. But we are fully aware that our legal possibilites are very restricted in China and India. This is not really an issue in Japan though.
CEO Bertin Services
1.As you probably know India is the WW Leader in software development, and gatheres probably 80% of CMMI5 companies in the world... but check what is covered by their CMMI certificate to understand the major concern there : It always looks perfect (english culture). Real Life is often not so bright, although they have competencies and want to make it. dig to make a difference between what they say and what they do.
2. I'd rather go in India than in China, because they're under english culture (easier to work with), software oriented, highly educated, and India is the largest democracy in the world. but they're not so cheap...
3. Outsourcing to Asia will require a lot of lawyers' time to make sure you get a fair Deal, and will take very long in India. Let's also be clear about the risks you'll face to have them copy your production and take the business from you, especially in China.
4. Last but not least : I believe that a key of success of operations set up in Asia I was part of is a very strong involvement of Key people of your company, including having a very reliable peron (at least one) staying down there for a year to ensure everything it going to be taken care of.
Software Development Process Reengineering Manager
NINE offshoring advices.
1. Always take care of your local workers.
2. Focus on core competencies.
3. Work with big established companies.
4. Offshore projects that require minimal interfaces.
5. Do not overemphasize process.
6. Focus on communication.
7. Test offshoring team with some pilot project
8. Read some offshoring articles.
9. Conclusion and evaluation using eSCM.
Reference: LinkedIn
Here you go
Senior Software Development Engineer, Toshiba America Electronic Components
In my experience culture, distance & communication are big issues when outsourcing.
First of all, we often outsource software dev to realize cost savings. This savings is often eaten up due to logistical and cultural issues which impede the outsourced projects.
1) Communication issues: Especially with China, communication can be difficult because of the lack of qualified English speakers. I interviewed a team that had daily 10 PM phone conferences from the US to China where only 1 guy on the China side could speak English. The Americans would talk for several minutes, then the one English speaker would translate in 15-20 seconds that content to his team members. A lot was 'lost in translation'.
In another example, members of an American software team had great difficulty working with Indian team members over tele-conference because of the accent issue. The company stateside eventually fired several members of their American staff because they would not cooperate fully with the remote Indian team due to language frustration. This damaged morale of the team, and did little to help the ongoing issues.
2) Culture. Sometimes "yes" does not mean "yes". Teams think they are on the same page with their overseas counterparts, when they are not.
3) Distance (physical and metaphorical) - Software development requires a tight interface between the developers and the stakeholders / customers. When separated by distance, time-zones, culture, and language you are adding a significant project risk that the work being done will not mesh with the (often dynamic) requirements for the end product. Not only are problems more likely to occur, but it will take more time to identify them for all of the above-mentioned reasons.
Executive Producer for Video Games
The 3 biggest concerns would be:
- Cultural background: you will experience vast differences in use of color, shapes, facial features, technical detail etc. from country to country. Don't expect Western style unless you guide extremely well.
- Language barrier: definitely an issue in Japan. Not so problematic in India. Mixed in China.
- Reliability. I don't want to say we've been disappointed so far. But we are fully aware that our legal possibilites are very restricted in China and India. This is not really an issue in Japan though.
CEO Bertin Services
1.As you probably know India is the WW Leader in software development, and gatheres probably 80% of CMMI5 companies in the world... but check what is covered by their CMMI certificate to understand the major concern there : It always looks perfect (english culture). Real Life is often not so bright, although they have competencies and want to make it. dig to make a difference between what they say and what they do.
2. I'd rather go in India than in China, because they're under english culture (easier to work with), software oriented, highly educated, and India is the largest democracy in the world. but they're not so cheap...
3. Outsourcing to Asia will require a lot of lawyers' time to make sure you get a fair Deal, and will take very long in India. Let's also be clear about the risks you'll face to have them copy your production and take the business from you, especially in China.
4. Last but not least : I believe that a key of success of operations set up in Asia I was part of is a very strong involvement of Key people of your company, including having a very reliable peron (at least one) staying down there for a year to ensure everything it going to be taken care of.
Software Development Process Reengineering Manager
NINE offshoring advices.
1. Always take care of your local workers.
2. Focus on core competencies.
3. Work with big established companies.
4. Offshore projects that require minimal interfaces.
5. Do not overemphasize process.
6. Focus on communication.
7. Test offshoring team with some pilot project
8. Read some offshoring articles.
9. Conclusion and evaluation using eSCM.
Reference: LinkedIn
Wednesday, June 27, 2007
CII supporting companies that are going global
The Indian companies are going global and many of them have achieved multinational status. To facilitate this process, the Confederation of Indian Industry (CII) in partnership with major Indian companies has launched an initiative -India Inc Going Global.
It is an attempt to create a platform for established and emerging Indian companies, banks, management consultants, and law firms to come together and share insights, which can be leveraged while setting up offices overseas and acquiring overseas companies.
Chairman CII Indian MNCs Committee & Chairman GVK Biosciences said "The aim is to create an ecosystem which can accelerate the creation of multinational corporations from India. The initiative aims to provide a forum for learning sharing and addressing common challenges of the globalisation journey in an actionable format."
The initiative is being led by Asian Paints, Bharat Forge, ICICI Bank, Infosys Technologies, Mahindra & Mahindra, McKinsey & Company and Prof. Tarun Khanna, Jorge Paulo Lemann Professor of the Harvard Business School.
The initiative is organised into operational entities termed as `clusters'. These clusters are based on functional areas or common challenges and opportunities. The three operational clusters are Leadership Development & Talent Management, India Advantage and Inorganic Growth.
Deputy Managing Director ICICI Bank Ltd said the global merger and acquisition business is $4 trillion and Indian companies have only tapped one per cent of the market. Therefore the initiative will help reach this market.
Source: Hindu
It is an attempt to create a platform for established and emerging Indian companies, banks, management consultants, and law firms to come together and share insights, which can be leveraged while setting up offices overseas and acquiring overseas companies.
Chairman CII Indian MNCs Committee & Chairman GVK Biosciences said "The aim is to create an ecosystem which can accelerate the creation of multinational corporations from India. The initiative aims to provide a forum for learning sharing and addressing common challenges of the globalisation journey in an actionable format."
The initiative is being led by Asian Paints, Bharat Forge, ICICI Bank, Infosys Technologies, Mahindra & Mahindra, McKinsey & Company and Prof. Tarun Khanna, Jorge Paulo Lemann Professor of the Harvard Business School.
The initiative is organised into operational entities termed as `clusters'. These clusters are based on functional areas or common challenges and opportunities. The three operational clusters are Leadership Development & Talent Management, India Advantage and Inorganic Growth.
Deputy Managing Director ICICI Bank Ltd said the global merger and acquisition business is $4 trillion and Indian companies have only tapped one per cent of the market. Therefore the initiative will help reach this market.
Source: Hindu
Monday, April 2, 2007
US Mortgage Outsourcing Market – India’s Perspective
Mortgage Outsourcing- an untapped sector that holds a relatively higher potential in the off shoring business is the buzz word today. The interest rates blooming and the real estate market being a ‘bubble’, mortgage lenders and home owners now experience a tough time. The home owners find it difficult to pay off their dues and consequently it imparts a negative effect on the business of the mortgage lenders. Mortgage outsourcing has emerged as the perfect solution for both the home owners and the money lenders.
Analyzing it from an industry’s perspective, it clearly reflects that many BPO organizations are gradually realizing the urgency to focus on niche verticals, which ideally is an outcome of the increase in competition in the low end BPO space. The ‘Top Core Players’ or big players in the mortgage businesses are now venturing in outsourcing by operating through their own captive units or planning outsourcing deals through outsourcing vendors.
With the bloom of different verticals in the Indian BPO segment, a vertical that remains relatively untouched and with immense potential is the Residential Mortgage banking market in the United States. According to NelsonHall, a consultancy, the total annual value of such outsourcing contracts around the world is about $10.9 billion, with about a third of that in America alone. However, a small proportion of that is being sent offshore. “But as costs are mounting, the Indian outsourcing industry's lobby - mortgages have become ripe for off shoring”, says Sunil Mehta of NASSCOM.
Mortgage Process in USA
North American Banking and the US mortgage industry, both going through a consolidation phase have acted as a catalyst to the growth in opportunities for the BPO sector. In terms of automation and outsourcing in the whole banking chain, mortgage has always been a low priority. However, as a result of rising interest rates and stiff competition, Mortgage banks now seek the ITO and BPO sectors as long term strategic tools. Besides this, the biggest challenge in any consolidation is the integration of processes and functions. However, the success of consolidation invariably is dependent on the pace of integration of organizations.
This being a very resource and cost intensive process, banks may seek the help of external experts to assist them through their consolidation phase by taking up their outsourcable processes. This in turn reduces the burden on internal resources and helps the bank to focus on its core competencies.
The driving force here is cost. Higher interest rates eat away at the money-spinning business of refinancing outstanding mortgages, slash business volumes and squeeze margins. India, being a low cost destination happens to be appealing in terms of investments. India is emerging at a very high pace as a mortgage manufacturing hub with its strong competitive advantage over other economies like China, Canada and Philippines.
The US Mortgage Banking BPO Market in India
The US Mortgage Banking BPO Market in India is expected to bloom very fast. Currently, this industry employs a fair amount of 7500 people in this sector. According to a research report "BPO Opportunities in the US Residential Mortgage Market" by the Trinity Business Process Management and Avendus Advisors, the offshore addressable BPO market size for the US residential mortgage ecosystem is in the range of $6 billion to $7.4 billion. The existing mortgage-processing BPO market in India is approximately $150 million.
The market indications suggest that the range of processes presently being outsourced or would be sent overseas in the near future by mortgage lenders could primarily curtail three areas of the mortgage processing life cycle, from acquisition to origination to servicing. However, today the most mature market in terms of outsourcing is mortgage servicing. Loan processing is another area which can fetch in up to 50% of cost savings if off shored to destinations like India.
Acquisition is another domain with great potential, particularly in areas such as analytics and lead generation. Other sections of mortgage industry which presumably will extend opportunity to outsourcing organizations will be the brokers. Industry experts expect lot of activities happening in area of lead generation and end to end loan processing. Andy Efstathiou, of NelsonHall, says the main impulse behind outsourcing in the industry as a whole is not so much cost-cutting as shifting from a fixed cost base to a variable one: the contracts give companies more flexibility to scale up and down as volumes vary.
According to Trinity's VP, sales and marketing, Francesco Paola, the future growth of BPO will be driven by an increased focus on domain-specific vertical processes that provide not only cost savings, but other long-term benefits in the areas of productivity and capacity management for the client. Analysts say that labor costs constitute a significant portion of the overall costs that mortgage banks incur in servicing clients. Offshore outsourcing is expected to generate cost savings in the range of 30-50 per cent. Industry experts say that the US mortgage banking BPO market in India will grow to approximately USD 1 billion over the next five years.
"We estimate that the US mortgage banking BPO market in India will grow to approximately $1 billion over the next five years," Paola says. This represents a market that would grow at a CAGR of over 50 percent in five years. Trinity believes that there would be huge opportunities in the mortgage outsourcing business for at least two years.
According to NASSCOM, India in particular is poised to benefit from a huge rise in "mortgage-process outsourcing" in the next few years - worth anything from $100 million-$150 million to $3 billion-$7 billion a year.
Authors: Nishith Srivastava & Shruti Bose
Analyzing it from an industry’s perspective, it clearly reflects that many BPO organizations are gradually realizing the urgency to focus on niche verticals, which ideally is an outcome of the increase in competition in the low end BPO space. The ‘Top Core Players’ or big players in the mortgage businesses are now venturing in outsourcing by operating through their own captive units or planning outsourcing deals through outsourcing vendors.
With the bloom of different verticals in the Indian BPO segment, a vertical that remains relatively untouched and with immense potential is the Residential Mortgage banking market in the United States. According to NelsonHall, a consultancy, the total annual value of such outsourcing contracts around the world is about $10.9 billion, with about a third of that in America alone. However, a small proportion of that is being sent offshore. “But as costs are mounting, the Indian outsourcing industry's lobby - mortgages have become ripe for off shoring”, says Sunil Mehta of NASSCOM.
Mortgage Process in USA
North American Banking and the US mortgage industry, both going through a consolidation phase have acted as a catalyst to the growth in opportunities for the BPO sector. In terms of automation and outsourcing in the whole banking chain, mortgage has always been a low priority. However, as a result of rising interest rates and stiff competition, Mortgage banks now seek the ITO and BPO sectors as long term strategic tools. Besides this, the biggest challenge in any consolidation is the integration of processes and functions. However, the success of consolidation invariably is dependent on the pace of integration of organizations.
This being a very resource and cost intensive process, banks may seek the help of external experts to assist them through their consolidation phase by taking up their outsourcable processes. This in turn reduces the burden on internal resources and helps the bank to focus on its core competencies.
The driving force here is cost. Higher interest rates eat away at the money-spinning business of refinancing outstanding mortgages, slash business volumes and squeeze margins. India, being a low cost destination happens to be appealing in terms of investments. India is emerging at a very high pace as a mortgage manufacturing hub with its strong competitive advantage over other economies like China, Canada and Philippines.
The US Mortgage Banking BPO Market in India
The US Mortgage Banking BPO Market in India is expected to bloom very fast. Currently, this industry employs a fair amount of 7500 people in this sector. According to a research report "BPO Opportunities in the US Residential Mortgage Market" by the Trinity Business Process Management and Avendus Advisors, the offshore addressable BPO market size for the US residential mortgage ecosystem is in the range of $6 billion to $7.4 billion. The existing mortgage-processing BPO market in India is approximately $150 million.
The market indications suggest that the range of processes presently being outsourced or would be sent overseas in the near future by mortgage lenders could primarily curtail three areas of the mortgage processing life cycle, from acquisition to origination to servicing. However, today the most mature market in terms of outsourcing is mortgage servicing. Loan processing is another area which can fetch in up to 50% of cost savings if off shored to destinations like India.
Acquisition is another domain with great potential, particularly in areas such as analytics and lead generation. Other sections of mortgage industry which presumably will extend opportunity to outsourcing organizations will be the brokers. Industry experts expect lot of activities happening in area of lead generation and end to end loan processing. Andy Efstathiou, of NelsonHall, says the main impulse behind outsourcing in the industry as a whole is not so much cost-cutting as shifting from a fixed cost base to a variable one: the contracts give companies more flexibility to scale up and down as volumes vary.
According to Trinity's VP, sales and marketing, Francesco Paola, the future growth of BPO will be driven by an increased focus on domain-specific vertical processes that provide not only cost savings, but other long-term benefits in the areas of productivity and capacity management for the client. Analysts say that labor costs constitute a significant portion of the overall costs that mortgage banks incur in servicing clients. Offshore outsourcing is expected to generate cost savings in the range of 30-50 per cent. Industry experts say that the US mortgage banking BPO market in India will grow to approximately USD 1 billion over the next five years.
"We estimate that the US mortgage banking BPO market in India will grow to approximately $1 billion over the next five years," Paola says. This represents a market that would grow at a CAGR of over 50 percent in five years. Trinity believes that there would be huge opportunities in the mortgage outsourcing business for at least two years.
According to NASSCOM, India in particular is poised to benefit from a huge rise in "mortgage-process outsourcing" in the next few years - worth anything from $100 million-$150 million to $3 billion-$7 billion a year.
Authors: Nishith Srivastava & Shruti Bose
Potential market trend in Supply Chain sector in India - Supply Chain Process Outsourcing (SCPO)
Article on "Supply Chain Process Outsourcing (SCPO) in India"
Published - September 15, 2005 - SupplyChainDigest Newsletter - Logistics Edition
Importance of supply chain in India can be gauged from the fact that logistics cost is in the range of 10-12% of our GDP. As per the recent CMIE database, over Rs. 1,00,000 crores of total capital is tied up in inventories in industrial sector. This is close to 22% of aggregate industry sales. Besides this, all the industry brands are already in the Indian SCM sector.
Amidst a continuously growing market, as a next step, Indian organizations are looking or can look for new options like collaboration and coordination with their supply chain partners in US & Europe. Several key dimensions have emerged in the recent times namely - information integration, workflow assimilation, technology assimilation, synchronization, and trust to make supply chain integration.
Now coming to the topic on whether traditional supply chain jobs in planning & execution could be moved to India, I feel that following aspects/processes can be moved/outsourced to India.
1. Information Integration: Processes like shared demand information, inventory status, capacity plans, production schedules, promotion plans, demand forecasts, and demand schedules etc.
2. Workflow Coordination: Streamlining workflow activities among supply chain partners could be made possible by workflow coordination of a host of activities encompassing procurement, order execution, engineering change, design optimization, and financial exchanges.
3. Technology Assimilation: Entire supply chain integration can be based on a platform of technology-enabled network solution for sustained future prosperity. Supply chains should access the market through both physical channel and cyber-based channel to serve the needs of the consumer. Both channels should accentuate e-Commerce features to distinguish the supply chain in the eyes of the customer. Thus, all these cyber-based support can be easily outsourced to India.
4. IT based tools for Synchronization: IT Companies in India are already creating customized IT solutions for Supply Chain Industry in US & Europe, which are used in various phases in a Supply Chain network in these companies.
In a nutshell, I feel that the entire process of Supply Chain Management can be outsourced to India except the actual delivery part. Companies in India can emerge as a back end support for all the activities starting from planning to execution i.e. setting up the virtual infrastructure (technology based), providing back end support for the operations and finally handling the execution. Factors like low-cost & IT expertise would act as a catalyst to make this concept a reality.
However, as there has been a concern on outsourcing due to BPOs and emerging KPOs, companies and their executives would certainly not accept this concept right from the very first day. This concept is going to face lots of obstacles and barriers but it’s the call of the wave - no company could deny this fact that this move could save lots of money as well as enhance their supply chain network.
I am quite sure that very soon this vision will become a reality and India will be a hot destination for Supply Chain Process Outsourcing (SCPO).
Available online at http://www.scdigest.com/assets/News/05-09-15.htm
Published - September 15, 2005 - SupplyChainDigest Newsletter - Logistics Edition
Importance of supply chain in India can be gauged from the fact that logistics cost is in the range of 10-12% of our GDP. As per the recent CMIE database, over Rs. 1,00,000 crores of total capital is tied up in inventories in industrial sector. This is close to 22% of aggregate industry sales. Besides this, all the industry brands are already in the Indian SCM sector.
Amidst a continuously growing market, as a next step, Indian organizations are looking or can look for new options like collaboration and coordination with their supply chain partners in US & Europe. Several key dimensions have emerged in the recent times namely - information integration, workflow assimilation, technology assimilation, synchronization, and trust to make supply chain integration.
Now coming to the topic on whether traditional supply chain jobs in planning & execution could be moved to India, I feel that following aspects/processes can be moved/outsourced to India.
1. Information Integration: Processes like shared demand information, inventory status, capacity plans, production schedules, promotion plans, demand forecasts, and demand schedules etc.
2. Workflow Coordination: Streamlining workflow activities among supply chain partners could be made possible by workflow coordination of a host of activities encompassing procurement, order execution, engineering change, design optimization, and financial exchanges.
3. Technology Assimilation: Entire supply chain integration can be based on a platform of technology-enabled network solution for sustained future prosperity. Supply chains should access the market through both physical channel and cyber-based channel to serve the needs of the consumer. Both channels should accentuate e-Commerce features to distinguish the supply chain in the eyes of the customer. Thus, all these cyber-based support can be easily outsourced to India.
4. IT based tools for Synchronization: IT Companies in India are already creating customized IT solutions for Supply Chain Industry in US & Europe, which are used in various phases in a Supply Chain network in these companies.
In a nutshell, I feel that the entire process of Supply Chain Management can be outsourced to India except the actual delivery part. Companies in India can emerge as a back end support for all the activities starting from planning to execution i.e. setting up the virtual infrastructure (technology based), providing back end support for the operations and finally handling the execution. Factors like low-cost & IT expertise would act as a catalyst to make this concept a reality.
However, as there has been a concern on outsourcing due to BPOs and emerging KPOs, companies and their executives would certainly not accept this concept right from the very first day. This concept is going to face lots of obstacles and barriers but it’s the call of the wave - no company could deny this fact that this move could save lots of money as well as enhance their supply chain network.
I am quite sure that very soon this vision will become a reality and India will be a hot destination for Supply Chain Process Outsourcing (SCPO).
Available online at http://www.scdigest.com/assets/News/05-09-15.htm
Trends in Biotech/Pharma Outsourcing Industry
The increasingly global nature of the pharmaceutical/biotech industry endorses Outsourcing, as most companies tend to exploit the market by gaining competitive advantage. Pharmaceutical companies with little or no experience have realized that mastering the entire skill range within an industry is not viable. Moreover, flexibility is becoming increasingly important within the industry. As a result, companies have started focusing on their core competencies in which they can add greatest value. The growth of the pharmaceutical contract service industry in recent years has led to a significant increase in the number of services and functions available for outsourcing. The cost pressures have led to pharmaceutical manufacturers reassessing their financial situation and, in the wake of the resulting downsizing trend, to the development of a contract service industry specifically targeted at the pharmaceutical industry.
The growing importance of small pharmaceutical and biotech contractors is increasing, with representation of small pharmaceutical and bio-pharmaceutical companies in the client mix. Although the 40 largest pharmaceutical companies account for two-thirds of industry R&D spending and produced most of the commercially approved products, most view outsourcing as only a tactic to overcome near-term capacity shortages. In contrast to the Big Pharma players, smaller companies offer opportunities for strategic relationships that are more stable because of their limited in-house capabilities. Their dependence creates opportunities for contractors to secure equity or royalty positions that can boost financial returns. Moreover, maturing biotech pipelines and accelerating licensing activity are generating more opportunities in this segment.
2001 was a robust year for most publicly traded CRO’s and contract manufacturers, with many companies able to turn losses into profits and show revenue increases of 20% or more compared with revenues in 2000. POMA Sourcing Survey (2001) indicates that contractors can anticipate another good year in 2002, although growth rates are not expected to be as strong. As we move into 2002, some trends that accelerated in 2001 are likely to reshape the outsourcing industry during 2002.
Outsourcing R& D: The modern pharmaceutical market though approves Outsourcing, doesn’t seem satisfied with the fundamental and strategic correlation between the need for resources and Outsourcing. Rightly so, Outsourcing should be a long-term strategy at the planning stage rather than being a reactive measure to circumstances. Talking about R&D units in the pharmaceutical/biotech industry, the leading companies are the CROs (Contract Research Organizations). Estimates by Datamonitor reveal that the CRO market was worth $4.6 billion in 1998, accounting for 22% of global $20.9 billion ‘development’ expenditure. 60% of this revenue was generated by clinical services, and 40% by non-clinical services. Frost & Sullivan estimates that R&D expenditures across the biotech industry would surpass $50 billion by 2005. This is expected to result in a proportional increase in the CRO market size. A survey conducted by Datamonitor has pointed out that most pharmaceutical companies believe Outsourcing to be the most effective method for limiting R&D costs.
The Need for Outsourcing: Analysts at Frost & Sullivan suggest, that with sophisticated technologies around such as high-throughput screening that are becoming a progressively more important part of the drug development process, companies are seeking outsourcing partners who will be able to provide superior technology and launch quality products in the market in a short span of time. Pharmaceutical companies today recognize the need to leverage in-house resources with specialized, competent partners particularly in the following:
-> Research in Biotech Industry
-> Development in CROs (Contract Research Organizations)
-> Manufacturing in CMOs (Contract Manufacturing Organizations)
-> Distribution in Co-marketing & CSOs (Contract Sales
Organizations)
Consumer empowerment is one of the main forces transforming the pharmaceutical industry. The trend toward individualized health management will create enormous opportunities for manufacturers and service providers within the pharmaceutical industry by enabling them to enhance their traditional offerings and to exploit entirely new market spaces. The key factors that lead companies to look for outsourcing of their work can be categorized as follows: the search for efficiencies in the drug development cycle, extending a company’s capacity, consolidation of the pharmaceutical industry, access to specific therapeutics expertise and globalization of the market within Europe and the USA.
As outsourcing in the industry matures, pharmaceutical manufacturers should select their outsourcing partners strategically and consider their partnerships to gain competitive advantage. As a result, pharmaceutical companies will ‘focus on total cost of doing business and look at ‘long-term needs and partnerships’. Effective partnering and outsourcing will however require trusting relationships and highly interactive programs.
The Future of Outsourcing: However, many challenges exist for the successful implementation of outsourcing within the pharmaceutical industry. The industry is characterized by inherently high risk; only one in 5,000 compounds actually becomes a product, commercial drugs cost $300 million to develop, and less than 50% of new products return the development cost. Tight governmental regulations compound this risk. Unlike other industries, there have been no transformational developments to drive outsourcing—even marginal performers can succeed. An immature contractor segment also characterizes this marketplace.
These forces are reshaping Pharma; they are the forces behind the consolidation of the industry, the growth in the number of alliances and the increase in outsourcing. Such changes are also contributing to the growing divergence between what Pharma companies need to achieve and what their employees want.
Datamonitor believes that centralized outsourcing departments will have to manage a portfolio of outsourcing agreements in the future. Such agreements will range from low technology, distanced agreements to strategic alliances, depending on the function being outsourced. The drivers of CRO market growth to 2003 will be increasing R&D costs, the launch of biotechnology products, continued M&A activity, and increased confidence in the quality of services provided by CROs. Analysts at Datamonitor also predict a consistent growth of 15 – 20% of the CRO market until 2003. The use of contract manufacturing is expected to increase in the future, as companies rationalize their manufacturing facilities, many of which currently operate below capacity. In the future, pharmaceutical manufacturers will attempt to move towards direct distribution as the role of large pharmacies for both payers and manufacturers becomes more established. It is believed that the true virtual pharmaceutical company is not a realistic proposition in future, although a virtual subsidiary to a large parent company may offer significant benefits.
Originally Published in CanBiotech BioMed Outsourcing Newsletter: Volume 1, Issue 1, September 2002
Trends in the biotech/pharmaceutical outsourcing industry
http://www.canbiotech.com/showHTMP.asp?hpId=444
The growing importance of small pharmaceutical and biotech contractors is increasing, with representation of small pharmaceutical and bio-pharmaceutical companies in the client mix. Although the 40 largest pharmaceutical companies account for two-thirds of industry R&D spending and produced most of the commercially approved products, most view outsourcing as only a tactic to overcome near-term capacity shortages. In contrast to the Big Pharma players, smaller companies offer opportunities for strategic relationships that are more stable because of their limited in-house capabilities. Their dependence creates opportunities for contractors to secure equity or royalty positions that can boost financial returns. Moreover, maturing biotech pipelines and accelerating licensing activity are generating more opportunities in this segment.
2001 was a robust year for most publicly traded CRO’s and contract manufacturers, with many companies able to turn losses into profits and show revenue increases of 20% or more compared with revenues in 2000. POMA Sourcing Survey (2001) indicates that contractors can anticipate another good year in 2002, although growth rates are not expected to be as strong. As we move into 2002, some trends that accelerated in 2001 are likely to reshape the outsourcing industry during 2002.
Outsourcing R& D: The modern pharmaceutical market though approves Outsourcing, doesn’t seem satisfied with the fundamental and strategic correlation between the need for resources and Outsourcing. Rightly so, Outsourcing should be a long-term strategy at the planning stage rather than being a reactive measure to circumstances. Talking about R&D units in the pharmaceutical/biotech industry, the leading companies are the CROs (Contract Research Organizations). Estimates by Datamonitor reveal that the CRO market was worth $4.6 billion in 1998, accounting for 22% of global $20.9 billion ‘development’ expenditure. 60% of this revenue was generated by clinical services, and 40% by non-clinical services. Frost & Sullivan estimates that R&D expenditures across the biotech industry would surpass $50 billion by 2005. This is expected to result in a proportional increase in the CRO market size. A survey conducted by Datamonitor has pointed out that most pharmaceutical companies believe Outsourcing to be the most effective method for limiting R&D costs.
The Need for Outsourcing: Analysts at Frost & Sullivan suggest, that with sophisticated technologies around such as high-throughput screening that are becoming a progressively more important part of the drug development process, companies are seeking outsourcing partners who will be able to provide superior technology and launch quality products in the market in a short span of time. Pharmaceutical companies today recognize the need to leverage in-house resources with specialized, competent partners particularly in the following:
-> Research in Biotech Industry
-> Development in CROs (Contract Research Organizations)
-> Manufacturing in CMOs (Contract Manufacturing Organizations)
-> Distribution in Co-marketing & CSOs (Contract Sales
Organizations)
Consumer empowerment is one of the main forces transforming the pharmaceutical industry. The trend toward individualized health management will create enormous opportunities for manufacturers and service providers within the pharmaceutical industry by enabling them to enhance their traditional offerings and to exploit entirely new market spaces. The key factors that lead companies to look for outsourcing of their work can be categorized as follows: the search for efficiencies in the drug development cycle, extending a company’s capacity, consolidation of the pharmaceutical industry, access to specific therapeutics expertise and globalization of the market within Europe and the USA.
As outsourcing in the industry matures, pharmaceutical manufacturers should select their outsourcing partners strategically and consider their partnerships to gain competitive advantage. As a result, pharmaceutical companies will ‘focus on total cost of doing business and look at ‘long-term needs and partnerships’. Effective partnering and outsourcing will however require trusting relationships and highly interactive programs.
The Future of Outsourcing: However, many challenges exist for the successful implementation of outsourcing within the pharmaceutical industry. The industry is characterized by inherently high risk; only one in 5,000 compounds actually becomes a product, commercial drugs cost $300 million to develop, and less than 50% of new products return the development cost. Tight governmental regulations compound this risk. Unlike other industries, there have been no transformational developments to drive outsourcing—even marginal performers can succeed. An immature contractor segment also characterizes this marketplace.
These forces are reshaping Pharma; they are the forces behind the consolidation of the industry, the growth in the number of alliances and the increase in outsourcing. Such changes are also contributing to the growing divergence between what Pharma companies need to achieve and what their employees want.
Datamonitor believes that centralized outsourcing departments will have to manage a portfolio of outsourcing agreements in the future. Such agreements will range from low technology, distanced agreements to strategic alliances, depending on the function being outsourced. The drivers of CRO market growth to 2003 will be increasing R&D costs, the launch of biotechnology products, continued M&A activity, and increased confidence in the quality of services provided by CROs. Analysts at Datamonitor also predict a consistent growth of 15 – 20% of the CRO market until 2003. The use of contract manufacturing is expected to increase in the future, as companies rationalize their manufacturing facilities, many of which currently operate below capacity. In the future, pharmaceutical manufacturers will attempt to move towards direct distribution as the role of large pharmacies for both payers and manufacturers becomes more established. It is believed that the true virtual pharmaceutical company is not a realistic proposition in future, although a virtual subsidiary to a large parent company may offer significant benefits.
Originally Published in CanBiotech BioMed Outsourcing Newsletter: Volume 1, Issue 1, September 2002
Trends in the biotech/pharmaceutical outsourcing industry
http://www.canbiotech.com/showHTMP.asp?hpId=444
Subscribe to:
Posts (Atom)
