A Springboard To Services

Today Infosys announced a significant BPO deal with Phillips electronics in the Netherlands, for F&A BPO. This has been a very significant win for Infosys, especially with the Phillips history as historical owner of Atos Origin, and close ties to other European IT and business providers. This will help them with momentum in Europe, having said that it is not going to reduce the speculation of an acquisition.

There has been recent media speculation about the large number of Australian federal government contracts that are up for renewal in the next 2 years. This is of course part of the ongoing cycle of renewals that occurs in the Australian outsourcing space. 2006 saw some very significant renewal activity with South Australian Government, Telstra and Commonwealth Bank amongst others. What is going to be very interesting to gauge is; will anything actually change. The three deals all highlighted above, had some tinkering around the edges, but incumbents still got the overwhelming majority of the renewals.
 
What was equally significant was that the mass herd of enterprises moving to selected outsourcing did not occur. I have been on the record as a relative cynic about the move to selective outsourcing due to the cost of vendor management and risk of a blame game, and whilst there are always examples one can use to highlight it's existence, it is has by no means produced results that match the hype by some involved parties. Nor has widespread in sourcing occurred, again examples can be found, but it is not endemic as some may believe.
Perhaps the largest 800 pound gorilla in the corner is the impact of a changing government federally in . All polls seem to point in this direction (for now at least) with PM Howard now both literally and figuratively stumbling. There is now a highly politicized public sector federally in Australia (and in most state governments to be fair), any change in government will likely result in a lot of new department heads and an expectation of changing strategies in terms of IT. Perhaps it might be good for consultants and less positive for outsourcers time will tell.

The surging Australian dollar does not appear to have a sort to medium term ceiling, and is now seriouslybeing expected to achieve parity with the US dollar, something that at a nadir 47c several years ago looked like a pipedream. At that time, buying a water bottle and simple sandwhich for lunch in the US could set one back the best part of $15.

http://www.news.com.au/business/story/0,23636,22117985-31037,00.html

Fortunately or otherwise the structural inadequacies of the Australian IT economy means that this has largely an upside for IT in Australia. Imports of technology (of which Australia has an seriously shameful imbalance) will come down in unit price, hence more queues at Harvey Norman and the like, and good news for IT equipment manufacturers. Australia's ongoing obsession with large TV's and imported consumer products will also continue. By the way, any suggestions for a strategy that can convince my wife to allow me to buy a 120cm wide TV before the Rugby World Cup in a couple of months are greatly appreciated.

From a services point of view this growth will make Australia an increasingly attractive location for the global delivery providers (Indian and US based), and potentially provide cost savings and relief which is also being impacted by the ongoing record low unemployment currently being seen in Australia. Wages growth in India is potentially being offset by the apreciatoin of the local currency. Other benefits include relative relief from increasing oil prices, raises of which have been tempered by increases in the Aussie Dollar.

The downside of course is for the local IT industry, particularly those who have export markets, their products, largely but not exclusively software will need to ensure increased efficiency and process improvement to help offset price pressure that will occur as a result of the relative appreciation of the dollar. Sadly this contribution to the Australian economy is limited and overshadowed by the extreme balance of payment imbalance for this sector of the economy.

It looks like a huge and market changing outsourcing deal in India has been signed or is about to be signed, knowing the shortlisted vendors, it will certainly change the market for the successful one, as well as for the Indian domestic market. As with most of the significant deals in India, the successful vendor is not Indian based, though of course has significant resources in country. I will update when I hear more.