IBM's deals highlight continued outsourcing growth

Big Blue's recent outsourcing wins at companies such as Morgan Stanley, Shell Oil and Qantas Airways reflect the growth in the outsourcing market as businesses look for ways to run their IT operations more efficiently, using both onshore and offshore resources.

The deals, which were made public this month, come as analysts revise their initial offshoring forecasts. For example, Forrester Research increased its original projections by as much as 40 percent.

Still, analysts note that offshoring remains a small fraction of the total outsourcing market, which is growing.

LogicaCMG Australia CEO Colin Holgate said the company provides a blended model to customers which combines offshoring, nearshoring and onshoring. An example of nearshoring is its outsourced call centre services in Tasmania. The helpdesk is staffed by about 70 employees and Holgate said the Apple Isle was selected because it has the lowest staff turnover rate in the country, especially when compared to Sydney and Melbourne. He says offshoring is only one segment of outsourcing and finds the debate about losing local jobs to code cutters in India far too emotive.

"It isn't dissimilar to 20 years ago when everyone thought technology was going to replace jobs when it actually created jobs," Holgate said. "You're not going to be price competitive if you don't have an offshoring component."

He says the outsourcing market has changed dramatically in recent years with customers moving away from 'I need someone to do this' to 'I need someone to solve this'.

"Customers want you to understand their business. Previously supply was driven by demand but today you have to create demand by solving problems," Holgate said.

"This is why we are more of a niche player especially in Australia's utility market where we provide services to utilities in almost every state across the country.

"We have driven utility deregulation and can sell strategy by allowing customers to leverage off our domain expertise and specialist knowledge in this area."

Holgate admits LogicaCMG is not an IBM, its heartland is more in the $40 to $50 million bracket rather than the billions, but its clients have renewed their contracts this year and the company has just inked a deal with the NSW Department of Health. With the emergence of selective outsourcing, Holgate said the average length of contracts today is about three years. The deal Qantas inked with IBM and Telsta is valued at more than $1 billion.

IBM is expected tor receive $650 million over 10 years from Qantas for managing data centre operations, mainframe and mid-range computing. The airline's CEO Fiona Balfour said Qantas had simply outgrown its existing infrastructure and facilities.

The Royal Dutch/Shell Group of companies has reportedly signed contracts with IBM and Wipro Technologies for IT services from India. News reports in India said the outsourcing deals could be worth $1 billion or more. Neither Shell nor IBM would comment.

The Morgan Stanley deal, which extends a previous IT services agreement, calls for IBM to move the financial firm's Individual Investor Group and Discover Financial Services off mainframes and into a hosted arrangement in which Morgan Stanley has access to computing resources on demand, paying only for the resources it uses.

(With Jennifer Mears.)

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