Archive for ‘Offshoring’

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14/10/2016

Infosys cuts annual revenue target for 2nd time as U.S. election, Brexit weigh | Reuters

India’s second-largest software services exporter Infosys Ltd cut its fiscal-year revenue growth target for the second time in three months on an uncertain business outlook, sending its shares tumbling more than 5 percent.

Reporting a 6.1 percent rise in second-quarter net profit, Infosys said on Friday it now expected revenue to grow between 8 percent and 9 percent in constant currency terms in the fiscal year to March 31, 2017. Its previous revenue growth target, issued in July, was 10.5-12 percent, already lowered from the up to 13.5 percent it said it expected in April.India’s more-than-$150 billion software services sector depends on North America and Europe for the majority of its revenue. The impending U.S. presidential election and the implications of Britain’s ‘Brexit‘ move to exit the European Union have both weighed on spending by western clients.

Infosys had warned in August it was seeing some “softness” in business after the June Brexit vote in Britain.

Chief Executive Vishal Sikka said in a statement on Friday the revision took into consideration “our performance in first half of the year and the near-term uncertain business outlook”.

After falling as much as 5.3 percent after the guidance cut was announced, Infosys shares were trading 2.6 percent down at 0453 GMT in a Mumbai market that was little changed.

For its fiscal second quarter to Sept. 30, its consolidated net profit rose 6.1 percent from a year earlier to 36.06 billion rupees ($541.51 million), ahead of analysts’ estimates of 35.26 billion rupees. Revenue rose 10.7 percent to 173.1 billion rupees.The company said on Friday it added 78 clients during the three months to September, taking its total number of active clients to 1,136.

($1 = 66.5919 Indian rupees)

Source: Infosys cuts annual revenue target for 2nd time as U.S. election, Brexit weigh | Reuters

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13/07/2015

The Seven Signs of India’s Outsourcing Apocalypse – The Numbers – WSJ

After years of success, the outsourcing industry is under stress as the market shrinks and spending falls. Indian companies say their business models, built on cheap labor, are under threat from a shift to cloud computing, where clients ditch server rooms and bespoke software. Here’s how the outsourcing industry has shrunk in the past several years.

$120.4 billion

The value of outsourcing deals worldwide in 2014, down from $206.8 billion in 2010.

1,144

The number of outsourcing deals signed globally in 2014. The deals are down 61% from 1,805 deals in 2010, KPMG data shows.

$552 million

The average value of the world’s 100 largest outsourcing deals in 2012. Since then, the average size has fallen and was at $452 million in 2014, according to International Data Corp.

9

The number of outsourcing deals made in 2014 worth $1 billion or more, the lowest in more than a decade. Big outsourcing deals are rarer, and are being won by fewer companies – five of those deals were made by International Business Machines Corp., according to International Data Corp.

20%-30%

The amount Indian outsourcing contract values fall when they are renewed, according to Emkay Research. As the work gets scarcer, clients bargain harder on prices.

$21,307

The average annual salary of a software developer in India, according to job search website Naukrihub.com. That’s in contrast to the $93,350 average annual salary of a developer in the U.S., according to the Bureau of Labor Statistics. Outsourcing companies say that clients are demanding quicker results and fewer, more experienced staff, forcing Indian outsourcers to hire more in the U.S. and Europe. As a result, Nasscom estimates that only 200,000-220,000 outsourcing jobs will be added in India in 2015 compared with 273,000 new jobs in 2011.

More than 50%

Amount revenue growth at India’s outsourcing giants has fallen since 2008. Tata Consultancy Services said sales grew 15% for the financial year that ended in March, compared with the financial year ending March 2008 when sales grew 37%. Infosys said revenue rose 6% last financial year, down from 19% growth in 2008.

via The Seven Signs of India’s Outsourcing Apocalypse – The Numbers – WSJ.

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13/07/2015

Under a Cloud: Outlook for India’s Outsourcers Looks Gloomy – India Real Time – WSJ

Investor fears that growth in India’s outsourcing industry is slowing down appear all but confirmed.

Tata Consultancy Services Ltd., India’s biggest outsourcer by revenue, reported its first results for the fiscal year of 2016 late last week.

The Mumbai-based company met analyst expectations, with a 12.9% rise in its first-quarter net profit. A bigger concern is slowing sales growth, a sign that the company is finding it harder to grow its business. Tata’s revenue grew by 3.5% in the three-months through June, down from 5.5% growth over the same period the previous year.

The slowdown spooked investors: TCS is an industry bellwether.

After the results, Tata’s shares closed down 2% on Friday, below the benchmark S&P BSE Sensex that closed up 0.3%. Competitors Infosys Ltd. and Wipro Ltd. are set to report results next week.

Analysis by The Wall Street Journal of revenue and profit data from India’s top-three outsourcing firms since March 2014 shows that TCS is not alone.

Other Indian firms are also not just struggling to return to the lightning growth they experienced in the ‘90s, they are moving further away from it.

With the exception of the three-month period ending September 2014, when the weakening rupee helped boost their bottom lines, revenue and net income at TCS, Wipro and Infosys has been slowing, data showed.

All three have seen their revenue growth since March 2014 turn south.

So what’s behind the deceleration?

One reason: a change in the way multinationals spend on technology.

In the past two years, many firms have resumed spending on technology after cutting back in the wake of the 2008 financial crisis, say Indian outsourcers.

Clients increasingly want solutions that use new technologies like data analytics software that help them analyze customer data or save on costs associated with procurement and logistics, and Indian outsourcers are not as good at this compared to their global competitors, say technology purchasing managers.

And, instead of employing large technology firms to run their back-end systems, the firms have increasingly signed up for pay-as-you-go services on the cloud—where servers and software are accessed via the Internet rather than on local networks or personal computers.

In the fight to regain ground, TCS is boosting its spending on digital technology, like big data, mobile app development and cloud computing.

On Thursday, for the first time, the company disclosed how much.  TCS said that it earned about $2 billion in revenue from digital technologies in the three months through June. That figure indicated that the Indian company was earning a small but significant part of its revenue from new technologies, including software that helps firms analyze social media or spending patterns for retailers.

In a further shift toward digitizing its business offering,  TCS will also train 100,000 people in digital technologies in the fiscal year 2016.

TCS Chief Executive N. Chandrasekaran said the Indian outsourcing giant would reach its target of earning more than $5 billion from digital technologies in the next four years. Revenue from this segment is growing at double-digits on a quarter-to-quarter basis, he said.

With its $4.08 billion in cash, left after paying huge dividends and industry-beating wage hikes, TCS could reach that target sooner than expected if it buys firms specializing in digital services, analysts say.

via Under a Cloud: Outlook for India’s Outsourcers Looks Gloomy – India Real Time – WSJ.

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31/01/2015

Panasonic withdraws from TV production in China: source | Reuters

As we said with the reduction of workforce at Foxconn, this could be the beginning of the end to off-shored manufacturing.  Time will tell if we’re right or not.

“Panasonic Corp (6752.T) has stopped making TVs in China and plans to liquidate its joint venture in Shandong, a company source said on Saturday, the latest in a string of Japanese electronics companies exiting overseas TV markets amid strong pricing pressure.

Exhibitors prepare the Panasonic exhibit space ahead of the International Consumer Electronics show (CES) in Las Vegas, Nevada January 5, 2015. The show officially opens on January 6. REUTERS/Rick Wilking (UNITED STATES - Tags: BUSINESS SCIENCE TECHNOLOGY)

The source, who did not want to be identified because the move had not yet been announced to the roughly 300 workers at the Shangdong plant, said Panasonic ended production there on Friday.

The Nikkei earlier reported that Panasonic would withdraw from TV production in China and Mexico. The report said the company was expected to sell the Mexican plant, which has produced about 500,000 units a year, most of which were shipped to the United States.

Reuters could not confirm the company’s plans to exit Mexico. It currently has two plants in that country, part of the company’s nine TV manufacturing plants, excluding Shangdong.

A fierce price war has made the global TV market unprofitable for many Japanese electronics makers. Panasonic said in late October it was transferring its unprofitable Sanyo television unit in the U.S., which supplies sets to Wal-Mart Stores, to Funai Electric (6839.T) in return for royalties.

Toshiba Corp (6502.T) said on Thursday that it would stop making and selling TVs in North America and was considering similar exits from other countries.

Sharp Corp (6753.T) has licensed its TV brand in Europe to Universal Media Corp Slovakia as part of an effort to trim costs and pull back from loss-making operations. Sony Corp (6758.T) has spun off its struggling TV business into a separate entity, although CEO Kazuo Hirai has said the company does not plan to sell or shut down the unit.”

via Panasonic withdraws from TV production in China: source | Reuters.

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27/01/2015

Apple supplier Foxconn to shrink workforce as sales growth stalls | Reuters

Is this the beginning of the end for off-shoring manufacturing?

“Taiwan‘s Foxconn Technology Group, the world’s largest contract electronics manufacturer, will cut its massive workforce, the company told Reuters, as the Apple Inc (AAPL.O) supplier faces declining revenue growth and rising wages in China.

Employees work inside a Foxconn factory in the township of Longhua in the southern Guangdong province in this May 26, 2010 file photo. REUTERS/Bobby Yip

Under its flagship unit Hon Hai Precision Industry Co Ltd (2317.TW), the group currently employs about 1.3 million people during peak production times, making it one of the largest private employers in the world.

Special assistant to the chairman and group spokesman Louis Woo did not specify a timeframe or target for the reduction, but noted that labor costs had more than doubled since 2010, when the company faced intense media scrutiny following a spate of worker suicides.

“We’ve basically stabilized (our workforce) in the last three years,” Woo said. When asked if the company plans to reduce overall headcount, he responded “yes”.

Revenue growth at the conglomerate tumbled to 1.3 percent in 2013 and only partially recovered to 6.5 percent last year after a long string of double-digit increases from 2003 to 2012.

That decade saw the firm ride an explosion of popularity in PCs, smartphones and tablets, largely driven by its main client Apple, but now it is feeling the effects of falling growth and prices in the gadget markets it supplies, a trend that is expected to continue.

Growth in smartphone sales will halve this year from 26 percent in 2014, according to researcher IDC, while PC sales will contract by 3 percent.

Similarly, the average smartphone will sell for 19 percent less in 2018 than last year’s $297.

“Even if technology is improving, the price will still come down,” Woo said. “We’ve come to accept that, our customers have come to accept that.”

Automation will be key to keeping labor costs under control in the long-term, Woo said, as the company pushes to have robotic arms complete mundane tasks currently done by workers.

But Woo noted that company chairman Terry Gou‘s previously stated goal of 1 million robots was “a generic concept” rather than a firm target.”

via Exclusive: Apple supplier Foxconn to shrink workforce as sales growth stalls | Reuters.

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05/09/2014

U.S. South Draws Global Manufacturers With Low Taxes, Cheap Labor – Businessweek

Just before the recession hit in 2007, Electrolux (ELUXA:SS), the Swedish home-appliance maker, was trying to decide what to do about an aging plant outside Montreal. The building was more than 100 years old and the line of high-end stoves and ovens produced there needed a refresh. The factory’s 1,300 union workers earned around $20 an hour.

Rather than sink more money into the old plant, Electrolux decided to move where it could operate more cheaply. In Europe, it was shifting work from Sweden, England, and Denmark, to Hungary, Poland, and Thailand, where workers are paid less. In North America, Electrolux settled on another low-cost region: the American South.

Alabama, North Carolina, and Tennessee—along with Mexico—all competed for the plant, offering generous incentive packages. The winner was Tennessee, which together with the city of Memphis and Shelby County, assembled an offer that, according to Electrolux, was worth $182 million, including public infrastructure funds, tax breaks, and, crucially, worker training. The company committed $100 million to build the plant. In December 2010, Electrolux announced that a site just eight miles from Graceland would be home to its most advanced factory. “We don’t just grab at every project that comes through here,” says Memphis Mayor A C Wharton Jr. “But this one was particularly appealing.”

Manufacturing is slowly returning to the U.S.—and much of the action has been below the Mason-Dixon line. With its low tax rates and rules that discourage unionization, the South has for decades been seen as business-friendly, which helped the region attract service companies that rely on low-skilled workers, such as call centers and warehouses. Now industries such as autos and aerospace are moving in. According to Southern Business & Development (SB&D) magazine, which tracks commercial projects valued at more than $30 million, manufacturing made up 68 percent of investments announced last year. The number of projects totaled 410, the most in 20 years.

Changing conditions in the oil market and China have a lot to do with manufacturing’s resurgence in the South. In 2001, when China joined the World Trade Organization, the price of oil was $20 a barrel and the hourly manufacturing wage in China’s Yangtze River Delta was 82¢ an hour. Oil is now more than $100 a barrel and workers in the Yangtze make $4.93 an hour. The once enormous manufacturing advantage of the People’s Republic has in some cases vanished.

An April 2014 study by Boston Consulting Group found that the U.S. now ranks second only to China in manufacturing competitiveness among the top 10 exporting countries. Three years ago, BCG Managing Director Harold Sirkin, co-author of the report, forecast that states such as South Carolina, Alabama, and Tennessee would become “among the least expensive production sites in the industrialized world.” That’s especially true for companies making things for sale in the U.S. The South “has become the cheapest place to make things inside the largest economy in the world,” says Michael Randle, publisher of SB&D.

via U.S. South Draws Global Manufacturers With Low Taxes, Cheap Labor – Businessweek.

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25/07/2014

Ethiopia Vies for China’s Vanishing Factory Jobs – Businessweek

Ethiopian workers walking through the parking lot of Huajian Shoes’ factory outside Addis Ababa in June chose the wrong day to leave their shirts untucked. The company’s president, just arrived from China, spotted them through the window, sprang up, and ran outside. Zhang Huarong, a former People’s Liberation Army soldier, harangued them in Chinese, tugging at one man’s polo shirt and forcing another worker’s into his pants. Amazed, the workers stood silent until the eruption subsided.

Turning Ethiopia Into China's China

Zhang’s factory is part of the next wave of China’s investment in Africa. It started with infrastructure, especially the kind that helped the Chinese extract African oil, copper, and other raw materials to fuel China’s industrial complex. Now China is getting too expensive to do the low-tech work it’s known for. African nations such as Ethiopia, Kenya, Lesotho, Rwanda, Senegal, and Tanzania want their share of the 80 million manufacturing jobs that China is expected to export, according to Justin Lin Yifu, a former World Bank chief economist who teaches economics at Peking University. Weaker consumer spending in the U.S. and Europe has prompted global retailers to speed up their search for lower-cost producers.

Shaping up employees is one part of Zhang’s quest to squeeze more profit out of Huajian’s factory, where wages of about $40 a month are less than 10 percent of what comparable Chinese workers may make. Just as companies discovered with China when they began manufacturing there in the 1980s, Ethiopia’s workforce is untrained, its power supply is intermittent, and its roads are so bad that trips can take six times as long as they should. “Ethiopia is exactly like China 30 years ago,” says Zhang, 55, who quit the military in 1982 to make shoes from his home in Jiangxi province with three sewing machines. He now supplies such well-known brands as Nine West and Guess (GES).

Almost three years after Zhang began his Ethiopian adventure at the invitation of the late Prime Minister Meles Zenawi, he says he’s unhappy with profits at the plant, frustrated by “widespread inefficiency” in the local bureaucracy, and struggling to raise productivity from a level that he says is about a third of China’s. Transportation and logistics that cost as much as four times what they do in China are prompting Huajian to set up its own trucking company, according to Zhang. That will free Huajian from using the inefficient local haulers, but it can’t fix the roads. It takes two hours to drive 30 kilometers (18 miles) to the Huajian factory from the capital along the main artery. Oil tankers and trucks stream along the bumpy, potholed, and at times unpaved road. Goats, donkeys, and cows wander along, occasionally straying into bumper-to-bumper traffic. Minibuses and dented taxis, mostly blue Ladas from Ethiopia’s past as a Soviet ally, weave through oncoming traffic, coughing exhaust.

via Ethiopia Vies for China’s Vanishing Factory Jobs – Businessweek.

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29/04/2014

China vs. the U.S.: It’s Just as Cheap to Make Goods in the U.S.A. – Businessweek

An entire generation of Americans has come of age laboring under the assumption that the U.S. can’t compete in the manufacturing arena with low-cost competitors such as China and Brazil. That may have been true a decade ago, but it’s no longer true today.

An employee of Rebecca Minkoff handbags at the Baikal manufacturing facility in New York.

I recently completed a review of manufacturing costs in the top 25 export economies with my colleagues Justin Rose and Michael Zinser. Our research shows that when the most important economic factors are considered—total labor costs, energy expenses, productivity growth, and currency exchange rates—Brazil is one of the highest-cost manufacturing nations in the world, Mexico is cheaper than China, China is virtually even with the U.S. (as are most of the traditionally “low-cost” countries of eastern Europe), and the low-cost leader in western Europe is none other than the country that launched the Industrial Revolution: the United Kingdom.

So throw away the old playbook. Welcome to the new era.

via China vs. the U.S.: It’s Just as Cheap to Make Goods in the U.S.A. – Businessweek.

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23/12/2013

Spotted Again in America: Textile Jobs – WSJ.com

More signs that the era of ‘cheap’ Chinese manufacturing is on the wane.  See – https://chindia-alert.org/2012/04/26/china-offshores-manufacturing-to-the-u-s/

“Zhu Shanqing, who owns a yarn-spinning factory in Hangzhou in China\’s Zhejiang province, is struggling with rising costs for labor, energy and land. So he is boxing up some of his spindles and moving.

To South Carolina.

Mr. Zhu is one of a growing number of Asian textile manufacturers setting up production in the U.S. Southeast to save money as salaries, energy and other costs rise at home. His company, Keer Group Co., has agreed to invest $218 million to build a factory in unincorporated Lancaster County, not far from Charlotte, N.C. The new plant will pay half as much as Mr. Zhu does for electricity in China and get local government support, he says. Keer expects to create at least 500 jobs.

There is another benefit. As costs continue to increase in China, Keer can ship yarn to manufacturers in Central America, which, unlike companies in China, can send finished clothes duty-free to the U.S.

The move by Mr. Zhu and others will scarcely revive a once bustling Southern textile industry. But it illustrates how shifts in global trade are creating advantages for U.S.-based manufacturing.

China Real Time

Why One Chinese Textile Maker Sees His Future in the U.S.

\”We are on the leading edge of a mature cycle\” with rising costs pushing Asian companies to consider moving to the U.S., said Robert Hitt III, South Carolina\’s commerce secretary.

In October, Mumbai-based ShriVallabh Pittie Group announced it would build a $70 million yarn operation in rural Sylvania, Ga., bringing 250 jobs. The company wants to avoid paying U.S. duties and to secure \”cheap, plentiful and importantly reliable\” energy, crucial in yarn production yet erratic in India, said Zulfiqar Ramzan, vice president for international development. Yarn spinning runs 24 hours a day, seven days a week, for most of the year, and any energy disruptions cause substantial delays and waste, he said.

In April, Alok Industries, 521070.BY +1.88% another Mumbai textiles producer, said it would build a yarn-spinning factory in the South, though it hasn\’t said where. The company expects to save on duties by making yarn in the U.S. and pay less than 10% of what it pays for energy in India, said Chief Executive Arun Agarwal.

In September, JN Fibers Inc. of China agreed to build a $45 million plant in South Carolina that turns plastic bottles into polyester fibers used to stuff pillows and furniture. That investment is expected to create 318 jobs. Development officials in South Carolina and Georgia say more Asian textile manufacturers have contacted them this year.”

via Spotted Again in America: Textile Jobs – WSJ.com.

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