Is the concept of Indian Outsourcing threatened?

Sramana Mitra writes that the future of Indian Outsourcing is bleak. In fact, her article on Forbes.com Friday titled “The Coming Death Of Indian Outsourcing”, frames the basis of her argument by indicating that the cost advantage for offshoring to India used to be 1:6, whereas today it is 1:3 at best, with high attrition. She further predicts it will drop as low as 1:1.5 over time.

MItra goes on to say that that automatable Indian jobs will disappear over the next decade. We know that as MSP’s, this concept is not hard to believe – we do it here today. The article continues by stating that India’s tech industry is a “services” industry, and that Indians don’t do the thinking, their customers do, then India executes. As a result, India has failed to learn how to invent technology products of its own.

According to the article, Forbes’ recently published wage statistics for India reflect that salaries rose 15.1% in 2007, up from 14.4% the previous year, with 2008 forecasts of a hike of 15.2.%, signaling the fifth consecutive year of salary growth above 10% – incredible numbers in any job market, and when paired with the devaluation of the US dollar against the Indian rupee, these numbers are even more striking.

Mitra’s final thoughts forecast the cost advantage of Indian Outsourcing disappearing by 2015, leveraging a 15% year-over-year Indian salary hike rate and projecting the aforementioned continued decline in the cost advantage for Indian labor to 1:1.5 over time. Read the entire article here.

These are very interesting statistics and conclusions, as we ourselves have seen our Partners begin to adopt Outsourcing/Offshoring solutions in regions such as Russia and Eastern Europe in 2007. In fact, at the 2007 ConnectWise Summit, I had the opportunity to speak with representatives from a South African organization that were working to put together a back-office support offering for Managed Services RMM Vendor Level Platforms (www.levelplatforms.com).

These indicators signal to us that we will indeed see more Offshoring opportunities move away from India and to other developing nations, as well as back to the United States. IT Distributor Ingram Micro’s Services Division is on an aggressive Partner acquisition strategy in this regard with its Seismic offering, which delivers traditional back-office outsourcing services to Solution Providers; and is attempting to differentiate itself from competitors by adding additional products and services valuable to Solution Providers to its Sesimic portfolio, such as email protection and archiving, online backup and restore services and a nationwide network of Partners who can provide onsite project delivery and support services (www.ingrammicro.com/servicesdivision).

Zenith Infotech, the recognized leader in Indian Offshoring and back-office support for MSP’s, has also recognized the reality that, as its back-office services become commoditized and it becomes more difficult to maintain its dominance through delivery of these services alone, it needs to diversify its product offerings to the channel. In this regard, Zenith has recently announced its partnership with A-Server, a Belgian company that has created a mash-up of Virtualization and SaaS technologies to create DaaS – Datacenter as a Service. This announcement follows closely behind Zenith’s BUDR Solution for Partners, whose newest version has just been released (www.zenithinfotech.com).

As both Ingram and Zenith compete for the back-office business of IT Solution Providers, they are either creating or Partnering with other organizations to add value-added products and services to their core Outsourcing attractiveness as a hedge against Sramana Mitra’s predictions.

What do you think? I’d like to hear your comments…

Erick Simpson

Posted in: Industry Trends

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What annuity-based products and solutions do you offer your clients?

What annuity-based products and solutions do you offer your clients?

We learned long ago to appreciate the benefits of annuity-based revenue. And I don’t mean simply Managed Services annuity-based revenue, I mean all types of annuity-based revenue. About 9 months into our transition to Managed Services – just about the time we got all of our 70+ existing clients either moved over, or released back to the wild, and were marketing for new Managed Services clients, we performed an exercise to try to determine how much each of our clients would be worth to us in annuity-based revenue over the term of their Managed Services Agreement.

At this point, we had begun selling Voice and Data T1’s and Integrated T1’s through a vendor that paid us not only a commission on each sale, but an annuity each and every month, and this was a new experience for us – earning an annuity after a sale from a vendor. So in our projections in this exercise we were conducting, we added the annuity revenues from selling 60% of our clients an Integrated T1 (we figured we couldn’t get them all, for various reasons). We also had the good fortune to stumble into a POS project for a large client during this time during an infrastructure upgrade which included a migration to a key line of business application which was incompatible with their existing POS processing solution. The bottom line was we had to find a new POS processing vendor and solution, and discovered one that not only provided the client better rates, but also paid a percentage to us on each and every transaction – and this client processed upwards of $250,000 per month in transactions – more monthly annuity! So we determined how many of our existing clients we could switch their POS processing service over to this vendor, and added this projection to our exercise as well.

What we learned through this exercise was much more than just how much annuity revenue we could earn from existing, and new clients if we sold them these solutions in addition to Managed Services. We learned just how powerful and business-changing the concept is of selling OTHER services to our clients through vendors that pay commissions plus annuity. This realization is what prompted the modification of our Client Solution Roadmap.

What’s the Client Solution Roadmap? The idea here is to list all of our clients down the left side of a spreadsheet, and all of the solutions we can possibly think of to offer them across the very top of the spreadsheet – even if we don’t currently offer that particular product or service. We know that they will eventually purchase it from someone, and that someone may as well be us, through the right vendor or fulfillment-partner relationships.

We then assign a red dot or a green dot in each client’s corresponding cell, where their name and the solution intersect – a red dot if they don’t have the solution and a green one if they do. By the time we’re done with this exercise, we’ll be able to determine each product or service that our clients don’t have (or have, but we want to switch), and choose which services and solutions to start selling them in order of priority. Again, if we don’t currently offer this service or solution, we would partner with a vendor or fulfillment-partner that pays annuities to deliver the solution. Now sometimes it’s not possible to find a vendor or partner for a particular service that pays annuities, but if you look hard, as we did, you will find many more than you might think.

So what solutions were we able to find vendors and fulfillment-partners for which paid annuities, or allowed us to charge a monthly annuity for? Here’s a short list:

·         Managed Services

·         Monitoring Only Services

·         Managed Firewalls

·         Internet Monitoring/Content Filtering

·         Disaster Recovery/Business Continuity Planning

·         Website Design (sold with monthly changes included for a flat fee/mo.)

·         Website Hosting

·         Co-Location Services

·         Hosted Servers

·         Remote Backup/Storage

·         Email and Spam Filtering

·         Email Archiving

·         Managed SAN Storage Solutions

·         Voice and Data T-1’s

·         Hosted and On-Prem VoIP

·         Hosted CRM Solutions

·         Hosted SharePoint Solutions

·         POS/Inventory Control Solutions

·         HaaS/SaaS

As you can see, in order to deliver all of these solutions to your client base yourself, you would need to be a very large organization with the competencies and staff to make this all happen, but if you partner well, all of these solutions can be sold and billed by you, with most of the heavy lifting performed by your vendors and fulfillment partners.

Come to the realization that we did – you’re leaving lots of money on the table for someone else to pick up, and you’re going to get involved when there’s a problem anyway, so you might as well get paid for it up front, and every month moving forward.

So what happened during our annuity-revenue-projecting exercise? We came to the realization that if we only sold 50% of our clients 50% of all of our annuity-based products and services, we would double our monthly revenue.

Want to hear something even more incredible? We determined that by utilizing the Client Solution Roadmap, and prioritizing the solutions we would present and deliver to each of our clients, first one solution to all clients, then the next, in that fashion, we would never run out of solutions to sell our clients. Why? Because it would take us so long to present and deliver all of the solutions on our Client Solution Roadmap, that we would never get to the end, as we would be adding valuable solutions along the way….

Oh I almost forgot – if done correctly, you will continue to earn annuity-based revenues month after month, year after year for these solutions even if your relationship with the client ends, as many of these services require the client to sign an agreement with the vendors themselves – it’s the gift that keeps on giving…

What prompted this post was Steve Kinman’s 2-part post on hosting servers here. Steve makes all the right arguments for hosting client servers in his humorous post – be sure to read both parts.

For more information on the Client Solution Roadmap and other valuable insights into our transition to becoming an MSP, pick up the first book in our Managed Services Series, “The Guide to a Successful Managed Services Practice”, on our website at www.mspu.us.

Erick Simpson
MSP University
www.mspu.us 

Posted in: Service Delivery

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