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Nov 13, 2009

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Hi Davis, that was a good insight on sourcing strategies..however a bit contrary to your thought of 'systematic multisourcing' what we are witnessing is vendor consolidation..how do you explain that.

Hi Stephen
No I don't - however I do see IT providers getting better at making the economics work through programs that placate the local working councils which do recognize the new reality. European firms need services to support their employees through any reduction in force (RIF). Several IT service providers revealed to me how importantly clients rated these HR skills that they can offer their clients during the implementation process and Forrester inquiries back this up. Some providers offer staff affected by the RIF onsite employee retraining and outreach programs. These services work to win the engagement and cooperation of the local working councils in the Netherlands and Germany, for example, which insist that service providers have these skills in place when implementation begins — or at least can work through local partners to provide these services to their members.

Over the past decade, "European firms needing to quantify interplay between cost and risk and then trying to tune their model around the blend of onshore, nearshore, and offshore resources", have mostly settled for "nearshore" (Through Acquired-companies(eg. banking industry), setting up captives or outsourcing). Besides the fact that most advisors, like to take the path of least resistance, there is good economic reason for this too. Each new EU entrant country brings young labor pools with skills at attractive price-points & labor regulation flexibility, unheard of inside western europe. Add to this, the EU-subsidy dole available to new investors in their first 3 to 5 years, & you'll know why Eurozone jobs have stayed in the Eurozone. EU expansion at regular intervals & the 5 year economic-window in which a new EU country's new graduate wage-escalates from approx Euros 300 per month to Euros 1000 per month (Approximate Min. Wage in Most Western EU countries), has been breathing-in a fresh lease of life, into the financial-model that helps to avoid global-delivery/full-blown outsourcing decisions. Of-course, recession-hit companies may try riskier sourcing strategies but the Croatia/ Macedonia/Ukraine/Turkey etc tap that Brussels controls, will eventually decide the flow of Eurozone outsourcing - a trickle or a flood ....

Pierre/ Stephen - try a 2-step sourcing approach - first Intra-Eurozone (EU to New-EU (better labor codes)) & then global delivery - there is a way to make the financial model work ..

Ratnesh
( Phil - Congratulations on your move to Cognizant - the doers side of the sourcing world !)

My view is that firms need a longer-term perspective when they consider outsourcing, and too many European businesses are far too focused on short-term measures. Don't see a lot of moves to broader outsourcing models outside of Britain, as short-term cost-savings are completely negated by prohibitive costs of displacing workers in countries such as France, Italy and Germany.

Euan - interesting perspective.

Do you ever see the French and Germans relaxing their labor laws to make it financially feasible to use third party services in a managed services context?

Stephen Leonard

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