Outsourcing Shifting to Full Service

Outsourcing firms are transforming themselves into full-scale IT services companies.

Outsourcing firms that once focused solely on providing IT and software development services at a lower cost are increasingly reforming themselves as end-to-end IT infrastructure management firms.

The latest evidence of this trend came this week with the announcement of yet another outsourcing partnership. Through its $600 million acquisition of the infrastructure management services provider, Infocrossing, based in Leonia, N.J., the outsourcer Wipro Technologies hopes to expand its presence in the U.S. and position itself as a full-scale IT services provider.

At $18.70 per share, the deal announced Aug. 6, adds five data centers and approximately 900 employees to the Indian outsourcer, which considers global infrastructure services an important driver of its future growth.

"This acquisition of an industry leader broadens the data center and mainframe capabilities of Wipro Technologies to uniquely position us in the remote infrastructure management space… Infocrossing also brings in significant expertise in health plan and payer management segments," Sudip Banerjee, president of enterprise solutions for Wipro said in a statement.

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IT outsourcing and infrastructure services for Wipro, which is headquartered in Bangalore, grew 75 percent in the past year, and the company believes this acquisition will bring in larger orders. The all-cash transaction is expected to be completed by the end of March 2008.

Tata Consultancy Services and Infosys Technologies—Wipros larger rivals—have also been buying software services companies to increase their range of products and to win more clients. Buying competitors in the U.S. allows these firms to be nearer to their target customers, and to address customer unease about overseas outsourcing.

There are persistent concerns about the future health of the outsourcing market, even as Indias biggest outsourcing firms continue to rake in large profits. Each of the top five outsourcing firms—Tata, Infosys, Wipro, Cognizant Technology Solutions and Satyam Computer Services—reported healthy profits in the second quarter of 2007.

Yet, worries about high employee turnover, a mounting qualified worker shortage, an appreciated rupee that is cutting into earnings and the increasingly protectionist stance the U.S. has assumed on foreign workers has cast a shadow on their profit and growth prospects

On May 13, U.S. Sens. Chuck Grassley (R-Iowa) and Dick Durbin (D-Ill.) sent letters to nine Indian outsourcing firms, including all in the top five, requesting details on the way they use their H-1B visas. These 9 firms were issued nearly 20,000 of the 65,000 2006 H-1B visas.

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