IT services provider Siemens Business Services is planning to double the size of its US operation, and ramp up its offshore and business process outsourcing activities to counter dwindling revenue from its parent company.
Like its larger US rival EDS Corp, which is under pressure to win some major contract renewals with former parent company General Motors next year, Siemens Business Services is looking to build up its non-captive business as electronics giant Siemens AG cut its IT expenditure.
The last three years have been tough for SBS, as demand for systems integration and consulting services stalled, and competition in its core outsourcing market intensified. First-quarter revenue fell 5% to 1.21bn euros ($1.53bn), and although profit before interest and tax improved 32% to 44m euros ($55.6m) on the back of recent cost-cutting, its profit margin of 3.7% remained short of the previously stated target of between 5% to 6%.
Chief executive Paul Stodden told ComputerWire: Siemens is downsizing its IT spend, but we are gaining a greater share of the work that is being awarded. We do not work with Siemens under a large framework agreement and we compete with other companies to win business with them, but I prefer it this way as it keeps us competitive.
Some 5% of SBS’s 34,600 workforce is now based in offshore locations. As with most services companies, India forms the hub of SBS’s offshore resources – it has 1,400 applications support and business process outsourcing staff based out at its Siemens Information Systems Ltd in India.
Stodden said: It has taken the Indian IT market between 10 and 15 years to reach maturity, and although other offshore countries such as China are emerging, it will take them between five and 10 years to mature.
SBS does already have significant interests in second tier offshore locations. The company has a 500-strong call center in Turkey providing customer and technical support to companies in Germany, and provides back-office processing work from a center in Voronezh, Russia. It also provides managed helpdesk services from a center in Canada to international clients such as Toshiba, and Stodden said that this near-shore model delivers cost savings of up to 25%.
SBS currently makes annual revenue of $500m in the US, but Stodden said that he plans to double this figure in the next few years. The company’s operation in the country is built around Entex Information Services, a company it bought in March 2000 for $81m.
We are not looking at acquiring a larger competitor in the US, and are focused on organic growth. We count half of the Fortune 100 companies as our clients in the US, including MetLife, Coca Cola and Microsoft, said Stodden.
He also highlighted business process outsourcing as a future growth area for the company, despite a couple of earlier false starts – the company was heavily criticized for its role in two contracts with the UK government to process applications for passports and for applications for asylum.
This article is based on material originally published by ComputerWire