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Updated 3/04/04, 4:20 p.m. MST (adds "China Development Bank Win")

Analysis of Two Big Hewlett Packard Services' Deals in India, China

A Passage from India

HPS Wins $150 Million-Contract at Bank of India, Smaller Deal at China Development Bank

PHOENIX, Mar 4 - Remember the boatloads of American jobs on "A Passage to India"? (Annex Newsflash, July 2003, and "China Now Bigger Than the U.S.," Jan 2004).  Stories like these even became a political football in this year's presidential campaign.  Well, at least one American ship is returning home from India laden with gold - Hewlett-Packard Services (HPS).  HPS has reportedly just won the largest outsourcing contract in India's banking industry - a 10-year, $150 million-deal at the state-owned Bank of India.

No, the lost American jobs won't be joining the HP revenues and profits on their passage back to the U.S.  The work at the Bank of India will be done by HP's and the bank's local staff.  The reason, of course, is the lower labor costs in India.  

"If we were to perform the same scope of work for a New York bank, for example, using American workers, this would be a $500-million deal," said one HP insider who asked to remain anonymous.

Which makes the American IT labor costs about three-to-four times higher than in India.  That's the main reason, of course, so many IT jobs have been outsourced to India in the first place (estimated at about 450,000 over the next several years - see "A Passage to India").  But with HPS win at the Bank of India, America will now get at least some benefits in return for job losses, however modest.

What is especially significant about this HP win is that it succeeded in securing it in competition with several local Indian IT services companies even though the customer was a state-owned bank.  That's as if the CIA were to outsource its computer operations to a French or a Japanese company.  Perhaps the Indians have learned from mistakes that the Japanese had made in their heydays during the 1980s?  

By pretty well barring foreign companies from competing for business in Japan's domestic market, the Japanese had drawn the wrath of the world upon themselves.  Faced with a rash of negative publicity that the "giant sucking sound" of U.S. jobs leaving the country has generated in this country, the Indian government may have decided to show the world that it is a "free trader;" that foreign companies are as welcome as the domestic ones; and that, in the end, American companies will get something in return for its investments in India in addition to the cost reduction.

Under the terms of the Bank of India contract, HP will implement and manage a Core Banking Solution (CBS) across 750 branches in India.  HP will also implement and manage a Data Warehousing and Document Imaging solution, and provide integrated channel management for Tele Banking, Internet Banking and ATM systems. 

Bank of India said it chose HP as its partner for its major IT-enabled transformation project after an extensive and exhaustive shortlist which included major vendors from in India and abroad.

"Bank of India was looking for a partner with the right domain knowledge and expertise in integrating and managing large projects. We chose HP because of its outsourcing and systems integration experience. We are confident that HP can help us achieve an adaptive infrastructure and ensure cost-effective utilization of IT," said Mr. M. Venugopalan, Chairman & Managing Director, Bank of India, according to an HP India statement (also see "IT Industry: Whither Goeth It?" for a definition of an "adaptive enterprise").

China Development Bank Win

HPS has also just reported that it had won another similar deal with China Development Bank (CDB).  Though smaller in scope (a "multi-million dollar" contract, according to HP), HP's China outsourcing win suggests that the second-most criticized country after India for exports of American jobs is also showing signs of sensitivity to U.S. political issues and global competition.  

HP will provide CDB with onsite support, one-stop hotline services, customer training, technical consulting, IT system management of outsourcing services and IT equipment outsourcing.  CDB has 32 branches across China.

The contract was awarded to HP "because of its strength in providing comprehensive end-to-end IT solutions and its track record in outsourcing," according to C.H. Kee, vice president of HP China and General Manager of HPS China.

CDB is China’s largest policy bank. It has the task of supporting the country’s infrastructure build-ups and development of its pillar industries. With China’s entry into the World Trade Organization (WTO), CDB’s ability to use IT to achieve greater business agility, was key to this outsourcing decision. 

What remains to be seen if these are just two isolated examples or the beginnings of a new trend.  After all, "one swallow does not make a spring" (Aristotle, b. 384-322 BC).

Happy bargain hunting!

Bob Djurdjevic

For additional Annex Research reports, check out... 

2004 Global: IBM: Greed De-clawed (Feb 2004); China Now Bigger Than U.S.! (Jan 26);  IT Industry: Whither Goeth It? (Jan 20); Five Most and Least Likely Forecasts for 2004 (Jan 2004)

2004 IT: "Crown Jewel" Restored? (Mar 2004); HP: Still No Cigar (Feb 2004); Cap Gemini: Another, Smaller Loss (Feb 2004); CSC: Good Quarter Gets Boos (Feb 2004); EDS: "Hot Air Jordan" Flaunts Flop as Feat (Feb 2004); IT Industry: Whither Goeth It? (Jan 2004); Cronyism Is Alive and Well at EDS" (Jan 2004)

2003 Global: "A Passage to India" (July 22),  Exodus from Equities (May 27), Money CAN Buy Longer Life (May 6), Global Investments Plummet (Jan 23)

2002 Global: China: Real Cold War Winner (Mar 8, 2002); Bush League All-Stars (Jan 2002), SEC Launches Formal Probe of Wall Street Research (Apr 2002), Greed Bites Back (Nov 29, 2002)Salomon/Gutfreund: Wall Street Casino (June 21, 2002)

A selection from prior years: "Robber Baron" Era Is Back (Jan 2001), "A Cleaner, Neater World?  Hardly. Deadlier, for Sure" (Feb 2000), More, Cheaper Service Jobs in the U.S. (Mar 1999),  "From a Nation of Producers, to a Nation of Gamblers " (June 23, 1999), "When Will Wall Street's Bubble Burst?" (1998), "Wall St.'s Conquest of America" (1998), THE GREAT AMERICAN HOOVER (1997)

Or just click on and use "financial engineering" or similar  keywords.

Volume XX, Annex Newsflash 2004-06
March 4, 2004

Bob Djurdjevic, Editor
(c) Copyright 2004 by Annex Research, Inc. All rights reserved.
e-mail: annex@djurdjevic.com

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