The Hindu Business Line : Bullish on RIMO

The Remote Infrastructure Management Outsourcing (RIMO) market is likely to exceed $8 billion over the next five years, according to a recent report by the Everest Research Institute.

Its parent, the Everest Group, provides strategic advisory services that help companies worldwide harness the power of outsourcing.

The author of the report, Ross Tisnovsky, Vice-President, Everest's ITO Research Group, spoke to eWorld to explain why Everest is bullish on the market.

"While the Infrastructure Outsourcing market appears calm on the surface and is growing in line with the overall IT industry," he says, "there are significant structural changes in the market itself that are driven by the emergence of new technologies in infrastructure and fundamental changes in the IT asset ownership dynamics."

The RIMO market, an emerging Infrastructure Outsourcing (IO) model, is growing at approximately 60 per cent annually, he says, adding that 75 per cent of this growth is attributed to renewals of pilot contracts with significant scope increases, with the remaining 25 per cent attributed to new deals.

And to help you understand the context in which to place those numbers, here are a few more: the global outsourcing market in 2005 stood at $328 billion.

Infrastructure outsourcing (IO) constituted 33 per cent of this, or, about $109 billion. IO is expected to see 4 per cent CAGR till 2010 or reach a market size of $132 billion by then.

IO is further classified into traditional IO (comprising Tower outsourcing and Hosting) and Infrastructure Management Outsourcing (IMO). IMO is further classified into Infrastructure Managed Services (IMS) and Remote Infrastructure Management Outsourcing (RIMO).

RIMO currently stands at 3 per cent of the $26 billion IMO market (as per 2005 estimates). Everest expects RIMO to grow from this $0.8 billion in 2005 to $8.6 billion in 2010. That would mean a CAGR of 61 per cent.

Excerpts from the chat:

The level of outsourcing and offshoring seems to have been beyond expectations these last 6-8 quarters. Does your prediction take into account this new sense of optimism?

The Indian method of IMO is asset-light, for Indian vendors do not take over assets such as the infrastructure itself so easily from clients. Such an approach tends to decrease the size of the deals.

That is why you see the fairly flat growth of 4 per cent for the overall IO. Revenue deflation is the reason.

Have each of the Indian players, mentioned in your ITO roadmap, created a niche for itself in each or more of the four categories of Infrastructure outsourcing? Or is it too early for them to choose what they want to do?

Players have created a niche for themselves. The likes of Accenture and IBM have shown a willingness for asset-heavy deals, which means they are ready to take over manpower, devices...

Across Tower outsourcing and hosting services, the traditional model, of asset-heavy deals, persists. The employee base of the client is rebadged. You don't see the Indians there.

In Infrastructure Managed Services, there is end-to-end service management. You take over some assets but not heavily take over people. You see Indians in some instances. HCL Tech and TCS are examples.

In RIMO, Indians expand the market. Under this model, the vendor takes over only functions that are offshoreable.

Do you see Indian companies going beyond just the asset-light model and actually taking over assets and hence going for the bigger deals?

Indian companies don't like to take these numbers into their balance sheet. They are fundamentally conservative companies. They may be willing to take in 5,000 people in an India-centre but are very conservative outside of India. But market forces will move them that way.

Does the traditional reluctance of Indian companies to take over assets come in the way of larger orders?

I see some complacency in them. People inside these organisations expect this nirvana to continue for a long time. Global vendors learnt a tough lesson in application maintenance and development. They are fast catching up in infrastructure management.

Are RIMO contracts to Indian players a result of past relationships for IT services rendered earlier? Or are clients willing to consider rank outsiders?

Seventy per cent of contracts are from clients who have not offshored to them earlier. The remaining comes from existing, incumbent suppliers.

bharatk@thehindu.co.in

More Stories on : Interview | Outsourcing

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
`Get used to the pain'

Lend me your ears

System Restore in Win XP

Lost... and restored

e-Governance challenges

Open source can be very `benefit-driven'

Looking to give that edge

Quiz

Cartoon