Tuesday, September 13, 2005

Software Outsourcing benefits

Recent report by LogicaCMG shown that, outsourcing a way by which UK based companies can increase their profit margins and corporate value. Report mentioned that, companies which are outsourcing are outperforming their competitors and they can create a shareholder value of around 25 billion dollars. Report also mentioned that, companies may not explain investors about the long term advantage created by outsourcing, which may result in an under representation in share valuation. This LogicaCMG study which is called Outsourcing of Corporate Value, analyzed historical stock market data of companies which have announced outsourcing deals with companies that have not announced any deal or not outsourcing.

Offshore outsourcing to India

Result analyzed relation between the announcement of an offshore outsourcing deal by company and its stock valuation after 1 month of the announcement of offshore outsourcing deal. Result shown that, companies which have done offshore outsourcing deal perform average 1.7 percent higher int he stock markets benchmark against other companies in the same sector and not doing offshore outsourcing to india. In five out of seven sectors, companies which do offshore outsourcing is outperforming their competitors.

Benefits of offshore outsourcing for investors

LogicaCMG mention that, inspite of increase in profit margin, number under estimates the opportunities offshore outsourcing provides to increase the corporate value. It mention that, shares are priced based on the expectation of free cash flow a company ahs and effect of outsourcing on free cash flow. But companies need to explain their stock holders what the are planning to achieve with outsourcing and where they will reinvest benefits of outsourcing. Another part of this report studies analysis and forecast on economic impact of corporate value. It shows that, if UK companies increased outsourcing by 52 percent by 2010, it will create $17.3 billion additional stock value. Chief executive of LogicaCMG mentioned that, outsourcing is enabling ogranizations to reap benefits in addition to cost reduction such as releasing capital and human efficiencies and using savings for reinvestment. Outsourcing is not just about reducing cost and increasing profitability but also to enable organizations to improve their utilization of investor's capital.
Tatvasoft is one of the growing offshore outsourcing company with development center in India. We are providing offshore india services in asp.net, vb.net, c#, xml and other microsoft technologies.