Samad Masood
Nokia Siemens outsources R&D to TCS
TCS, India's largest IT services company, is to take over 90 Düsseldorf-based staff from Nokia Siemens' Network Development centre under a contract to provide product engineering and research & development services. The transfer also includes parts of the Operations and Business Software unit. The staff transfer represents 27% of R&D staff at the site, and 11% of total staff. Financial terms have not been announced, although it is understood to be a multi-million Euro deal.Comment: This deal brings together three key current offshore trends in Europe: the need for vendors to build up onshore staff; the growth of offshore R&D services; and - perhaps most important - the opening of the German market to offshore services.The last trend is crucial because, after the UK, Germany is the largest outsourcing market in Europe, and is growing fastest as well (CAGR of 8% between 2008 - 2012). And after years of being a very difficult market for offshore vendors due to the restrictive labour market, slow decision-making and cautious business practices, it seems Germany is opening up.The TCS deal joins Infosys's deal in July whereby it acquired Philips' F&A back office, as prominent examples of German offshoring. We're also expecting news soon on T-Systems' deal with a partner for the systems integration part of its business. Two offshore companies, TCS and Cognizant, are said to be in the running.Deals like this benefit offshore vendors and clients in several ways. By taking on onshore staff, the vendor has a better ability to communicate with, and transfer knowledge from the client, which should benefit service delivery. The vendor also has the opportunity to use its base onshore to develop and sell new services and solutions to other clients. And if the initial client can strike a deal to gain some benefits, such as price reductions, then both sides can benefit from this.As for what this means for the telecoms industry, we see Nokia Siemen's decision to take this step as related primarily to the challenges that its business is facing in reducing its costs. Several equipment manufacturers, including Ericsson and Cisco, engage with offshore vendors for R&D services. But we don't expect Nokia Siemens' decision to actually outsource onshore staff to TCS as indicative of a trend for other equipment manufacturers to follow suit.
