Merger signals outsourcing business changing

InfoWorld - The merger on Thursday of American consultancy Darwin Partners Inc. with Suzoft, an offshore Chinese high-tech company, proves that the outsourcing business model is changing.

On the front end, Darwin Partners offers subject matter and domain expertise to the financial service, high-tech and health care industries.

On the back end, Suzoft does software design and development, engineering, localization and quality assurance work.

The two companies have agreed to a share swap, with no group of owners cashing out or one acquiring the other, said Frank Robinson, CFO at Darwin. "Both parties have agreed to put their companies together to create something unique."

What Robinson calls unique is actually a fairly new trend in the outsourcing business model, with offshore companies trying to move higher up the value chain, according to Barry Rubenstein, an analyst at IDC.

The offshore companies need upfront business and IT consultants with vertical expertise in order to get beyond application maintenance and development. "They want to get into system architecture services that are geared to increased revenue," said Rubenstein.

Darwin Partners and Suzoft will operate as separate legal entities, with Suzoft being a subsidiary of Darwin Partners. Both companies each employ about 400 people.

Since there will no longer be two separate companies trying to take a profit, there will be a cost savings to Darwin customers, according to Robinson. It will be a "great cost saving."

Meanwhile, Wipro Technologies and Infosys Technologies Ltd., two Indian outsourcing companies, have been building their consultancy businesses in the U.S. for at least two years.

"All the outsourcing companies are now hiring high-end consultants, ex-partners from the Big Six," said Rubenstein.

In addition, major U.S.-based services companies already have a large base of employees, especially in India, with IBM leading the pack with 40,000 employees, and Accenture with 20,000, said Rubenstein.

Outsourcing providers hope to reduce customer concerns over late projects and poor quality by putting their reputation behind the finished product.