Under an agreement inked Friday, Capgemini will transfer S$16 million (US$9.6 million) worth of outsourcing contracts with 19 existing clients to Frontline. At the same time, 80 staff on Capgemini's books will join Frontline's new wholly-owned subsidiary, Frontline Outsourcing.
The move, which takes effect Nov. 1, is part of a worldwide alliance between the two companies. Besides taking over Capgemini’s operations in Singapore and Malaysia, the two firms have also struck a revenue sharing arrangement for multinational contracts.
"The good thing about outsourcing is that companies normally don't just outsource operations in one country," said Steve Ting, executive chairman of Frontline. "So it could be a large global deal in the U.S. or Europe, for example, and these companies have a presence in Singapore, Malaysia or other Southeast Asian countries. We'll be a service provider for Capgemini here, so we have worked out a model where a percentage of the revenue goes to Capgemini."
Currently, almost 25 percent of Frontline's earnings come from IT outsourcing. It expects to add S$15 million (US$9 million) to S$20 million (US$12 million) to its revenue as a result of the alliance, said president Lim Chin Hu.
According to research firm Gartner, overall spending in the global IT outsourcing market is set to rise from US$180.5 billion in 2003 to US$253.1 billion in 2008. Asian countries, in particular, have positioned themselves as outsourcing hot beds, with India, China and Malaysia ranked by business consultancy firm AT Kearney as the most attractive destinations.
For Capgemini, the latest move expands the company's footprint in the region "overnight", said Asia-Pacific CEO Paul Thorley. It allows the IT services outfit to focus on key assets in Australia, China, India and Japan, while Frontline acts as its service provider in the Southeast Asian region.
Capgemini aims to grow its Asia-Pacific business from 2 percent to 10 percent of its overall revenue over the next three to five years.
The company had considered organic growth and acquisitions as alternatives, Thorley told CNETasia, but eventually selected Frontline as a partner.
"Frontline is different," said Thorley. "They are agile. They are responsive. They bring, at an individual level, a degree of globality. But they (also) bring an intense degree of local understanding in the markets they operate in."