Rio Tinto outsources, saves $1 b

AUSTRALIAN mining firm Rio Tinto, which recently awarded an outsourcing contract to India’s second biggest software company Infosys, aims to save over $1 billion in operating costs annually by pursuing offshore outsourcing of IT work apart from a massive consolidation of its operations. The move will result in around 14,000 job cuts across the mining firm’s global operations. Rio Tinto, which is the world’s third biggest mining firm, currently works with Computer Sciences Corporation (CSC) and Infosys. Infosys was awarded over $50 million outsourcing contract by Rio Tinto two months ago for managing the global mining giant’s IT applications and some back-office procurement activities. In a detailed package announced by the company, Tom Albanese, chief executive of Rio Tinto, said that his company will reduce functional and operating costs by atleast $2.5 billion per annum by 2010. “Measures to reduce costs include rapid acceleration in 2009 of outsourcing and offshoring of IT and procurement,” the company said. Reducing global headcount by around 14,000 itself will help the company achieve annual cost saving of around $1.2 billion, with upfront severance cost of $400 million. When contacted by ET last week, Rio Tinto officials provided details of the outsourcing and offshoring initiatives. “We have awarded two outsourcing contracts to date. These are to CSC, for IT help desk and site support for the Australia/ New Zealand region, and to Infosys for global IT applications and some back office procurement activities,” said Nick Cobban, principal advisor, media relations, Rio Tinto. “Infosys has been working with Rio Tinto for three years on several IT programmes and is a major provider of these services globally,” added another Rio Tinto spokesperson. When asked about the specific cost savings by moving more IT projects offshore, Rio Tinto spokespersons declined to comment. “We will not be commenting on aspects such as management of the contract and potential cost savings at this stage,” the company said. “These impact the jobs of around 350 people. This is an ongoing process which will continue in 2009. The Infosys contract will take effect by the end of this year and the CSC contract by the end of January 2009,” the spokesperson added. While Australian enterprises are not as severely impacted by the global economic recession when compared to their rivals in the US and Europe, country’s leading corporates including Rio Tinto and phone firm Telstra have recently intensified their efforts to reduce their operational costs by working with Indian service providers, at a time when global demand for their products and services is weakening. Customers such as Telstra have already started revisiting their outsourcing engagements in order to squeeze their IT spend further. Telstra has invited Infosys, Satyam, IBM and EDS to bid for a $100 million restructured application development and maintenance contract, in order to bring down its IT costs further and retain only two of the four vendors it currently works with. The company is expected to finalise its outsourcing contract by this month end.