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April-June 2015 Select Findings for Q2 2015 Copyright © 2015, Everest Global, Inc. EGR-2015-8-E-1535
April-June 2015
Select Findings for Q2 2015
Copyright © 2015, Everest Global, Inc.
EGR-2015-8-E-1535
Copyright © 2015, Everest Global, Inc.
EGR-2015-8-E-15352
Market Vista | Overview
Covers global services market research, analysis, and insights to demystify the market and direct clear, impactful decisions
Location data and dynamics
Data on market activity in
key offshore geographies
– Political
– Macroeconomic
– Promotion incentives
Trends in wage inflation,
attrition, and arbitrage
Overall sourcing market
Detailed analysis of trends by
industry vertical and geography
Report of transaction volume,
size, and momentum
Perspective on events with
significant industry impact
(e.g., M&A)
Implications of regulatory
changes
Service provider landscape
Updates on service
provider market share,
capabilities, and
performance
Service provider profiles,
including data on:
– Transactions
– Location footprint
– M&A activity
Processes and models
Process-level trends
Global In-house Center
(GIC) set-ups, divestures,
and overall trends
Fact-based insights on
adoption of emerging pricing
models
Data and perspectives on
new opportunity areas
Quarterly
reportPrimer
Location
database
Breaking
viewpoint
Location insights
e-newsletter
Service provider
capability profiles
Industry
trends
Copyright © 2015, Everest Global, Inc.
EGR-2015-8-E-15353
Increasing adoption of hybrid model (i.e., collaboration between GICs and service providers) given
mutual benefits5
Increased focus on public sector outsourcing market given the competition and saturation in traditional
verticals1
Growing investments in Internet of Things (IoT) and digital business by enterprises, GICs, and service
providers2
Multiple instances of consolidation as providers look to revamp their business model through
acquisitions3
Europe overtook Asia for the first time in new delivery center setups; activity driven by nearshoring
preferences of European buyers, especially in manufacturing4
Global Services Industry: Key market trends in Q2 2015
Copyright © 2015, Everest Global, Inc.
EGR-2015-8-E-15354
Key market indices – Q2 2015
Service provider developments and trends
All major providers continued to face
pressure on operating margins; the margins
are expected to be impacted by currency
fluctuations in the near future
Sequential growth in operating margins (bps)
Most providers reported QoQ fall in revenue,
impacted by significant currency
fluctuations, however, few offshore players
reported revenue growth
Sequential growth in revenue (percentage)
Traditional
global
service
providers
Offshore-
centric
service
providers
Overall
Traditional
global
service
providers
Offshore-
centric
service
providers
-223-82
-163
-8.8
0.8
-6.4
Overall
Outsourcing/offshoring market overview
Outsourcing demand continued to remain
sluggish, given weak activity by mid-tier
service providers
Number of outsourcing transactions
387 370 369
Q4 2014 Q1 2015 Q2 2015
New setups
Expansions
Divestitures
Companies continue to set up new GICs to
utilize their potential in enterprise digital
transformation
1924 25
2 1
Q2 2014 Q1 2015 Q2 2015
2626
1
19
Latin America witnessed a significant decline
in market activity
Number of offshore delivery centers set-ups
Tier-1 locations continue to experience
significantly higher market activity
compared to tier-2 locations
Number of offshore delivery centers set up
Location dynamics
1820
10
23 22
5
17
1210
Asia Europe andAfrica
Latin America
Q2 2015Q1 2015
Last four quarters’ average
31
17
31
192117
Tier-1 Tier-2
Q2 2015Q1 2015
Last four quarters’ average
Copyright © 2015, Everest Global, Inc.
EGR-2015-8-E-15355
Summary of key developments in Q2 2015 (page 1 of 2)
Outsourcing demand was similar to the previous quarter in Q1 2015 due to persistent weak activity by
mid-tier service providers
With 369 new transactions reported, activity in the outsourcing market remained slow
The BFSI vertical declined significantly, while activity in the technology vertical increased. Similar activity
was seen for rest of the verticals during the same period
Activity in North America increased significantly, while major decline was witnessed in RoE, resulting in
North America overtaking Europe as the largest demand market
Share of renewals / restructured deals declined for ITO and increased for the BPO market
An 18% increase was seen in the number of deals with reported deal duration. This was most prominent
within medium-term deals (five to seven years)
Adoption of BPO processes has been largely sluggish in Q2 2015, while ITO adoption has remained
largely similar to Q1 2015
In Q2 2015, there were 21 major deals with total contract value exceeding US$50 million, as compared to
23 in Q1 2015
Activity in the GIC market remained sequentially consistent with 25 new setups
GIC set-up and expansion activity in Q2 2015 remained at par with the last quarter; no divestiture was
reported during the quarter
Well-known companies such as American International Group, Amazon, Morgan Stanley, Opel, and
VMWare released GIC set-up announcements in Q2 2015
Copyright © 2015, Everest Global, Inc.
EGR-2015-8-E-15356
Summary of key developments in Q2 2015 (page 2 of 2)
Europe continues to lead Asia in terms of new center set-ups for the second consecutive quarter,
while Latin America suffered a significant decline in market activity
In Q2 2015, there were 50 new delivery centers set up across GICs and service providers, marginally
higher than the 48 set-ups in the previous quarter. The new center set up was significantly higher among
tier-1 cities compared to tier-2 cities
Key location risk/opportunity trends include Digital India initiative of the Indian government, impact of
Greek debt crisis on global services industry in Greece, concerns regarding change in tax legislation in
Brazil
Most providers reported sequential fall in revenue, operating margins continued to remain under
pressure
Consolidated operating margin declined sequentially as well as on an annual basis, on account of severe
currency fluctuations that is expected to continue in the near future
Overall transaction activity was almost in line with the last quarter, however, the share of Market Vista
Index service providers increased
Alliance activity witnessed a significant uptick during the quarter. While, M&A activity increased marginally
While, overall location activity for leading service providers increased compared to the previous quarter, it
declined marginally for offshore-centric providers
Copyright © 2015, Everest Global, Inc.
EGR-2015-8-E-15357
Significant turbulence
in the healthcare
sector has opened
vast opportunities for
service providers,
thereby, leading to
shift in focus towards
this vertical by
creation of separate
healthcare business
units
Continued focused on
business
restructuring by
leading service
providers
Trends to watch (page 1 of 2)
Prediction Context/drivers Key implications
Service providers have significantly invested in
restructuring initiatives to remain competitive, develop
new capabilities, and increase operational efficiency
Key examples of restructuring observed in H1 2015
CSC's split into commercial and U.S. public sector
businesses
– HP's split into Hewlett Packard Enterprise and HP Inc.
– Capgemini's acquisition of iGate
– Atos' acquisition of Xerox's ITO business
While largely restricted to tier-1 and
global majors, this trend is likely to
spill over other mid-sized and tier-2
service providers
Widespread regulatory changes led by Obamacare
policy has changed the healthcare landscape in recent
years and given rise to new business models i.e. the
shift from a hospital-centric to a more customer-centric
model
This shift is being further driven by significant healthcare
investments in digital enablers of consumerization of
SMAC
IBM, Tech Mahindra, and Infosys, are among the
providers that recently formed a separate healthcare
business units
Next-generation infrastructure
services requirements are expected
to energize the healthcare IT space
in near future
Moreover, application modernization
and legacy system upgrades are
going to remain the key focus areas
1
2
Copyright © 2015, Everest Global, Inc.
EGR-2015-8-E-15358
Trends to watch (page 2 of 2)
Increasing leverage of
start-ups by GICs and
service providers to
drive disruptive
innovation
Players are looking to leverage start-ups in multiple
areas. These include data integration (cloud), mobility
solutions, big data analytics, cyber security, customer
service improvement initiatives, marketing solutions, and
efficiency improvement measures
Multiple type of engagement models with start-ups have
also emerged, based on investment and risk profile of
organizations
Although this is currently at a
nascent stage, mutual benefits
accrued to GIC/provider and start-up
firm are likely to lead this into a
sustainable and mainstream
business model in the long run
3
Focus on reshoring,
particularly in voice
work, but not at the
expense of offshoring/
nearshoring
Interest in reshoring work by leveraging domestic
sourcing, especially for voice. Key drivers include:
– Customers placing a significant premium on cultural
context as part of their overall experience
– Some concerns on quality and negative feedback
from customers for “critical” / “high value” customer
care work supported from offshore locations
Higher growth likely to extend in
other segments (e.g., healthcare
BPO, risk and compliance)
Overall onshore market is expected
to grow faster, but not at the expense
of offshore
4
Prediction Context/drivers Key implications
Copyright © 2015, Everest Global, Inc.
EGR-2015-8-E-15359
Market Vista encompasses a suite of offerings
Multiple delivery formats allow Global Sourcing Managers to access information in a
way that supports the decision-making process
Market Vista offering DescriptionStandard subscription
access (annual)
Premium subscription
access (annual)
Quarterly report with in-depth coverage of transaction,
location, and service provider trends
PrimerQuarterly brief of expert perspectives on emerging
market trends (e.g., Expanding frontiers and maturation
in Global services industry)
Location databaseAnnually updated database of location stats (e.g., cost,
attrition, inflation rates) for 23 major cities
Locations insights
e-newsletter
Bi-monthly Global Location Insights e-newsletter
containing detailed country and region information
Quarterly Report
Exclusive quarterly webinars with stakeholders in the
subscriber organization on key market trends and
developments highlighted in Market Vista research
Analyst access for personalized insights and additional
perspectives
Exclusive
webinars
Analyst
consultation
Copyright © 2015, Everest Global, Inc.
EGR-2015-8-E-153510
Trends reports complement Market Vista quarterly reports by
providing in-depth coverage of global sourcing across industry
verticals and regions
Market Vista Industry Trends reportsMarket Vista Buyer Geography Trends reports
Outsourcing transaction
activity
GIC set-up and
expansion activity Processes and models
Service provider trends
and developments
Regions tracked
United States and Canada
Europe
Rest of the World (RoW), including Asia Pacific (APAC),
Latin America (LATAM), and Middle East & Africa (MEA)
Trends in transaction
volumes, contract values, and
momentum
Events with industry impact
GIC set-ups, expansions, and
divestures
Analysis of buyers, locations,
and scope of work offshored
Process-level and
subprocess-level transaction
trends
Emerging opportunity areas
Service provider performance
(transactions, market shares)
Significant deals signed by
leading enterprises
Transaction activity was higher among IT ADM processes than IT infrastructure
Adoption of ITO processes in Q2 2011 was similar to that in 2010 (yearly average)
Adoption of Desktop process declined compared to the previous quarter
ITO by process1
Q2 2011; Frequency of occurrence
Total = 354
111
90
87
60
81
34
27
Application
development
Application
maintenance
Systems
integration
Datacenter
Network
Desktop
Helpdesk
ITO by process1
2010; Frequency of occurrence
Total = 1,381
472
348
307
263
339
139
138
Change in number of ITO
transactions, by process1
Current quarter Previous year
Q2 10 to Q2 11 Q1 11 to Q2 11
Decreased from last quarter Similar to last quarter Increased from last quarter
Industries tracked
Banking, Financial
Services, & Insurance
(BFSI)
Manufacturing, Distribution,
and Retail (MDR)
Energy & Utilities (E&U)
Healthcare
Technology
Telecom
Public Sector
Travel & Hospitality
30+ pages of analysis on each industry vertical/region every quarter
Copyright © 2015, Everest Global, Inc.
EGR-2015-8-E-153511
Additional research recommendations
The following documents are recommended for additional insight into the topic covered in this report. The recommended
documents either provide additional details on the topic or complementary content that may be of interest:
1. Market Vista: Q1 2015 (EGR-2015-8-R-1445); 2015. This report summarizes the key trends and developments for Q1 2015 in the global
offshoring and outsourcing market
2. Industry Trends reports: Trends for Q1 2015. These reports provide industry-specific data, developments, and insights that enable
global sourcing managers to navigate through the complexity, and make clear, effective decisions, contextualized and suited to their
specific industry. These reports provides a deep-dive into the transaction activity, GIC developments, service provider market share, and
key outsourcing transactions specific to the industry. Industries covered include: Banking, Financial Services, and Insurance (BFSI);
Manufacturing, Distribution, and Retail (MDR); Energy & Utilities (E&U); Healthcare; Technology; Telecom; Public Sector; and Travel and
Hospitality
3. Buyer Geography Trends reports: Trends for Q1 2015. These reports provide data, developments, and insights on outsourcing and
offshoring trends for a particular buyer geography/region. These reports provide the research and analysis that enable users to navigate
through complexity and make clear, effective decisions suited to their focus region. These reports provide detailed information on
transaction activities, Global In-house Center (GIC) developments, service providers’ market shares, and key outsourcing transactions
specific to particular regions. Regions covered include: U.S. and Canada; Europe; and Rest of the World
Website: www.everestgrp.com | Phone: +1-214-451-3000 | Email: [email protected]
For more information on this and other research published by Everest Group, please contact us:
H Karthik, Partner – Global Sourcing:
Salil Dani, Practice Director:
Rahul Dalia, Senior Analyst:
Ritika Dhingra, Manager – Information Services:
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