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Key Market Developments in Q2-2012: Market Vista Briefing
August 22, 2012
Live Tweeting #MarketVista
Proprietary & Confidential. © 2012, Everest Global, Inc. 2
Introductions
Eric Simonson Managing Partner – Research [email protected]
Katrina Menzigian Vice President [email protected]
H. Karthik Vice President [email protected]
Proprietary & Confidential. © 2012, Everest Global, Inc. 3
Context setting
Sources for today’s webinar
Focus of this webinar Present key global services developments in Q2 2012 and future outlook
Provide perspectives on next generation location optimization
Service Provider Intelligence
Location Optimization Summary from a
200+ page report Fact-based
research covering global services
+
Proprietary & Confidential. © 2012, Everest Global, Inc. 4
Terminology | Global In-house Center (GIC) replacing “captive”
Context
Historically, the term “captive” has referred to service delivery operations in lower cost geographies, which are owned and operated by the same company receiving the services (i.e., not third-party outsourcing)
Although the term has become widely used, it has a perceived negative tone and is not self-explanatory, causing confusion for those new to the global services space
Furthermore, many organizations, for which captive is intended to describe, do not use the term themselves
What has changed Everest Group has adopted “Global In-house
Center” or “GIC” as the preferred term to replace “captive”
This will appear in all of our reports and content beginning in July 2012
Growing industry-wide shift Both NASSCOM (India) and BPAP (Philippines) are championing the change in terminology
Proprietary & Confidential. © 2012, Everest Global, Inc. 5
Highlights of today’s webinar
Audience poll
Geographic trends Offshore GIC activity
High-value work reversing location set-up trends
Key drivers and factors for assessment
Examples
Large players optimizing locations in different ways than before
Current trends and outlook Segment performance
Outsourcing and offshoring activity decreased in first half of 2012
Proprietary & Confidential. © 2012, Everest Global, Inc. 6
Presentation topics
Special topic: Location Optimization 2.0
Wrap up and Q&A Key market developments in Q2 2012
Outsourcing transactions GICs Service providers Locations
Proprietary & Confidential. © 2012, Everest Global, Inc. 7
As the fog of the 2012 U.S. election clears, what trend in offshoring
activity do you expect to see in the overall market?
0%
28%
32%
33%
7%
Significant decrease
Slight decrease
No change
Slight increase
Significant increase
Source: Live polling conducted during the “Market Vista: Global Services Developments in Q2 2012” webinar on August 22, 2012
Proprietary & Confidential. © 2012, Everest Global, Inc. 8
Outsourcing transactions have declined, while GIC activity has remained steady in last four quarters
Index of offshore GIC health
Number GIC set-ups and expansions GIC divestures
Index of outsourcing transactions
Number
508 516 472
433 441 411
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
13
33
20 23
18 19
0 0 1 0 0 0
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Proprietary & Confidential. © 2012, Everest Global, Inc. 9
94 98 100 74 83 73
80 76 82 62 66 68
114 108 75 85 94 102
44 56 52
61 41 43
176 178 163
151 157 125
Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012
Decline in outsourcing activity driven by BFSI, manufacturing and energy verticals
BFSI
Manufacturing
Healthcare
Outsourcing deals announced Number of transactions
Public sector
508 516
472
433 441
411
1 Includes energy & utilities, technology, telecom, travel & logistics, and miscellaneous
Others1
Change in average ACV (Q1 2011-Q2 2012)
Proprietary & Confidential. © 2012, Everest Global, Inc. 10
198 165 160 173 150 132
102 103 80
91 88
82
112 129
127 104 137 107
96 119 105
65 66 90
Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012
Outsourcing transactions have decreased in traditional geographies, growth in rest of world
North America1
UK
Outsourcing deals announced Number of transactions
Rest of Europe
508 516
472
433 441
411
1 Excludes Mexico 2 Includes Asia-Pacific, Latin America, and Africa
Rest of World2
Change in average ACV (Q1 2011-Q2 2012)
Proprietary & Confidential. © 2012, Everest Global, Inc. 11
High
Low
75th percentile
Low High
Emerging Players
Leaders IBM GS
Accenture
Cognizant
Infosys
Polaris CGI CSC
MphasiS iGate
Dell Services L&T Infotech
Syntel Mahindra Satyam
Mindtree Softtek
EPAM
Luxoft Unisys Hexaware
ITC Infotech
25th
per
cent
ile
Delivery capability (Scale, scope, domain investments, and delivery footprint)
Major Contenders
Mar
ket s
ucce
ss
(Tra
nsac
tion
activ
ity)
25th percentile
75th
per
cent
ile
Wipro
TCS
HPES
HCL Capgemini
Using banking applications outsourcing as an example, competitive intensity is high
Everest Group Performance | Experience | Ability | Knowledge (PEAK) Matrix for large banking AO relationships
Leaders Major Contenders Emerging Players Star Performers
2011 saw L&T Infotech crossing over from Emerging Players to Major Contenders category
HCL Technologies bolstered its Major Contender positioning
TCS strengthened its Leadership position
Polaris enhanced its major contender position by expanding scale and achieving higher market success
The banking AO market, represented by 25 service providers, assessed by the Everest Group, scaled up to over US$6.4 billion in revenue and ~130,000 FTEs spread across ~22 delivery countries
Proprietary & Confidential. © 2012, Everest Global, Inc. 12
Market share of providers in large active banking AO contracts1
Active ACV and total TCV in US$ billion, number of contracts
74% 68% 62%
23% 28% 28%
3% 4% 10%
Active ACV Total TCV Number of contracts
~6.4 ~21.4 180+
Leaders
Major Contenders
Emerging Players
100% =
1 Contracts for a representative set of 25 providers; contract TCV >US$25 million and status active as of December 2011
Leaders’ dominance in the banking AO increased in 2011 – across contracts, ACV, and TCV
0.9 1.4
1%
4%
5%
1%
6%
5%
1%
4%
3%
Increase from last year No/minimal change from last year Decrease from last year
Leaders expanded their market share by 3-5% in terms of number of transactions, total TCV, as well as active ACV (revenue)
Major contenders category lost 4-6% share of their revenues, TCV, and number of contracts in the banking AO industry
5
The large players are getting larger – and with larger deals
Proprietary & Confidential. © 2012, Everest Global, Inc. 13
High-value work reversing location set-up trends
Key reversals in set-up trends (compared to 2009 and 2010) Asia gaining share compared to Europe and Africa More set-ups in Tier-1 cities compared to Tier-2 cities
Offshore location activity across geographies
Number of service delivery centers set up Offshore location activity across Tier-1 and Tier-2 cities
Number of service delivery centers set up
39
22
12
43
22
10
50
13 14
Asia Europe and Africa Latin America
35 38 37 38
44
33
Tier-1 Tier-2
H1 2012 H2 2011 H1 2011
Proprietary & Confidential. © 2012, Everest Global, Inc. 14
Recent set-ups of Global In-house Centers (GICs) have primarily been in the technology and manufacturing verticals Distribution of new GIC set-ups by industry verticals1
Number
20 18 19
14 13 9
2 6 4
10 6
5
H1 2011 H2 2011 H1 2012
Recent activity concentrated in India and other countries in Asia
46 43
37 Telecom
Others1
Manufacturing
Technology
1 Includes financial services, healthcare, and other miscellaneous industry verticals
Proprietary & Confidential. © 2012, Everest Global, Inc. 15
Latin America | Key trends and developments across locations
NOT EXHAUSTIVE
Proprietary & Confidential. © 2012, Everest Global, Inc. 16
Presentation topics
Wrap up and Q&A Key market developments in Q2 2012
Special topic: Location Optimization 2.0
Context Examples
Proprietary & Confidential. © 2012, Everest Global, Inc. 17
How is your organization refining its location
strategy?
6%
29%
64%
Primarily by seeking to use new locations
Primarily by optimizing existing locations
Mix of optimizing existing locations and using new
locations
Source: Live polling conducted during the “Market Vista: Global Services Developments in Q2 2012” webinar on August 22, 2012
Proprietary & Confidential. © 2012, Everest Global, Inc. 18
Large organizations with significant internal delivery models must shift from “selection” to “optimization” approaches for managing locations
“Optimizing” locations Finding synergy across sites –
management, employee value proposition, delivery models, etc.
Leveraging existing human capital to expand services and careers
Managing and balancing capacity across options (internal and third-party)
Operationally mitigating risk Highly selective about adding new locations
– and only when complementing other locations
“Selecting” locations New region/country/city New skills, especially languages Filling gaps Diversifying structural risks
Pressures facing large organizations with significant internal delivery models
Limited appetite for investment
Increased need for high-value skills
Business demanding more value
Fragmented/sub-scale processes
Maturing workforce
Competition in labor market
Proprietary & Confidential. © 2012, Everest Global, Inc. 19
Amongst many location optimization techniques, we highlight three for consideration by those with large global services programs
Measure and monitor sustainability of access to key skills
Current scale of skill in market Rate at which new skills are entering (all sources) Size and pace of competition vying for the skills
Expand within an existing center
Multi-function center enriches talent model Creation of career paths across functions
Expand within a city
Access to more of the labor pool in the city Leverage pre-existing investments (management,
people engine, etc.)
Proprietary & Confidential. © 2012, Everest Global, Inc. 20
Monitoring scalability and sustainability of access to key skills
Annual relevant graduate pool
Total annual pool
Lack of propen-sity for the function
Gross annual supply
Demand from comp-etition
Net available supply
Other relevant pool
Lack of employ-ability for the function
How to look at Assess both gross and net supply Contemplate impact of in-bound
and out-bound migration Separately assess for
experienced hires
Potential implications Target size for skill Recruiting models Training programs Collaboration in the local market
Highly constrained Emerging constraints Comfortable threshold
1 Ratio of net supply to hiring requirement
Talent pool assessment
Runway multiple analysis1
Runway multiple1
City 1 City 2 City 3 City 4
’12 ’13 ’14 ’12 ’13 ’14 ’12 ’13 ’14 ’12 ’13 ’14
Entry-level
Experienced
Proprietary & Confidential. © 2012, Everest Global, Inc. 21
Expanding scope of delivery center to more functions
Paths for high-performers in entry-level roles
Re-balancing feeder and target roles
How to look at Calculate amount of “surplus”
talent produced from key roles Proactively use to “shape the
pyramid” Consider implications across
delivery locations Potential implications Bridge training for new roles Cross-pollination Mix of functions in a center Target scope/size of GIC and
third party roles
Testing
Analytics
Development
Technical helpdesk
Transaction processing
10% of top performers
5% of top performers
5% of top performers
10% of top performers
Feeder roles
Target roles
Center 1
Current empl.: XX 2013 empl.: XX Center 2
Current empl.: XX 2013 empl.: XX
Inter-center transfer of feeder roles to rebalance demand and supply
Proprietary & Confidential. © 2012, Everest Global, Inc. 22
Expanding within the same city to tap more talent
How to look at Understand distribution of talent within the city Focus analysis on employee value proposition and commute/transit sensitivities
Potential implications Center size and work allocation Recruiting strategy
Region 6
Region 5
Region 4
XX XX 100% =
Distribution of place of residence of IT offshore workforce by seniority (years of experience)
2011; Number of FTEs
2-4 years 5-7 years
Region 3
Region 2
Region 1
Seniority
Acceptable commute time by current commute time 2011; Percentage
0-30
30-60
60-90
90+
Total
60 90 >90
Cur
rent
ave
rage
com
mut
e tim
e (m
in)
Acceptable commute time (min)
30
IT workforce’s relative ranking of factors while considering career opportunities within their current organization 2011; Percentage
Company brand
Profile, career progression and growth opportunity
Commute time to place of work
Relocation
Social ecosystem near place of work
Rank1-2 Rank 3-5 Rank 6-7
Cost of living near place of work
Proprietary & Confidential. © 2012, Everest Global, Inc. 23
Highlights of key points
Existing locations can often be optimized to better utilize the resources available in the market – Monitor key skills – Expand existing center – Expand in same city
To do so requires deeper assessment of the location’s talent dynamics
and adjustments to operating models – Talent migration – Recruiting – Training
Proprietary & Confidential. © 2012, Everest Global, Inc. 24
Presentation topics
Special topic: Location Optimization 2.0
Key market developments in Q2 2012
Wrap up and Q&A
Submit any remaining questions!
Proprietary & Confidential. © 2012, Everest Global, Inc. 25
Key messages in today’s webinar
Renewed focus on Asia and tier-1 cities
GIC activity holding steady
High-value work reversing location set-up trends
More focus on “optimizing” than “selecting”
Sustainability and talent optimization are key
Large players optimizing locations in different ways than before
No segments growing – all holding steady or declining
Competitive intensity is high
Outsourcing and offshoring activity decreased in first half of 2012
Proprietary & Confidential. © 2012, Everest Global, Inc. 26
To ask a question during the Q&A session Click the question mark (Q&A) button located on right side of your screen. This opens Q&A
Be sure to keep the default set to “send to All Panelists”
Type your question in the box at the bottom of the Q&A box and click the send button
Attendees will receive an email with instructions for downloading today’s presentation
For advice or research on Market Vista, please contact: – Katrina Menzigian, [email protected] – Eric Simonson, [email protected] – H. Karthik, [email protected]
Q&A
Websites www.everestgrp.com research.everestgrp.com
Twitter @EverestGroup @Everest_Cloud
Blogs www.sherpasinblueshirts.com www.gainingaltitudeinthecloud.com
Stay connected
Proprietary & Confidential. © 2012, Everest Global, Inc. 27
Check out our blog for the latest perspectives on global services
www.sherpasinblueshirts.com
Experts in the global services terrain
Proprietary & Confidential. © 2012, Everest Global, Inc. 28
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Global Sourcing Viewpoint: Achieving Next Generation Excellence in the Captive (GIC) Model
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Blog: What the Supreme Court Ruling Means for Global Sourcing in Healthcare
Proprietary & Confidential. © 2012, Everest Global, Inc. 29
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