Webinar Deck: Market Vista - Key Market Development in Q3 2012

Key Market Developments in Q3-2012: Market Vista Briefing

November 8, 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]

mailto:[email protected]�




Context setting

Sources for today’s webinar

Focus of this webinar Present key global services developments in Q3 2012 and future outlook

Provide perspectives on nearshore locations

IT and Business Services research

Location Optimization Summary from a

200+ page report Fact-based

research covering global services

+


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

http://www.prlog.org/10326486-bpap-logo.jpg�


Highlights of today’s webinar

Audience poll

Share of leading supply geographies

Trends of tier-1 vs. tier-2/3 cities by region

Decline in new center set-ups with traditional supply locations continuing to hold market share

Growth trends and drivers Considerations around evaluating

relevance in location portfolio Nearshoring is Alive and Kicking!

Current trends and outlook Segment performance

Continued decline in new outsourcing and offshoring activity in Q3 2012


To what extent will onshore business continuity become a greater priority for your organization?

50%

29%

21%

Already comfortable with our plans; no change

Might become a greater priority

Definitely a greater priority


Presentation topics

Special topic: Nearshoring is Alive and Kicking!

Wrap up and Q&A Key market developments in Q3 2012

Outsourcing transactions GICs Service providers Locations


Both outsourcing transaction volume and GIC market activity decreased in Q3 2012

Index of offshore GIC health

Number

GIC set-ups and expansions GIC divestures

Index of outsourcing transactions

Number

516 472

433 441 411

380

Q2 2011

Q3 2011

Q4 2011

Q1 2012

Q2 2012

Q3 2012

33

20 23

18 19

15

0 1 0 0 0 3

Q2 2011

Q3 2011

Q4 2011

Q1 2012

Q2 2012

Q3 2012

Specific centers with geographic complexities


98 100 74 83 73 72

76 82 62 66 68 43

108 75 85 94 102

83

56 52

61 41 43

27

178 163

151 157 125

155

Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012

Multiple industry verticals contributed towards the decrease in outsourcing transactions

BFSI

Manufacturing

Healthcare

Outsourcing deals announced Number of transactions

Public sector

516

472

433 441

380

1 Includes energy & utilities, technology, telecom, travel & hospitality, and miscellaneous

Others1

Change in average ACV (Q2 2011-Q3 2012)

411


165 160 173 150 132 125

103 80 91

88 82 68

129 127 104 137

107 97

119 105

65 66 90

90

Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012

Both North America and UK witnessed low momentum during the quarter

North America1

UK

Outsourcing deals announced Number of transactions

Rest of Europe

1 Excludes Mexico 2 Includes Asia-Pacific, Latin America, and Africa

Rest of World2

Change in average ACV (Q2 2012-Q3 2012)

516

472

433 441

380 411


Pricing trends Revenue growth of service providers

The sluggish demand is impacting service provider revenue growth but has not impacted pricing

Revenue growth rate (Year-on-year) Global and Indian IT providers

Indian IT providers Global IT providers

Blended FTE price – IT ADM US$/hr/FTE

IT ADM EXAMPLE

10.2% 5.6%

3.0% -0.3%

22.9% 18.4%

15.7% 11.7%

Q3 2011 Q4 2011 Q1 2012 Q2 2012

20.0 20.0 20.0 19.8

69.5 69.6 70.0 69.7

Q3 2011 Q4 2011 Q1 2012 Q2 2012

Onshore (U.S.) Offshore (India)


Contrary to the stated intentions of players diversifying their portfolios, India and the Philippines continue to be largest supply geographies for global services…

48.2% 49.3% 50.1%

6.7% 7.3% 7.8%

19.7% 16.4% 14.8%

2.8% 2.7% 3.6% 5.9% 5.8% 5.5%

16.8% 18.5% 18.2%

2008 2010 2012E

India

Philippines

CEE2

Canada

China

Others1

104 91 100% = 120

Distribution of global services market by supply geographies 2008-12; US$ billion

Growth led by Latin America (~15% market share in 2012)

1 Include other locations in Asia, Latin America, and Africa 2 Central & Eastern Europe


…and experience growth in areas that align with their “sweet spots”

57% 60%

1% 1%

42% 39%

2008 2012E

75 54 100% =

Distribution of global services market across functions by supply geographies

39% 31%

31% 35%

30% 34%

2008 2012E

23 14

English voice BPO 2008-12; US$ billion

India

Philippines

RoW1

IT Services 2008-12; US$ billion

India’s share has reduced, particularly for U.S. operations

The Philippines and other locations (e.g., CEE, Latin America) have gained share given language skills and accent

Steady increase in India’s share given advantages of talent availability, cost, and domain expertise

Share of the Philippines has remained similar

58% 63%

9% 14%

33% 23%

2008 2012E

19 12

English non-voice BPO 2008-12; US$ billion

India and the Philippines’ share has steadily increased given strengths in F&A and other non-voice areas

Locations in CEE and Latin America have large share for bi-lingual and multi-lingual support

1 Rest of World includes other locations in Asia, Latin America, Central and Eastern Europe, and Africa


Increasing trend of leveraging tier-2/3 cities in CEE and Latin America

37 40

Asia Pacific

Proportion of Tier-2/3 cities in new delivery center set-ups 2011-20121; Percentage

2011 2012

Service providers have traditionally led the foray into tier-2/3 cities, but GICs also making selective investments in these cities

37

50

Latin America

53

84

CEE

1 includes analysis from Q1-Q3 (Jan - Sep) 2012 Note 1 Tier-1 cities are mature cities for global services delivery, typically characterized by large talent pool and significant market activity. Examples include Bangalore

(India), Shanghai (China), Metro Manila (Philippines), Sao Paulo (Brazil), Mexico City (Mexico), and Krakow (Poland) Note 2 Tier-2/3 cities are upcoming cities for global services delivery, typically characterized by relatively smaller talent pool and lesser market activity. Examples include

Jaipur (India), Dalian (China), Cebu (Philippines), Curitiba (Brazil), Guadalajara (Mexico), and Lodz (Poland)


Are our 2012 predictions for the global services market holding true?

1 Everest Group webinar document: Market Vista Q4-2011 (presented on February 14, 2012)

What we predicted at the beginning of 20121

How has the market fared to date?

Renewal activity poised to further increase Selective GIC carve-outs but no landmark divesture M&A activity and service provider consolidation likely to continue Remains a concern in key geographies (e.g., Brazil, Malaysia, the Philippines) Growing proportionate to market based upon skill-cost value proposition

Comments

Increased aggressiveness in winning away renewals from incumbents

1-2 landmark captive (GIC) divestitures – but not a trend

Continued separation of Tier 1 and Tier 2/3 service providers, making consolidation by acquisition more attractive

Exchange rate concerns outweigh inflation concerns

Continued increase in location activity in Central & Eastern Europe (CEE)

1

2

3

4

5

Same as prediction

Similar but with some variations

Different than prediction


Presentation topics

Wrap up and Q&A Key market developments in Q3 2012


Growth trends and drivers

Relevance in location portfolio


What is the relevance of nearshore locations in your service delivery portfolio?

0%

64%

36%

0%

No role at present

Relevant but less important than offshore locations

Relevant and more important than offshore locations

Only using nearshore locations


Definition of “nearshore”

Located in proximity to source geography in similar time zone or separated by a few hours

Examples: Canada/Mexico to US, CEE to Western Europe & UK, Costa Rica to US/Canada, Ireland/Scotland to UK, Morocco to France

Similar time zone as source geography, but at a significant distance

Examples: Argentina/Brazil/Chile to US/Canada, Mauritius to France, South Africa to UK

Near nearshore

Far nearshore


Nearshore locations are an integral component of the global services strategy of many companies

Size of global delivery

57

31

14

>2500 FTE

500-2500 FTE

<500 FTE

Source: Everest Group’s Market Vista Survey on Offshore Locations: Perceptions and Plans 2012

Average nearshore locations in portfolio

Number of countries

2.6

1.9

1.2

Global companies with nearshore operations

Percent of respondents


Nearshoring market is large and growing in-line with the overall global services industry

37 40

45

2008 2010 2012 (E)

Nearshore global services market growth 2008-12; US$ billion

Share of nearshore locations in global services market 2012; US$ billion

100% = 120

Nearshore Offshore

36-38% 62-64%


However, there are differences across regions

Note: Includes global services delivery centers of Forbes 2000 GICs and leading service providers

CEE

Mexico

Rest of Latin America

Africa

17

5

Canada

49

43

9

Number of delivery centers established since 2011

Marginal increase

Significant increase

New delivery center set-ups since 2011

Predominantly used to serve U.S. across IT and BPO services

Stagnant market activity in recent years

European language capability

Domain and industry-specific skills

Emerging geography with high growth potential

Differences across locations in functions and source markets

Value proposition around bi-lingual support

Also leveraged for F&A and IT services


How to evaluate relevance of nearshore locations in portfolio?

While unit costs are higher compared to offshore locations, other costs can be lower – Higher productivity – Lower governance costs

Nearshore model could provide stronger leverage of remote delivery – Higher level of remote ownership – Greater degree of resource based in lower cost locations

Take a holistic view (total cost of ownership) to business case

Language skills Scalable (200+ FTEs) high-value/industry-specific skills in

some locations – Examples: Canada, CEE, and Ireland

Not all nearshore locations may be suitable for complex work

Single function vs. multi-function hub Domain skills vs. scalability Talent model and operating environment

Understand role of nearshore locations and operating model


Presentation topics


Key market developments in Q3 2012

Wrap up and Q&A

Submit any remaining questions!


Highlights of today’s webinar

Share of leading supply geographies has increased

Greater use of tier-2/3 cities in CEE and Latin America than Asia

Decline in new center set-ups with traditional supply locations continuing to hold market share

Large market with differences across locations

Likely to play larger role in location strategies

Nearshoring is Alive and Kicking!

Lower incremental demand across major verticals and geographies

Impact on provider top-line growth but not on pricing

Continued decline in new outsourcing and offshoring activity in Q3 2012


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

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Global In-house Center (GIC) Value Diagnostic Survey 2012

Are "parent" and "GIC" executives aligned in how they are looking to drive value beyond cost savings? Participate in Everest Group’s GIC Value Diagnostic Survey 2012 and share your perspectives. All participants will receive a complimentary copy of summary findings. Survey Link: surveys.everestgrp.com/s3/gic-survey-3

Are you interested in a custom benchmark of the survey for your organization? If so, please contact us to request an organization-specific link for your company.

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Check out our blog for the latest perspectives on global services

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About Everest Group

Everest Group is an advisor to business leaders on the next generation of global services with a worldwide reputation for helping Global 1000 firms dramatically improve their performance by optimizing their back- and middle-office business services. With a fact-based approach driving outcomes, Everest Group counsels organizations with complex challenges related to the use and delivery of global services in their pursuits to balance short-term needs with long-term goals. Through its practical consulting, original research, and industry resource services, Everest Group helps clients maximize value from delivery strategies, talent and sourcing models, technologies, and management approaches. Established in 1991, Everest Group serves users of global services, providers of services, country organizations, and private equity firms in six continents across all industry categories. For more information, please visit www.everestgrp.com and research.everestgrp.com.

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