gs - market vista: q2 2008 preview deck · guidelines in source and destination countries across...

Global Sourcing

Market Vista: Q2 2008 – Preview Deck

Copyright © 2008, Everest Global, Inc.ERI-2008-8-PD-0264

2Copyright © 2008, Everest Global, Inc.

ERI-2008-8-PD-0264

Contents

Product overview

Illustrative contents


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The increasing complexity of the outsourcing market has amplified the risk exposure for companies

Vendor and model proliferation Multiple service providers and business models

Large span of functionsTypically combination of many IT, BPO and some KPO services

Increasing scopeSignificant proportion of operations now in low cost locations

Dynamic economiesMost delivery locations are emerging economies going through rapid change

Global delivery chainServices often delivered from multiple locations with diverse risk footprint

Regulatory riskEnsuring compliance with regulatory guidelines in source and destination countries across suppliers

Performance riskManaging quality of service delivery, attrition, knowledge retention

Business case riskManaging wage inflation without affecting quality of service

Concentration risk

Data security and intellectual property riskImplementing measures to safeguard data and intellectual property

Business continuity risk

Currency risk

….

Factors driving increased risk Examples of risks

Most large companies have capabilities in global risk management. However, the level and type of risk exposure that is emerging from the globalization of services is unprecedented


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Sourcing leaders are being asked to manage risks associated with global sourcing and support the delivery of transformational results

What are my peers doing?

What is the real inflation and how

does it compare to price increases in

my portfolio?

How can I better manage forex

changes?

Are there opportunities

to optimize my pricing?

What new risks are my suppliers taking

on?Who are the

emerging suppliers in my

areas?

How are the relative costs

moving across locations?

Are there new govt. incentives that I can avail?

What new service delivery models/ suppliers are my

peers leveraging?

Are their any new political or macro-

economic risks I need to be aware of NOW ?

Key decisions that Sourcing managers need to support Comparison with peersLocation risk managementSupplier selection and optimizationDesign of new deals Price benchmarking and contract renewals


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Market Vista provides continuously updated facts and analysis every quarter to enable effective management of global services portfolios

Supplier developments

Key developments among 20 leading global suppliers

Financial performanceTransaction activityChanges in delivery footprintM&A and alliance activity

Q2 highlight – landscape of knowledge services suppliers in IndiaDetailed profiles for each player capturing key developments across dimensions

3

Location trends and risks

Key location developments Establishment of new offshore delivery centers

Risk dashboard capturing key current and emerging risks

Geo-political/economic changesGovernment initiatives

Q2 focus – Fact-base on Latin American cities

Sustainability of arbitrageOperating costs across 9 leading cities, inflation rates, and currency trends

2

Market overview

Outsourcing transactions trends

Transaction analysis –By industry, geography, etc.Listing of major

BPO/IT outsourcing dealsLarge offshore deals

Captives analysisNew captive set-ups, divestures

Focus on Financial Services players

Transaction analysisDevelopments across global majors

1

Each quarterly Market Vista report captures developments across three key areas


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Contents

Product overview

Illustrative contents


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Each section of the quarterly report comprises 30+ pages of insight and data Illustrative Table of Contents (page 1 of 2)

Section I A: Trend analysis – outsourcing, offshoring, and captives I-3Outsourcing transactions analysis I-4Offshore transaction analysis I-10Change in outsourcing transactions (Q-o-Q) I-11Captive developments I-12

Section I B: Focus topic – financial services outsourcing and offshoring I-16Financial services developments I-17Large financial services deals signed in Q2 2008 I-21

Section I C: Data snapshots I-22Examples of large BPO and IT deals signed this quarter I-23List of new captive announcements made this quarter I-25List of captives with announcements for expansion I-27Key developments for global BFSI majors I-28

Section II A: Trend analysis – Risk and Opportunity dashboard and analysis II-3Risk and Opportunity Dashboard II-4Risk and Opportunity Dashboard analysis II-5

Section II B: Focus topic – Latin America II-10Latin America: Sustainability of arbitrage II-11Operating costs in leading Latin America cities II-14Operating cost inflation II-15Currency trends II-18

Topic Page no.


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Each section of the quarterly report comprises 30+ pages of insight and data Illustrative Table of Contents (page 2 of 2)

Section II C: Data snapshots II-19Market activity: Delivery centers established in Q2 2008 II-20Market activity: Delivery centers planned in Q2 2008 II-23Market activity: Expansion announcements in Q2 2008 II-25Regional developments: Geo-political, macro-economic II-26Regional developments: Leading economic indicators II-28Regional developments: Investment environment II-29

Section III A: Trend analysis – Key developments across suppliers III-5Supplier developments analysis III-6

Section III B: Focus topic – Landscape of knowledge service suppliers in India III-15Knowledge services market in India III-16Landscape of India-based knowledge service providers III-18

Section III C: Data snapshots – Key developments and activity profiles by supplier III-21Summary of supplier ratings III-22Recent M&A activity by suppliers III-23Recent alliances and partnerships forged by suppliers III-26Recent location activity by suppliers III-28Supplier activity profiles – Key developments by supplier III-31

Topic Page no.


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Section I – Market section | Overview Captures outsourcing transactions trends, captive developments with an emphasis on Financial Services players

Includes over 15 pages of data tables across

transactions, captives and financial services


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Section I – Market section | Illustrative output Transaction analysis for each quarter helps assess market momentum and trends over time

80%

59%69%

81%

16%

16%

25%14%

4% 5%

25%

6%

To date Q4 2007 Q1 2008 Q2 2008

ACV of outsourcing transactions signedUS$ million

180,091 4,011100% = 3,804

1 2

ITO

BPO

Others3

Number of outsourcing transactions signedNumber of transactions

75% 71% 70% 70%

22% 26% 26% 28%

3% 3% 4% 2%

To date Q4 2007 Q1 2008 Q2 2008

12,326 333 403100% =

ITO

BPO

Both Both Others3

2,6024 417

ACV of outsourcing transactions was lower in Q2 despite an increase in the number of transactions due to the relatively fewer large deals in Q2 compared to Q1 20084

ACV of outsourcing transactions was lower in Q2 despite an increase in the number of transactions due to the relatively fewer large deals in Q2 compared to Q1 20084

1 For the purpose of this analysis, Q4 2007 includes all transactions announced in Oct-Dec 20072 For the purpose of this analysis, Q1 2008 includes all transactions announced in Jan-Mar 20083 “Others” includes deals for which functional scope was not publicly disclosed4 ACV values were also lower in Q2 2008 owing to a large number of deals for which deal values were not disclosed

Source: Everest Research Institute Transaction Intelligence Database


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Section I – Market section | Illustrative output Analysis is further detailed at a functional level

Q-o-Q change in number of BPO transactions, by process1

Process category

Q4 2007 toQ1 2008

Q1 2008 to Q2 2008

F&A

HR

Procurement

Real estate

Customer care

Industry specific

Others2

Q-o-Q change in number of ITO transactions, by process1

Decreased from last quarter

Similar to last Quarter

Increased from last quarter

Process category

Q4 2007 to Q1 2008

Q1 2008 to Q2 2008

Application outsourcing

Infrastructure outsourcing

Both

Others3

1 Includes transactions in which functional scope may have multiple processes2 “Others” includes processes such as document management, market development, collections & mailroom scanning, R&D, engineering,

safety & environmental analysis reporting, printing, product development & marketing services, logistics & supply chain management3 “Others” includes processes where functional scope was not publicly disclosed



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Section I – Market section | Illustrative output Coverage also includes captives, with a focus on setup, divestiture and other trends among captivesCaterpillar – Divestiture of captive operations to Satyam

Caterpillar has sold off its Market Research and Customer Analytics operations to Satyam for US$60 millionSatyam will set up a center for excellence and innovation in Chennai jointly with Caterpillar, which will act as a separate business unitSatyam will provide support to Caterpillar in product development, service, validation, etc.

RSM McGladrey – Divestiture of captive unit to Quatrro BPO Solutions

Gurgaon-based Quatrro BPO has acquired the captive accounting unit in a 100% buyoutAround 500-600 staff of RSM McGladrey(including 200 in the US), will move to QuatrroThe Indian BPO company will also get McGladrey’s accounting technology platform and senior leadership

Aviva – Captive BPO operations may soon be acquired by WNS1

WNS Holdings appears to have emerged as the highest bidder for Aviva Global Services, with an offer of over US$200 millionWhen completed, WNS will absorb around 6,500 employees of Aviva’s consolidated operations spread across Bangalore, Pune, Noida, Chennai, and Colombo

1 WNS announced its acquisition of Aviva Global Services on July 10, 2008. Further details of the WNS Aviva deal in GS Market Vista Q3 2008

Source: Everest Research Institute analysis


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Section I – Market section | Illustrative output Developments among leading financial services players are profiled

Proposed reduction in IT spending and IT staff – Citigroup plans to cut down its IT costs by about US$3 billion within the next three years; the IT budget cut represents a fifth of the overall cost reduction planned across businesses. Citigroup will also be targeting to improve operational efficiency by leveraging IT platforms across businesses, replacing systems unique to particular businessesDivesture plans for Citigroup Global Services – Citigroup is believed to have revived plans for the sale of its offshore BPO unit, Citigroup Global Services and its infrastructure outsourcing unit, Citos. IBM is reported to be a leading contender for the purchaseTechnology solution agreement – Citigroup’s Global Transaction Services Unit will leverage Ariba’s payment solution system to deliver enhanced invoice and payment solutions to Citi’s clients

Citigroup


Acquisition related concerns – Bank of America’s acquisition Countrywide Financial Corp. (CFC) has sparked concerns about the future of the combined entity’s offshore operations. Currently both firms have captive operations in India

Bank Of America

Customer service bought back onshore – American Express Australia has decided to support Australian customers locally and has created 150 call center jobs in Melbourne and Sydney for this purpose. Earlier the bank had offshored its customer service to India and Philippines

American Express


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Section II – Locations section | Overview Key developments and emerging risks across locations

Includes over 20 pages of data tables on market activity, costs, wage

inflation, etc.


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Section II – Locations section | Illustrative output The Location Risk Dashboard identifies key emerging risks across prominent offshoring regions

Despite record inflation levels in India, IT/BPO wages are set to increase less as compared to last yearBrazilian government

introduced incentives for the export sector, that can reduce operating costs and taxes by ~2%

Concerns on economic and political instability continue in Argentina. High inflation, protests over taxes, revision in S&P country ratings from stable to negative

A

B

Significant risk factor requiring attentionPotential near-term risk; may need monitoringPositive change since last assessment

Legend


Tier-II cities in China are becoming credible options, unlike many other offshore locations

D

Potential real estate shortage in Santiago, Chile. Vacancy rates at record lows of below 1%

Extension of the tax holiday available under the STPI and EOU schemes by one year

CNon-voice BPO delivery gaining momentum in Philippines

E


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Section II – Locations section | Illustrative output Key risks are further detailed. For example - In Brazil, the introduction of a new policy reduces operating cost and taxes

1 Operating cost includes salary, facilities, equipment, telecom, training, and attrition cost2 Savings illustrative for 25%-50% export share in revenues


Total cost per FTEUS$

Operating cost1

Taxes

IT SERVICES

In May, the Brazilian government introduced a policy to boost exports and sectors hit by the continued appreciation of the Real. Incentives offered to IT/ICT companies include:

Reduction in employers' contribution to social security tax on payroll, depending on the participation of export income in the company’s gross incomeDouble deduction of training expenses, in calculating the base for income tax

68,000 67,400

7,500 600 7,100

400

~5% savings on tax due to training subsidy

~1% savings on salary cost due to reduction in social security tax

1-2% savings2


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Section II – Locations section | Illustrative output The market activity heatmap identifies spikes of activity across regions Legend

No major activity (0-5 centers)

Nascent location (5-15 centers)

Mature location ( > 50 centers)

Source geographiesIncrease in offshore activity in the last quarter1

Emerging location ( 15-50 centers)

Brazil

Mexico

Argentina

Costa RicaPanama

Chile South Africa

Morocco

Egypt

Poland

BulgariaRomania

Czech Republic

HungaryChina

PhilippinesMalaysia

Singapore

India

El Salvador

1 Details on new delivery centers opened provided in the following pages in the sectionNote: Includes delivery centers of global suppliers and F2000 captives only



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Section II – Locations section | Illustrative output The section also contains quarterly data on themes such as socio- political, macroeconomic, and promotion initiatives across regions


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Section II – Locations section | Illustrative output Each quarterly report will cover a deep-dive on a specific geography

Q2 2008 report includes a deep-dive on Latin America

covering costs, inflation, currency trends, etc.


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Section III – Supplier Developments | Overview Profiles developments across 20 leading suppliers, highlighting key implications for sourcing managers

Includes over 40 pages of data tables on M&A, new

delivery centers, management changes, etc.


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Section III – Supplier Developments | Illustrative output This section includes a perspective on relative momentum across suppliersTrends in transaction announcements over the previous quarter

Across the group of 20 suppliers, 109 new transactions were announced, accounting for US$8 billion in terms of TCV

Within the group, transaction announcements across ITO were higher in Q2 2008 as compared to Q1 2008. On the other hand, the share of BPO transaction signings declined:

For ITO, transaction announcements among traditional global suppliers increased in the quarter. However, for offshore-centric suppliers, activity in Q2 2008 was largely similar to that in the preceding quarterFor BPO, transaction announcements among traditional global suppliers saw a slight decline compared to the previous quarter. For the group of offshore-centric suppliers, transaction activity remained consistent over the last quarter

Key transactions signed in this quarter:CSC signed a seven-year ITO contract with Bombardier worth US$1.2 billion Perot Systems signed a 13-year, US$1 billion contract with Harvard Pilgrim Healthcare to provide IT infrastructure, business applications, and administrative services

Across the group of 20 suppliers, 109 new transactions were announced, accounting for US$8 billion in terms of TCV

Within the group, transaction announcements across ITO were higher in Q2 2008 as compared to Q1 2008. On the other hand, the share of BPO transaction signings declined:

For ITO, transaction announcements among traditional global suppliers increased in the quarter. However, for offshore-centric suppliers, activity in Q2 2008 was largely similar to that in the preceding quarterFor BPO, transaction announcements among traditional global suppliers saw a slight decline compared to the previous quarter. For the group of offshore-centric suppliers, transaction activity remained consistent over the last quarter

Key transactions signed in this quarter:CSC signed a seven-year ITO contract with Bombardier worth US$1.2 billion Perot Systems signed a 13-year, US$1 billion contract with Harvard Pilgrim Healthcare to provide IT infrastructure, business applications, and administrative services

Decreased from last quarter Increased from last quarter Similar to last quarter

Suppliers ITO BPOTraditional globalAccentureACSAtos OriginCapgeminiConvergysCSCEDSHewittHP ServicesIBM Global ServicesPerot SystemsOffshore-centricCognizantEXL ServicesGenpactHCL TechnologiesInfosysSatyamTCSWiproWNSOverall

Note: Analysis based only on publicly announced transactionsSource: Everest Research Institute (2008)


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Section III – Supplier Developments | Illustrative output Each supplier is profiled in detail across multiple dimensions Sample profile - Accenture (page 1 of 3)Recent transaction activity

Buyer name Signing dateTCV1 estimate (US$ million) Duration Services

New York City DoITT April 2008 79.6 5 years AO

Baltimore Gas and Electric April 2008 N.A. N.A. AO

EdiPower April 2008 N.A. N.A. AO

Continental Casualty Company May 2008 N.A. 5 years Customer Care

Safeco May 2008 N.A. N.A. AO

ICAP June 2008 24 5 years AO

Location footprint

Location Status Employees Description

Monterrey(Mexico)

New centre N.A. Accenture expanded its Global Delivery Network with the opening of a delivery center in Monterrey, Mexico, strengthening the systems integration and outsourcing capabilities it provides to clients in North AmericaServices – Systems integration, ADM, testing, and technology consulting

1 Total Contract ValueSources: Everest Research Institute (2008); company Websites


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Section III – Supplier Developments | Illustrative output Each supplier is profiled in detail across multiple dimensions Sample profile - Accenture (page 2 of 3)Mergers & Acquisitions (M&A) and alliance activity

Type of activity Target/partner firm Description

Acquisition AddVal Technology Inc.(USA)

Accenture signed an agreement to acquire the business of AddVal Technology Inc. (AddVal), a privately owned provider of shipment-management products and services to global freight- management and airline-cargo companies. Based in Cupertino, California, AddVal has a software development center in Chennai, India

Acquisition ATAN(Brazil)

Accenture acquired ATAN, a privately held provider of industrial information technology (IT) and automation solutions based in Belo Horizonte, Brazil. The acquisition will accelerate Accenture’s expansion into automation and industrial IT services globally and further enhance the company’s capabilities in management consulting, systems integration and technology consulting within the global metals and mining, energy and utilities industries

Acquisition Origin Digital, Inc.(USA)

Accenture acquired Origin Digital, Inc., a privately held New Jersey-based company that provides rich video capture, transformation and delivery services to content owners. The acquisition will expand Accenture’s capabilities in the media, entertainment and communications industries

Acquisition SOPIA Corporation(Tokyo)

Accenture acquired SOPIA Corporation, a privately held, Tokyo-based consulting and information technology solutions company. The acquisition will extend Accenture’s Oracle capabilities in Japan

Alliance SpringSource(USA)

Accenture and SpringSource teamed up to deliver production version of open source framework for batch processing, called Spring Batch

Alliance Sun Microsystems (USA)

Accenture and Sun Microsystems unveiled new technology solutions for businesses and governments to protect their information systems from growing security threats. Accenture and Sun Microsystems formed an alliance relationship in 2007 to build security solutions that could be deployed quickly while providing a high degree of identity assurance

Alliance TechniData(Germany)

Accenture and TechniData announced partnership to develop global environmental, health and safety (EH&S) solutions for chemical companies, based on SAP

Alliance UniStar Nuclear Energy (USA)

UniStar Nuclear Energy (UNE) announced partnership with Accenture to develop an advanced information technology (IT) platform capable of supporting the lifelong data needs of a potential new fleet of nuclear power plants. UNE is a strategic joint venture between Constellation Energy and EDF Group, Europe’s electric energy producer

Sources: Everest Research Institute (2008); company Websites


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Section III – Supplier Developments | Illustrative output Each supplier is profiled in detail across multiple dimensions Sample profile - Accenture (page 3 of 3)Other significant developments

Type of announcement Description

Headcount related

Accenture announced plans to expand operations in Poland by increasing its headcount from 500 at present to approximately 2,000 in its Warsaw-based BPO facility, over the next few years. The company also plans to establish another facility in Poland at Szczecin, Lublin, or BialystokAccenture announced plans to ramp up its Indian operations by hiring 13,000 people within a year. The Company has a headcount of about 37,000 in India at present, and intends to scale up this figure to 50,000 in the next 12 monthsAccenture announced plans to expand its Cebu operations. The company opened its technology delivery center there in August 2007

Others Accenture strengthened its systems integration and outsourcing capabilities for European clients by integrating its delivery center in Casablanca into its Global Delivery NetworkAccenture’s delivery centers for technology and business process outsourcing in India received British Standards Institute’s (BSI) BS25999-2:2007 certification for business continuityAccenture opened a new facility at its research and development technology lab in Sophia Antipolis, France. The facility, called the Accenture Payments Innovation Showcase, will focus on original research and development in all facets of the payments business, including mobile communications and other point-of-sale technology, bank-to-corporate connectivity, processing, process models, biometrics, regulation such as the Single Euro Payments Area (SEPA) initiative, and security


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Section III – Supplier Developments | Illustrative output In addition, the section includes thematic snapshots such as supplier landscape for knowledge services in India

Landscape of India- based knowledge service providers

Traditional offshore IT and BPO services suppliers that have expanded their service portfolio to include knowledge services

Broad-based IT and BPO suppliers

Specialist suppliers providing only high-value knowledge services across a range of industry verticals

Pure-play, diversified knowledge services suppliers

Specialist suppliers providing knowledge services for focus industries (e.g., BFSI or pharma) or focus segments (e.g., legal services)

Specialist knowledge services providers


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gs - market vista: q2 2008 preview deck · guidelines in source and destination countries across...

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