mnc landscape in india - make vs buy vs partner

MNC Landscape in India- Make vs Buy vs Partner

22

IT Landscape in India1

Agenda

3

IT-BPO employees

India’s share of the global sourcing market

Number of companies offering IT services, BPO, Engineering services and Software Products

Number of Multi National Corporation(MNC) centres in India

Number of countries serviced by India

Number of Languages supported

2.7 mn

55%

5,000+

750+

~66

30

Indian IT-BPO industry overview

4GIC in India – Snapshot

Est Export revenue in USD of GICs

Contribution of GICs to incremental GDP growth in India

Share of Exports from GICs in India ‘s total Software and Services exports

Number of GICs in India; 350 in ER&D space; 200 GICs established in last 3 years

Estimated workforce deployment by GIC

~22%

760+

~450k

~1%

~ 14Bn• 350 ER&D GICs and

328 Hybrid GICs

• 40 pure play Shared Services GICs & 40 pure play IT GICs

• 76% of the GICs have headquarters in North America

• 108 GICs have talent pool in excess of 1000

• Bangalore and NCR accounts for 60% of Talent pool

• 3% of Talent pool in tier 2/tier 3 cities

5Current snapshot of industry

IT-BPO revenues, USD bn

•520+ global delivery centers;

•6% share in India’s GDP and

14% in total exports

•80% of Fortune 500

companies and 20 of world’s

largest banks are clients;

•70% share in global

Knowledge services

outsourcing industry

• Services delivered from 50+

locations

• Foreign providers – over 30%

of the total market

30

1

10

16

43

Domestic

Hardware

Engg

BPO

Services

66

IT Captive Landscape2

Agenda

7The evolution of the captive landscape in India has been supported by critical drivers such as abundant talent, low costs, supportive infrastructure and business environment

7Va

lue

and

Scal

e of

Ope

ratio

ns

1. Cost arbitrage

2. Huge talent pool availability

1. Increased awareness about outsourcing

2. Peer Pressure

3. Globalization drive

4. Enhanced scalability in operations

1. Increased Infrastructure facilities

2. Talent pool with relevant domain knowledge

3. Increased value addition

4. Access to new markets

1. Critical: Cost arbitrage

2. Operational Efficiency

3. Correction in attrition1. Enhanced value addition and

innovation

2. Closer to emerging markets

1. Lack of experienced global leadership

2. Quality of talent pool

3. Cost escalation

4. Infrastructure facilities

1. Economic meltdown

2. Lower productivity

1. Cost escalation

2. Attrition

3. Lower Productivity

1. Cultural differences

2. Quality, SLA’s and Productivity

3. Talent pool with domain expertise

1. Lack of Knowledge about outsourcing

2. Poor infrastructure

Drivers

Challenges

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Drivers and Challenges in the Evolution of Captive Landscape in India

Note: Market sizes represent estimated values based on a sample of companiesSource: Zinnov Analysis of the interviews from Country Managers of 40 captives across different domains in India; Secondary Research

<$ 3.0 Bn

~$ 9.6 Bn

~$ 10.6 Bn ~$ 11.1 Bn

8As a result, the captive landscape is starting to show signs of maturity across multiple activities, attracting more and more companies to explore opportunities going forward

8

Procurement & Logistics

Knowledge Based Services

Technical Support/ Customer Support

Finance & Accounting

Professional Services – IT

Consulting, System Infrastructure

Maturity

Emerging Rapidly Growing Mature

Glo

baliz

ation

Rat

eGlobalization Adoption Curve* Across Functions

LOW

HIGH Engineering Services/

Software Product Development

Application Development &

Maintenance

Note: *Directional OnlySource: Zinnov Analysis of the interviews from Country Managers of 40 captives across different domains in India; Secondary Research

Infrastructure Management

Services

Human Resource

Sales & Marketing

9Successful captive units have migrated along two, often overlapping paths- enhanced value or efficiency

9

10R&D centers increasingly moving up value chain…

Cost arbitrage

center

Higher end services

Non-critical functional

responsibility

Product development

• Leverage local talent at low prices

• Low end engineering and back office

• Non critical functions (e.g. data mining) run completely out of India

• Research for products & Remote product management

• Indian teams start conceiving, developing & managing new products

Low High

Hig

hL

ow

Value Addition

Co

mp

ete

ncy

req

uir

ed

New technology

research

• Indian centers drive research in new technologies

Source: Interviews, Secondary Research, A.T. Kearney analysis

ExampleOracle established

center to support product development

ExampleDell established customer relationship center

ExampleAdobe develops and

manages global products out of India

ExampleIBM India drives cloud research

ExampleAmdocs develops 50% of its products in India

11Captive centers in India are aggressively being leveraged to provide Infrastructure Management Services to the parent organization

11

Roadmap of Indian IMS Industry

• Most common• Serves as a good test case • Readily available talent

• Low complexity • Requires infrastructure e.g.. routers, panels, others

• Huge cost savings• Medium-high complexity • Requires experienced people

• Hardware Support– Network Infrastructure

support

• IT Desk Services– Task scheduling


support– Server support

• IT Desk Services– Task scheduling– Data backup & recovery

• Application Management– Level I & II


support– Server support– Information security– Architecture design

• IT Desk Services– Task scheduling– Data backup & recovery– Fail over setup– System planning

• Application Management– Level I, II & III


support– Server support– Information security– Packaged application

• IT Desk Services– Task scheduling– Data backup & recovery– Fail over setup– System planning

• Application Management– Level I, II, III, IV

Evolution

Note: Source: Zinnov Analysis of the interviews from Country Managers of 40 captives across different domains in India; Secondary Research

1212

Captives journey so far and ahead Landscape3

Agenda

13Expanding Portfolio of Services…Last five years

• Started with initial IT Services delivery around Application Development and Maintenance

• Grew with expansion into Testing and Remote Infrastructure Management Services

• Moving to Consulting and System Integration

ITSERVICES

• Started with initial voice based and transactional services for the BFSI and telecom segment

• Grew with increased depth of services across verticals

• Moving to India as a hub for F&A and knowledge based services - captives currently account for 50% of total knowledge based revenues from India

BPO

• Started with work around product maintenance

• Grew with development support and design

• Moving to complete product ownership, competency creation, and innovation for emerging markets

ER&D

1414

Captives in India – 5 years from now!

• Hybrid models that include program management capabilities, collaboration with third party vendors

• Parent company deriving full “value”; building an ecosystem of trust

• Empowered local management with local decisions

• Shared vision with parent company on driving transformation and enterprise-wide cost efficiency

• Expansion into newer services – increase breadth and depth

• Emerging as “Centres of Excellence” - to drive innovation; build specific geographic expertise

• Emerging as “value players” - mature processes, strong internal measurements and controls, a high degree of standardization and automation

15Focus areas from Captives

Development of Value Addition – Innovation framework that constantly adds value to the Global parents in terms of leadership talent, process excellence, productivity

Building framework for Location Strategy that best manages cost, service and risk considerations in addition, what should be the footprint within a large location like India

Talent Model – How to retain and develop distinctive talent especially given increasing maturity and declining headcount growth in many GICs?

Governance – How should the operating model and governance evolve given increasingly higher GIC value proposition and diversified footprint?

Cost Arbitrage – What is the expected trajectory on cost arbitrage especially given continuing wage inflation

“Make vs. Buy vs. Partner” – Building a partner eco system that will constantly provide inputs for developing best practices in the GIC

Operational Excellence & Continuous Improvement – How will GICs deliver more with less every year and the best practices to deliver world-class quality?

Financial/transactional issues on Transfer pricing, Service tax and others

16Broad trends in in India out sourcing 16

1. India continues to have cost and talent arbitration advantages.

2. India centres integrated with Global shared services with focus on innovation, cost take outs, shadow PNL capability and global leadership talent pool

3. Most captives are working to improve managing multiple providers or resource centres across multiple geographies, assessing and managing risk, and performing location assessments

4. The clear top initiative cited for organizations in 2012 is to drive down operating costs. Global companies investing in new and improved IT, such as enterprise

systems, business intelligence, cloud, and social media. Building Flexible work force plan Leverage subcontractors for low end of the work Common transportation system Investing in reporting and analytics to make better business decisions faster Example : Target, Fidelity, Accenture, GE


5. Global companies in India have adopted three tier model Core design processes retained in-house by the GICs Partnership with Third party design labs in India for non core design work IT management jobs outsourced to third party service providers Example : Texas Instruments, GE, and all of Telecom R&D companies

6. There is a rebound in interest in near captives in India- India+ strategy Develop hub and spoke model India being the hub and other destinations in ASIA region as the spoke Assess another site in India as a BCP site to de risk operations Example : Hi tech design R&D centres like computing and storage

companies, Deutsche Bank, Bosch

7. Global companies continues to are driving productivity in their organizations Developing metrics comparing global parameters, in-country best practices,

in-centre parameters and third party labs/service providers Development of portal for service providers to get feedback and self

improvement Example : Dell, Texas Instruments


8. Global companies in India are increasingly leveraging peer companies and Co-opetition is the new engagement models followed by GICs

9. Peer companies and trade bodies more extensively leveraged to address : Talent development and mentorship related matters Working with academic institutes to build talent pool Regulatory related matters Common transportation and security related matters Example : Texas Instruments, GE, and all of Telecom R&D companies

Experiences of GIC in India- improvement areas1. Profiling of people deployed on the project. Increased recruitment frauds reported

and non adoption of Industry standard National Skills Registry

2. Inflexible service contracts with third party and partner service providers

3. In ability to exchange views / data on operational parameters that will help benchmark the operational excellence

4. Ability to adopt flexible workforce plan

mnc landscape in india - make vs buy vs partner

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