webinar deck: market developments in q2-2012

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]

mailto:[email protected]�




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

+


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

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


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


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


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


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)


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)


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


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



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


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


Latin America | Key trends and developments across locations

NOT EXHAUSTIVE


Presentation topics

Wrap up and Q&A Key market developments in Q2 2012


Context Examples


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


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


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.)


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


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




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


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


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


Presentation topics


Key market developments in Q2 2012

Wrap up and Q&A

Submit any remaining questions!


Key messages in today’s webinar

Renewed focus on Asia and tier-1 cities

GIC activity holding steady


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


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

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webinar deck: market developments in q2-2012

Business

live polling

global services

q2 2012 webinar

outsourcing

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everest group

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