Global Services Oct 2008
This document was uploaded by user and they confirmed that they have the permission to share it. If you are author or own the copyright of this book, please report to us by using this DMCA report form. Report DMCA
Overview
Download & View Global Services Oct 2008 as PDF for free.
More details
- Words: 23,762
- Pages: 52
cover_india_final.qxp
9/22/2008
12:54 PM
Page 1
Service-oriented Architecture p. 36
Managing Disputes p. 40
globalservicesmedia.com Rs. 250
October 2008 Vol. 03, Issue 33
The gateway to the global sourcing of IT and BPO services Dublin
TOP
50
Singapore
Shanghai
G N I G EMER OUTSOURCING GLOBAL
Toronto
CITIES 52 pages including cover
Global Services-Tholons Study
They are not Bangalores or Makatis yet; but they could get there sooner. There are nine new entrants and six dropouts from the 2007 list
ARGENTINA . . . . . . .31 ARS AUSTRALIA . . . . . . .13 AUD BRAZIL . . . . . . . . . .21 BRL
CANADA . . . . . . . . . .12 CAD CHINA . . . . . . . . . . .77 CNY EUROPE . . . . . . . . .7.5 EURO
HONGKONG . . . . . . .78 HKD INDIA . . . . . . . . . . .250 INR JAPAN . . . . . . . . .1170 JPY
Budapest
MEXICO . . . . . . . . .112 MXN PHILIPPINES . . . . .485 PHP RUSSIA . . . . . . . .260 RUB
SINGAPORE . . . . . . .15 SGD SOUTH AFRICA . . . .74 ZAR UK . . . . . . . . . . . . . .5 GBP
USA . . . . . . . . . .9.99 USD SINGLE COPY PRICE; SHIPPING & HANDLING CHARGES EXTRA
ISG.qxp
12/20/2007
1:23 PM
Page 15
with all Great Achievements you find
Passion
Building on Our Global Heritage
Working Together: IT-Enabled BPO
The Taj Mahal is acclaimed as a masterpiece of architecture and of the heart — an enduring testament to the power of love and a builder’s passion for creating beauty. At Genpact, we too, are passionate about our work and see beauty in managing and simplifying business processes for companies around the world. Our 31,700+ associates span 9 countries are united by a passion for excellence and commitment to work as a team. By combining our passion for excellence with teamwork, Genpact redefines what is possible, expanding from service to one company, GE, to more than 35 global enterprises in less than three years.
Enterprises are searching for ways to continuously improve what they do. An emerging trend is the integration of Business Process Outsourcing (BPO) with Information Technology Outsourcing (ITO) to create even greater value. Genpact’s propriety technology tools, coupled with domain knowledge in major industry verticals, transforms client cost structures while reducing complexity and risk.
Cultivating Quality: Lean and Six Sigma As companies wrestle with growing global complexity and competition, they look to Lean Six Sigma and Reengineering methods to ensure consistently high levels of performance and service delivery. As part of their efforts to sustain customer and shareholder value, global leaders search for partners whose dedication to process excellence is part of their DNA. Like other great builders, Genpact has the culture and tools to get it right the first time. Our building blocks are the deep industry domain knowledge, technology know-how and multi-shore delivery that we combine with Lean Six Sigma to ensure process excellence with every customer engagement.
A Passion for Excellence. At Genpact we’re passionate about our customers, our people and the communities we serve. Our passion is a special energy that defines us and constantly raises the bar on what we can achieve as we strive to exceed customer expectations and drive business impact. Our dedication to this principle drives us to be the Employer of Choice wherever we operate. We recruit top talent, train and reward them to be their best and create an environment of learning, openness and respect. This passion for excellence is part of Genpact’s DNA, rooted in our GE heritage and fervent belief that the customer comes first.
visit us at genpact.com and learn how we can work together to make the impossible possible New York +1 646 624 5900 • London +44 (0)20 7535 5400 • Gurgaon +91 124 402 2000 • Shanghai +86 21 6133 3555 • Tokyo +81 3 3543 1816
masthead_India_final.qxp
9/19/2008
11:18 AM
Page 3
The gateway to the global sourcing of IT and BPO services
Vision
A CYBERMEDIA PUBLICATION
The gateway to the global sourcing of IT and BPO services
MANAGEMENT
SALES & MARKETING
Shyam Malhotra Raman Roy Hoshie Ghaswalla
DIRECTORY OF SERVICES Print Magazine
Satish Gupta Head-Sales & Marketing [email protected] 91 987-199-7785
EDITORIAL Ed Nair, Editor [email protected]
The monthly magazine dedicated to the buyers of IT and BPO services focuses on bringing high-quality content to its audience. Our credible content comes from a network of highly experienced writers and industry insiders. e-Magazine
Arun M., Assistant Product Manager [email protected] 91 987-332-2490
Keerthi Nair, Associate Editor [email protected]
Gunjan Sharma, Assitant Manager, Sales [email protected]
Namita Goel, Assistant Editor [email protected] Imrana Khan, Senior Correspondent [email protected]
Deepak Jindal, Circulation Executive [email protected]
COLUMNISTS
PRINT SERVICES
Allan Schweyer Lori Blackman Phil Fersht Shyamanuja Das
N.C. George AVP [email protected]
Now, enjoy reading and downloading the entire issue from the digital version of Global Services magazine at www.globalservicesmedia.com
Online
T. Srirengan General Manager [email protected]
DESIGN www.globalservicesmedia.com :
This portal on global sourcing gives you news, features, blogs, and unique tools to search for providers, deals and events.
Shilpi Bhargava, Manager, Design [email protected]
OFFICES U.S.A.
e-Newsletter
Global Services Media LLC. 1091 Amboy Ave, Suite C, Edison, NJ 08837 T: 678-665-6005, F: 626-604-3966
Get all the latest news, stories, blogs, experts’ comments and announcements by subscribing to our twice-a-week newsletters. To subscribe, log on to
INDIA Cyber Media (India) Ltd. Cyber House, B-35, Sector 32, Gurgaon, NCR Delhi 122001 T: 91 124 4031234, F: 91 124 2380694
www.globalservicesmedia.com
SINGAPORE
Events
Global Services organizes various events such as conferences, buyer-seller meetings, destination series and custom round tables. For more information, write to [email protected]
Cyber Media (Singapore) Pte Ltd. #14-03, High Street Centre, 1 North Bridge Road, Singapore 179094 T: 00-63369142-44, F: 00-63369145 Printed and published by Pradeep Gupta on behalf of Cyber Media (India) Limited, D-74, Panchsheel Enclave, New Delhi – 110017, and printed by him at Rakesh Press, A-7, Naraina Industrial Area, Phase II, New Delhi - 110028. Editor – Shyamanuja Das
Reprints of Articles
All rights reserved. No part of this publication may be reproduced by any means without prior written permission from the publisher
If you would like to use any of the articles published in this magazine for marketing, sales or other purposes, write to [email protected].
Subscriptions in India: Available at Rs.2500 (12 issues). Single copies are available for Rs.250 plus shipping and handling. Subscriptions: One year (12 issues): free to qualifying subscribers, or US $95, Canada $125. International subscriptions (other than India): US$177 for one year. Single copies are available for $9.99 plus shipping and handling.
The Global Services 100
The annual survey conducted by Global Services and neoIT, an outsourcing advisory firm, brings out the list of top 100 innovative IT and BPO service providers. http://www.globalservicesmedia.com/content/ globalservices100.asp
Letters to the Editor
Send letters to [email protected], or to any of our writers. We reserve the right to edit all letters. Postings submitted to our blogs and letters to the editor may be published in our magazine or Website.
Subscription
In the Next Issue
41,000+ people have subscribed for the Global Services magazine. If you would like to subscribe to the magazine, go to www.globalservicesmedia.com (Canada and U.S.), or e-mail to [email protected] (rest of the world).
l
October 2008
The Innovation Imperative Key trends, vendor positioning, recent deals in the FAO industry l Setting up the Governance Structure. l
www.globalservicesmedia.com
GlobalServices 3
contents_final.qxp
9/22/2008
10:45 AM
Page 4
O c t o b e r 2 0 0 8 Vo l u m e 0 3 , I s s u e 3 3
The gateway to the global sourcing of IT and BPO services
FEATURES
14
TOP
50
NG I G R E EM OUTSOURCING GLOBAL
CITIES Global Services-Tholons Study
By Avinash Vashistha, Tholons, and Imrana Khan, Global Services
36
40
SERVICE-ORIENTED ARCHITECTURE By Jayaprakash Nair, Delivery Manager, Aspire Systems
MANAGING DISPUTES By Namita Goel
Is SOA still a buzzword? Why would a company spend money to sponsor a so-called technical initiative by the IT team instead of financing some other business feature development by the team? Is it true that a lack of SOA in an enterprise with a complex IT ecosystem has a direct impact on the IT costs, and hence the bottom line, in the long run?
Who suffers the most in case of a dispute — customer or service provider? Whose fault is it anyway? Who’s holding the ball at the time of deal termination or disagreements? Is it possible to carry on an outsourcing relationship after a nasty scrap? Here’s a reality check
4 GlobalServices
www.globalservicesmedia.com
October 2008
contents_final.qxp
9/22/2008
10:46 AM
Page 5
24X7
8
THE FINANCIAL CRISIS AND OUTSOURCING The news about Lehman Brothers and Merrill Lynch shook the global financial-services industry like never before. Will outsourcing by the sector also see a drastic fall? What happens to projects that are already underway? Are there any new opportunities that the crisis throws up?
SECTOR 10 PUBLIC SIGNS SIX BIG ITO DEALS IN AUG. ’08 By Datamonitor AMERICA MSS 10 LATIN MARKET SET TO GROW TO $332.7 MILLION BY 2013 By Imrana Khan
COLUMNISTS SHYAMANUJA DAS
8
HP TO CUT 24,600 EDS JOBS By Imrana Khan
11
U.S NEWSPAPER INDUSTRY EMBARKS ON OFFSHORING By Imrana Khan
Shyamanuja pioneered outsourcing journalism in India in 1998 with bpOrbit, a newsletter for the domestic Indian BPO industry. He is now Editor, Dataquest magazine, Cybermedia. ALLAN SCHWEYER
12
INFOSYS-AXON M&A DEAL KICKS OFF A NEW TREND By Tholons
13
DEMAND DOWNTURN: TOP REASON FOR JOBS CUT IN AUG. By Namita Goel
Allan is the President and Executive Director of the Human Capital Institute and author of Talent Management Systems. PHIL FERSHT
9
OUTSOURCING TO SENEGAL By Keerthi Nair
Phil is Research Director, Business Process Outsourcing, offshoring and IT sourcing, for leading industry analyst firm AMR Research, Inc.
EXPERT VIEWS
44 CHINA’S CHALLENGES TO DEVELOP A GLOBAL BPO CAPABILITY By Phil Fersht, AMR Research
October 2008
46
50
SALES STRATEGIES IN SERVICE PROVIDER COMPANIES TO SUCCEED IN A TOUGH ECONOMY By Matt Smith, 3forward
PLACING TALENT AT THE CENTER OF INTEGRATED TALENT MANAGEMENT By Allan Schweyer, HCI and Tony Marzulli, Workscape
www.globalservicesmedia.com
GlobalServices 5
editors note_final.qxp
9/19/2008
11:19 AM
Page 6
EDITOR’S NOTE
Where Do You Want to Go Today?
I ED NAIR Editor [email protected]
The entire onus of developing the right climate and conditions does not rest on the government alone. The private sector, the universities, the commercial institutions and the industry associations perhaps have a bigger role to play
6 GlobalServices
n this issue, we list out 50 emerging cities that are vying for a piece of action in the outsourcing space. They are at a stage where they can be called “outsourcing destinations” because they demonstrate a few qualifying attributes and level of activity such locations need to have. How does a city get there? Through sustained efforts directed at creating an environment that helps attract investments, develop talent pools, and create a “pull” factor for the industry. The role played by the country government, in general, and the local government, in particular, is no less. But the entire onus of developing the right climate and conditions does not rest on the government alone. The private sector, the universities, the commercial institutions and the industry associations perhaps have a bigger role to play. The stellar role played by India’s tech industry association — Nasscom — in developing India’s software exports industry and catapulting it to global prominence makes a good case study. Other examples like the Philippines’ BPAP, the industry association for business process outsourcing, and development agencies like Singapore’s IDA have also demonstrated success. The other key aspect in developing a destination is to have a few anchor companies, ideally globally leading ones, who can set the ball rolling. These companies then start acting as reference cases and when these companies scale up, they are able to create an ecosystem of support services that the larger industry would require. These companies also largely determine the area of technical competence that the place can choose to specialize. For instance, way back in the late eighties, Texas Instruments and Tektronix were amongst the first ones to choose Bangalore for software development. Many other companies then followed suit and in about eight years, Bangalore became a hub of software development. It takes time for a city to develop into a favorable destination for outsourcing. As it is said, “Rome was not built in a day.” Credit is due to the cities that are featured in this issue for their sustained efforts at developing the outsourcing industry. And they have many more peaks to scale. GS
www.globalservicesmedia.com
October 2008
ad.qxp
9/11/2008
5:11 PM
Page 29
24x7_final_revised.qxp
9/22/2008
11:17 AM
Page 8
x 4 7 2
Jobscut p. 13
HP to Cut 24,600 EDS Jobs
T
24x7
1
he tech behemoth HP announced plans to cut 7.5 percent (about 24,600 EDS jobs) of the combined entity’s manpower under the company’s restructuring program that is expected to save $1.8 billion annually. The affected employees will be provided with severance packages, counseling and jobplacement services. HP said in a statement that the company plans to replace 50 percent of those jobs by 2011. The replacement intends to board the right talent with services delivery capabilities in order to cater to its global clients from various industries. Most of EDS’ employees are U.S.based and expensive. Handling EDS’ expensive manpower in order to save cost was one of the topmost challenges for HP after the merger. Thus, it was expected that HP would axe EDS’ jobs after inking the HP-EDS merger accord. The HP-EDS merger announcement was made initially on May 13th. However, the acquisition was formalized and completed on Aug. 26th, 2008. Under the terms of the acquisition, the company bought EDS for $13.9 billion. EDS’ buyout is HP’s largest acquisition in the ITservices space. With this buyout, HP has one of the technology industry’s largest portfolios of products, services and end-toend solutions. GS
8 GlobalServices
The Financial Crisis and Outsourcing BY IMRANA KHAN
T
he news about Lehman Brothers and Merrill Lynch shook the global financial-services industry like never before. It is almost clear that the financial industry is going to cut more jobs in the coming future. The industry has already shed nearly 103,000 workers in 2008, and it seems that it’s going to unleash another round of heavy layoffs in the sector. “A year-end spike in financial cuts, ignited by these latest actions, could send 2008 job cuts in the sector past the 2007 record total of 153,105,” according to Challenger, Gray & Christmas, a global outplacement consultancy. The financial sector is one of the biggest buyers of IT and Business Process Outsourcing (BPO) services. If companies in the sector start falling like ninepins, many of the current outsourcing projects would get short-circuited and the existing providers would bear the brunt. The industry experts believe that these announcements will impact the outsourcing industry badly. “There will be a negative impact and this will show up in lower/slow growth. There will also be an impact on the price. As the supply of talent in the U.S. will increase, it will, thereby, depress the wage in the U.S. and place a subsequent negative impact on arbitragedriven value proposition. Also, conwww.globalservicesmedia.com
solidation in the industry will lower the overall demand and the company will reap synergy. This will, subsequuently, show up in lower demand for services in India,” says Vikas Sehgal, Principal and Executive Director, India Business, Booz Allen Hamilton, a Virginia-headquartered strategy and technology-consulting firm. The future of the BPO captives and outsourcing setups of these banks is uncertain. The careers of employees in these setups are also in doubt. On one hand, they could be laid off at any point of time, but on the other, there would be trained talent available to other BPO companies. For companies that are looking at adding scale, the captives would be an easy buy. And, what will happen to the projects that are already underway? “Some for sure will go away as the companies are gone; for those that are merged, you'll see elimination of redundant contracts. Some projects that were for growth will either be canceled or lowered in volume,” adds Sehgal. However, every bad news precedes something good. So there will be some opportunities as well. “Especially for the providers going for value play. India can help in consolidation of banking in U.S. by offering services to integrate the systems and finance processes across new and old entities,” states Sehgal. GS October 2008
24x7_final_revised.qxp
9/22/2008
11:17 AM
Page 9
OUTSOURCING TO
SENEGAL Five places to visit
A
former French colony, Senegal, is fast luring outsourcing opportunities from the Francophone world — its stability, similar time zone, low wages and stock of young, educated employees being the bonus. An extensive and modern telecommunication infrastructure — in place with a digital and fiber-optic network nationally and an optic marine and satellite network internationally — is making the country’s telecommunications as good as any in Europe. The icing on the cake comes with French as one of Senegal’s national languages. Dakar call-center staff have an accent neutral enough to pass for native French, and this allures French organizations toward Senegal. The major four call centers in Senegal — PCCI, Call Me, Access Value, Center Value — offer services mainly for French companies. With the minimum education being a college degree, around 600 operators aged between 20 and 25 work up to 40 hours a week equipped with a French-sounding pseudonym. Senegal, in addition, plans a competitive and trained workforce in order to attract more foreign companies. For example, Senegal plans a network within the country linked by satellite to the University of New York (Project SMKS) to enable students to obtain American diplomas. “Since Senegal is the country in
the world, after Japan, to have developed a very sophisticated government intranet system, the Senegalese have the opportunity to gain a significant amount of training from their home country, thus avoiding the financial burden of going overseas,” says Lance T. Artis, President, Apyo Technologies, a French-speaking technology/outbound telemarketing firm. Though Senegal ranks among the 20 least developed countries in the world, and has an unemployment rate of 48 percent, the center taps into a pool of well-educated, young Senegalese people who are respectful than the staff in Europe. Also the quality of certain public services (electricity) hinder the country’s economic development and industrialization, being focused only in Dakar, makes the city overpopulated. To counter all this, Senegal has not only taken the initiative to promote telecoms in rural zones, but has also started implementing ambitious plans for the period 2005 to 2015 such as improve roads and expand Dakar Port. With high-levels of human skills, diversified service fabric and a deterministic approach, Senegal is bound to become a similar outsourcing magnet for the French call-center industry as India has become for Britain and the U.S., putting it in competition with Morocco, Tunisia and Mauritius. GS
SOURCES: © 2007 PEARSON EDUCATION, OXFORD BUSINESS GROUP, © 2008 CondéNet, INC.
October 2008
www.globalservicesmedia.com
Ile de Goree Also known as the Goree Island, Ile de Goree is a magnificent, lovely and captivating place with lovely palaces, mansions and colorful little alleys lined with pastel colonial buildings and a mighty fortress. UNESCO declared this island a World Heritage Site. Saint Louis Saint Louis or Ndar retains a nostalgic atmosphere in its narrow streets flanked by beautiful colonial houses, balconies and verandas. Two spectacular national parks grace the city — the Langue de Barbarie National Park and the Djoudj National Park. Tambacounda The town is known for its varied agricultural potential and rail connections with Dakar to the northwest and Mali to the northeast as well as a paved road to Kédougou in the southwest. Niokolo Koba National Park, Senegal’s largest national park, is located here. The Petite Côte The Petite Côte is an excellent beach, a great fishing center and shelters the beautiful forests of baobab-trees in Senegal — an excellent base to discover this country. SalyPortudal or Saly and Mbour are the popular tourist resorts of this region. Compiled by Keerthi Nair
GlobalServices 9
2
24x7
BY KEERTHI NAIR
Dakar The capital region of Senegal, Dakar, is a modern metropolis where colonial-style villas, big modern buildings, and the Medina — the old quarter — share an implausible mix. The Institut Fondemental d'Afrique Noir (IFAN) and Galérie Nationale are some major attractions.
24x7_final_revised.qxp
9/22/2008
11:17 AM
Page 10
Metrics Latin America’s
ITdeals
Public Sector Signs Six Big ITO Deals in Aug. ’08
BY IMRANA KHAN
L
BY DATAMONITOR
D
emand from the public sector continued to drive outsourcing contract signing activity in Aug. ’08. Of the 10 biggest deals announced during the month, six involved publicsector customers. The U.S. Army awarded the month’s largest deal to a defense-services contractor, ManTech International. Under the two-year, $820 million agreement, ManTech will provide equipment and systems to support mine detection and retrieval programs in Southwest Asia, including Iraq and Afghanistan. The contract win is one of the biggest in ManTech’s history, and completes a successful few months for the company, which signed two deals worth over $100 million each in July ’08 and acquired security-services provider, Emerging Technologies Group. One of ManTech’s rivals, SAIC, also secured a major defense-services award last month. It was selected by General Services Administration to provide project management, helpdesk support and system-integration services to the U.S. Army’s HR command. SAIC has now
signed 10 deals worth over $100 million since the beginning of 2008, all with U.S. federal government agencies. Lockheed Martin, a major player in the U.S. public sector, secured a significant deal with a government agency in the U.K. in August. The company will head up a consortium, also including Logica, Oracle, Steria and Cable & Wireless, tasked with supporting the 2011 census in England, Wales and Northern Ireland. The team will design, install and support systems using character recognition and color processing for paper census forms, as well as ensure that the census can be completed via the internet. In the private sector, the biggest deal worth $431 million was signed between China Mobile and Motorola to provide GSM network upgrades and expansions. Some 16 network-services deals have been signed in China this year, as the country looks to improve its telecommunications infrastructure. Aside from Motorola, Alcatel-Lucent, Nokia Siemens Networks and Ericsson GS have secured big deals.
THE 10 LARGEST IT SERVICES DEALS IN AUGUST 2008 Customer
24x7
3
Provider
Engagement(s)
Value Duration ($ mn) (yrs)
l
U.S. Army
ManTech International
Maintenance, training
820
2
l
China Mobile
Motorola
Network mgmt.
431
—
l
General Services Administration
SAIC
Helpdesk mgmt., systems 410 integration
5
l
Boeing
AT&T
Network mgmt.
400
5
l
Health Net
IBM
Infra mgmt.
300
5
l
Office for National Statistics Lockheed Martin
Processing services
276
—
l
Health and Safety Executive Capita Group
BPO
257
10
l
U.S. Army
Telecommunication Systems Application mgmt.
246
3 (est.)
l
Absa
Telkom
237
5
l
NOAA
Diversified Global Partners ADM*
200
9
Network mgmt.
atin America’s Managed Security Services (MSS) market is set to surge by 30 percent in the next five years — from $66 million in 2007 to $333.7 million in 2013 — according to the latest findings of a Calif.-headquartered business-research and consulting firm, Frost & Sullivan. With the highest annual growth rate, the MSS market in the entire region is expected to reach about $90 million in 2008. In the current market scenario, the outsourcing of network security in the region is now being accepted at a larger pace. Thus, Latin American IT-services providers are leveraging full outsourcing agreements. Most of the developed industries such as telecom, IT and manufacturing, to name a few, share the biggest pie (46 percent) of the region’s MSS market. However, the finance and banking industry still prefers to manage the network security in-house. Brazil and Mexico are the two domi-
U.S Newspaper Industry Embarks on Offshoring BY IMRANA KHAN
T
he $11 billion Indian Business Process Outsourcing (BPO) industry — slated to reach $30 billion by 2012, and which employs over 700,000 people — has become a monster to manage. Recent stats on the sector’s employee turnover show an unprecedented rise; enough to keep business leaders awake at night. Any offshoring announcement by U.S. newspaper publishers always makes headlines. Especially when the publishers decide to offshore the services beyond
*Application Development & Maintenance; SOURCE: DATAMONITOR IT SERVICES CONTRACTS DATABASE
10 GlobalServices
www.globalservicesmedia.com
October 2008
24x7_final_revised.qxp
9/22/2008
11:18 AM
Page 11
MSS Market Set to Grow to $332.7 Million by 2013 REVENUE FORECAST
CURRENT MARKET CONDITIONS IN LATIN AMERICA Current status
20
100
10 2007
2008
Total revenues
2013
Ecuador, Peru, Bolivia and Chile l Brazil l Central America & Caribbean
0
Annual growth rate l Mexico SOURCE: FROST & SULLIVAN
nant markets in Latin America. In 2007, these markets together accounted for over 65 percent of the region’s MSS market. According to the study, titled Latin America Managed Security Services Markets, the primary drivers behind this growth are: Increasing threat levels, pressure from regulatory bodies to adopt security measures, improving awareness about the growing necessity for fool-
their typical ad-production work. Many a times such announcements are met with resistance due to jobs cut announcements. Over 6,500 jobs cut have been reported in the first six months of the year 2008. Even the blogspace gets flooded with sentiments of angst against “the outsourced newspapers.” Quite a bit of muck was raised when The Orange County Register, one of the leading regional newspapers, recently announced its plan to offshore copy-editing and page-layout work to India. In 2007, when Calif.based news Website hired Indian journalists to cover meetings of the Pasadena City Council, the reaction of the locals was quite uncomplimentary. Plunging revenues is the biggest con-
October 2008
l Southern Cone
With 14 percent participation, this region has shown great growth potential, especially in Colombia and Venezuela, detaining Latin America’s highest CAGR for the forecasted time period Is region’s largest and most established market, detaining 40.9 percent of MSS revenues Very underdeveloped region, with growth potential for all MSS solutions. Costa Rica, Puerto Rico and Panama are the main markets in this region, fuelled by government investments and the presence of multinational companies Represents 24.1 percent of MSS revenues and has very similar market characteristics as the much larger Brazilian market Accounting for 16.2 percent of the region’s revenues, driven particularly by Argentina’s very high GDP growth over the past years and by Chile’s developed financial vertical. SOURCE: FROST & SULLIVAN
proof network-security solutions, lack of qualified IT professionals to manage inhouse IT departments, and companies’ desire to reduce the costs with IT-security expenditure to focus on core business.
However, many factors such as lack of awareness of current threats and available solutions in the market and lack of quantifiable ROI hinder the growth of this market largely. GS
cern for U.S. newspapers publishers. The newspaper industry in the region is going through a major crisis. So the ultimate solution for survival is to save costs by outsourcing production and content services to low-cost offshoring destinations such as India. Even though offshoring by U.S. newspapers primarily revolved around adproduction work, some copy-editing and page design work is now also being sent to these locations. From India’s perspective, the country has a huge untapped market. India shares a very small pie — $35 million — of the total offshore opportunity from newspaper publishers, which is expected to be about $3,500 mil-
lion, estimated a business intelligence and research firm, ValueNotes. Currently, there are a handful of providers such as Express KCS, Affinity Express, 2AdPro and Mindworks Global that serves this market, but there’s the opportunity for more providers to come in. Going forward, according to ValueNotes’ study, the current Indian penetration into this market stands at around one percent. The revenues of Indian service provides could grow to $120 million by 2012. Also the number of total workforce involved in this industry is set to cross 5,500 in the next GS four years.
www.globalservicesmedia.com
GlobalServices 11
4
24x7
30
200
0
Region
l Andean countries — Colombia,
300
Growth rate (% )
Revenues ($ millions)
40
24x7_final_revised.qxp
9/22/2008
11:18 AM
Page 12
Infosys-Axon M&A Deal Kicks Off a BY NISHANT VERMA, PRINCIPAL, AND AVINASH VASHISTHA, CEO, THOLONS
A
ugust ’08 witnessed the announcement of the largest Indian cross-border deal wherein Infosys, an India-based ITservices giant, acquired Axon Group, the U.K.-based SAP consulting-services firm, for a total transaction value of $753 million. This acquisition seems to be a trendsetter. Since the announcement, a spurt of similar activities is being noticed. Infosys has the largest exposure to Western customers. Of which, around 68 per-
cent of total revenue comes from the U.S. and around 30 percent comes from the European regions, unlike other India-based tier-1 firms such as Wipro (44 percent from the U.S. and 24 percent from Europe) and TCS (50 percent from the U.S. and 29 percent from Europe). From a geographical expansion perspective, the target is expected to provide a strong local presence and a front-end for Infosys in Europe. The deal is further
MEGA M&As OF AUGUST '08 Acquirer l Infosys
Technologies
l Serco l Sungard l Nuance
Capital
Communications
l KKR l Singapore
Axon
753
Si International
525
Gl Trade
443
Snapin
180
Anite Public Sector
107 99
Superoffice
95
Medisolution's Healthcare Information Systems Division
50
l Spectris
Ncode International
44
l Adaptec
Aristos Logic
41
l Nuance
Zi
35
l Salesforce.com
Instranet
32
l Sbi
Sbi Net Systems
25
Pyxis Solutions
25
Kantone
24
Mizi Research
16
Dacolian
15
l Callwave
Webmessenger
9
l Ucs
Computer Software Consultant
9
Tronic International
7
Dawoori Entertainment
6
Heartland Data
6
U.S.: 44
Norway: 1
5
Belgium: 3
Singapore: 3
Canada: 7
South Korea: 1
l Healthvision
Solutions
Communications
Holdings
l ITC l Champion l Wind
Asa
Group
l Creative l Kn
Technology
River Systems
l Q-Free
24x7
Deal size ($ mn)
Telecommunications Singapore Computer Systems
l Superinvest
5
Target
marked by the synergetic benefits arising from 2,000 employees offering SAP consulting services to customers from the aerospace, retail, manufacturing, utilities, financial and other commercial sectors, providing the global giant with strong cross-sell and up-sell opportunities. The acquisition would also strengthen the position of Infosys in the U.S., China and other Asian geographies. However, this deal would dilute the higher profit margins of Infosys. Due to the cultural barriers and non-offshore benefits, Indian acquirers have always stayed away from large transactions in European regions. This could be further elaborated by the fact that Europe witnessed over 80 IT and business process outsourcing transactions in the past eight months, where around 50 percent are domestic, 40 percent are U.S.-based acquirers and 10 percent are from others. Another large transaction of the month was the U.S.-based acquirer SunGard Capital acquiring French financial software solutions firm GL Trade for $443 million.
Master Bermuda
Wave
l Wiseman l Info-Drive l Global
Software
Technoprism
Med Technologies
l Salary.Com
Edonor
5
Germany: 7
U.K.: 13
Infobasis
5
Hong Kong: 4
Others: 13
To see the full table, please visit www.globalservicesmedia.com SOURCE: THOLONS
12 GlobalServices
DEAL COUNT BY TARGET COUNTRY (%)
www.globalservicesmedia.com
Japan: 4 SOURCE: THOLONS
October 2008
24x7_final_revised.qxp
9/22/2008
11:18 AM
New Trend DEAL VALUE BY TARGET COUNTRY (%)
Page 13
Jobscut
Demand Downturn: Top Reason for Jobs Cut in Aug. BY NAMITA GOEL
T U.K. 32
Others: 17
Japan: 1
Belgium: 0 (est.)
Norway: 3
Canada: 2
Singapore: 4
Germany: 1
South Korea: 1
Hong Kong: 1 SOURCE: THOLONS
The acquisition will expand the financial software offerings of SunGard to European customers and would enable it to penetrate the small and mid-sized market segment. Firms based in the U.S. have emerged as favorite targets with 31 transactions, followed by the U.K. with nine deals, Canada and Germany with five deals each. Other target geographies targeted were Hong Kong, Japan, Norway, Singapore, South Korea, Sweden, Australia, China, France, India, Israel, Netherlands, South Africa, GS UAE and Sweden. October 2008
www.globalservicesmedia.com
MONTH-BY-MONTH TOTALS Month l May l June l July l August
2008 103,522 81,755 103,312 88,736
2007 71,115 55,726 42,897 79,459
MORTGAGE / SUB-PRIME LAYOFFS Month May l June l July l August l
2008 15,505 18,936 14,735 1,337
2007 3,948 3,713 1,175 30,892
AUGUST JOBS CUT REASONS Reasons l Demand downturn l Closing l Cost-cutting l Restructuring l Market conditions l Bankruptcy l Merger/acquisition l No clear reason l Fluctuating sales l Relocation l Rising Costs l Order cancellation/ reduction l Outsourcing l Voluntary severance l Reorganization/ consolidation l Technological update Total
Number of layoffs 20,614 16,779 15,617 11,821 8,294 3,871 3,646 2,655 1,986 1,092 930 733 450 115 103 30 88,736
SOURCE: CHALLENGER, GRAY & CHRISTMAS
May 2007. The 144 exits are 16.1 percent higher than the previous month GS when 124 exits were recorded. GlobalServices 13
6
24x7
U.S. 38
he number of jobs cut in Aug. ’08 was 14 percent less than the number quoted in July. August witnessed slightly better market conditions compared to the last couple of months, though the number is still stubbornly high at 88,736, states the jobs cut report released by global outplacement consultancy, Challenger, Gray & Christmas. Demand downturn has been stated as the top reason by employers for the jobs cut, however, the year-to-date category market conditions is still topping the chart for the reasons behind the cuts. Till now, employers in various sectors have announced 667,996 jobs cut, which is 29 percent higher than 2007 eight-month total of 515,855. The months of May and July have jolted the entire jobs market so badly that there are very less chances of recovery within this year. After the phase of 2001 to 2005 that repeatedly saw over a million yearly positions cut by employers, just three years later, 2008 is set to join the “over a million” jobs cut club. Even though 2002 was a bad year with 1,466,823 jobs cut in total, the summer of 2008 beats the summer of 2002. Hopes of a late summer reprieve in layoffs were dashed by heavy downsizing in the automotive and government sectors, where employers announced 17,233 and 12,328 job cuts, respectively. This level of summer job cutting has not been seen since 2002, when the country was still struggling to recover in the wake of the 2001 recession and September 11, according to the firm. The number of CEOs exits touched 144, the highest mark since
coverstory_ik.qxp
9/22/2008
12:29 PM
Page 14
coverstory_ik.qxp
9/22/2008
5:24 PM
Page 15
TOP
50
G N I G EMER OUTSOURCING GLOBAL
CITIES Global Services-Tholons Study
They are not Bangalores or Makatis yet; but they could get there sooner. There are nine new entrants and six dropouts from the 2007 list Premier Sponsor
cstory_Final.qxp
9/22/2008
3:25 PM
Page 16
The Global Services-Tholons Study
THE LOCATION
By Avinash Vashistha, Tholons, and Imrana Khan, Global Services
T
IER-1 GLOBAL SERVICE PROVIDERS such as Accenture, ACS, Cognizant, Capgemini, CSC, EDS, Genpact, HP, IBM, Infosys, LogicaCMG, TCS, Satyam and Wipro continue to increase their global presence. The difference is that service providers such as IBM and Accenture are looking to tier-2 and tier-3 Indian cities for expansion, while the Indian providers Infosys, TCS and Wipro are heading toward cities in South America and Eastern Europe. In a way, the choice of the right city has become more important than the choice of the country. It is rather the city (than the country), which represents a more accurate package of attributes that service providers seek. Thus, Cebu City and Monterrey matter more than the Philippines and Mexico from a decision-making standpoint. This study identifies those locations that are globally recognized for their “specific” outsourcing services offerings as well as the ones that are establishing themselves as specialized locations for particular outsourcing functions. To make the study complete, like last year, we have also come up with the names of top emerging outsourcing cities as that’s the main focus of this study. There are eight such cities instead of five that we had reported last year. (See Table 2 —“Top 8 Global Outsourcing Locations.”) This year’s list of top 50 emerging global outsourcing cities, though, has quite a few surprises. We profiled nine “new entrants” — including Quezon City (The Philippines), Toronto (Canada), Rio de Janeiro (Brazil), Mexico City (Mexico), Jaipur (India), Singapore (Singapore), Chengdu (China), Guadalajara (Mexico) and Mandaluyong City (The Philippines) — to the list. (See Table 3.) Last year we had profiled top 15 emerging outsourcing locations.
16 GlobalServices
THE PARAMETERS OF EVALUATING THE CITIES In order to provide location assessment, Tholons has considered “six general categories” — “Scale & Quality of Workforce (including education),” “Business Catalyst,” “Cost”, “Infrastructure,” “Risk Profile” and “Quality of Life.” Within these six segments are fifteen sub-categories, each possessing a corresponding weight. The parameters above are the same components, which differentiate cities, and to a large extent determine their individual capacities to fulfill particular services. Cities with large, English-proficient labor pools, for example, may be better equipped to provide voicebased customer support while a smaller city with robust infrastructure and adequate supply of network engineers may be better candidates to provide infrastructure managed services. Consequently, there is no definitive set or order of parameters, which will provide a definitive advantage for each city across all service lines. Each parameter must take into consideration a number of determining factors: Type of service, desired scale, and nature of delivery, to name a few aspects. THE LOCATION-ASSESSMENT FRAMEWORK Our “Location-assessment Framework” takes into consideration an expansive set of variables when evaluating a city’s potential as a delivery center. Further, the quantitative data gathered is substantiated and analyzed qualitatively. In analyzing the capacity and potential of individual city centers, Tholons identifies the inherent characteristics of a location — its key differentiator and at the same time, its primary inhibitor. The recognition of these city-specific aspects is also essential in correlating which specific service lines a city has the potential or is most capable in delivering. City A for example, can have a high percentage of its labor pool that is Englishproficient, but may also have a smaller percentage of IT or technical-related university graduates as compared to City B — having a low number of English-speaking graduates, but a more favorable ratio of IT graduates. In this case, we can infer from a resource perspective, that City A may be more suitable for delivery of customersupport services, while City B may be better equipped to fulfill ITO-related services such as engineering or software development. From a service-delivery perspective, the more successful outsourcing cities have leveraged on their
The Perspective of the City
Location assessment based on a city as opposed to a country is reflective of the ongoing trend we are witnessing in the global outsourcing arena. Service providers are look-
www.globalservicesmedia.com
October 2008
cstory_Final.qxp
9/22/2008
3:26 PM
Page 17
The Global Services-Tholons Study
ASSESSMENT available resources to capture specific market segments. Cities in the Philippines for example, continue to avail of their large English-proficient workforce in catering to the U.S. customer-service market. The same holds true for Central and South American cities that have been quick to capitalize on the growing Hispanic population in the U.S. Further, despite the U.S. currency’s recent slide, these destinations continue to be more cost efficient as compared to onshore (U.S.) delivery centers. Due to the deteriorating political situation in the state of West Bengal, we continue to put Kolkata on the watch list. Political disturbances contributing to an unfavorable climate for business would prove to be a big hindrance for the city to attract investments. However, we expect the government to take steps to restore normalcy and to continue on the growth path as an outsourcing destination. Cities are differentiated not only by their available resources (quality/type of labor force, cost, available infrastructure and such), but also by their long-term potential in fulfilling demand for specific services. In many instances, these scalerelated inhibitors can directly impact what type and size of outsourced services that location can fulfill. For headcount-dependent processes such as voice-based customer support, lower
cost and large population bases are often required. There are also various regional and ecosystem dynamics, which differentiate the capacities of cities. A converging Europe is a prime example. As Europe continues to expand its unified market, cost-effective destinations in Eastern Europe will continue to increase their market share of outsourced services from customer nations in Western Europe. In this regard, Eastern European cities such as Kraków and Prague will continue to leverage their nearshore and cultural compatibility advantages. Alternatively, cities in countries with large population bases such as India and China will maintain competitive advantage by offering scale and labor costs, which most destinations will be unable to counter. Cities in these two countries — with millions of people — will also have the best potential to offer a wider array of outsourced services. However, this does not necessarily imply that the advantage is exclusive to such mega cities. Cities such as Ho Chi Minh City, Vietnam, and even smaller destinations like Monterrey, Mexico have made inroads in high-value ITO and engineering services. For similar sized cities that may have demographic constraints, identifying the available strengths within their ecosystem is essential in developGS ing their respective niche markets.
Budapest
Shanghai
Santiago
CITY CHARACTERISTICS WITH RESPECT TO SPECIFIC SERVICE ITO (Infrastructure Managed Services)
Priority Low
Cost Scale & Quality of Workforce Infrastructure Risk Profile Business Catalyst Quality of Life
High
BPO (Contact Center)
Scale & Quality of Workforce Infrastructure Business Catalyst Cost Risk Profile Quality of Life Singapore
ing to identify and tap the inherent capabilities and capacities of specific locations. This transition on how service providers view locations illustrate both the maturity of the outsourcing model and heightened focus on optimization of October 2008
service-delivery. Today, a single provider can have centers in multiple countries and cities, with each city having the optimal conditions to fulfill specific service lines. Software development can be done in Bangalore, customer service can be
www.globalservicesmedia.com
GlobalServices 17
cstory_Final.qxp
9/22/2008
3:26 PM
Page 18
The Global Services-Tholons Study
done out of Makati City, while engineering services are delivered out of Kraków. The one-stop-shop country model has in fact given way to the more efficient, multicity, bestof-breed city model. Further, this also reflects the increased responsibilities, which local government units now have in developing their respective cities. City officials, infrastructure providers and local stakeholders are often better able to promote, stimulate and market their city’s specific capabilities to potential outsourcing service providers. Moreover, local stakeholders are able to address infrastructure and ecosystem concerns in a timelier manner. Many city mayors and local government units, for example, can provide city-specific tax incentives and telecom providers can deploy connectivity in a much more targeted scale. In contrast, nationwide agendas and developmental rollouts, as otherwise mandated by national governments, are often prolonged and drawn out — a pace unfavorable to most service providers. Though we highlight the increasingly vital role, which individual cities play in a country’s outsourcing industry, we do not discount the significance that national governments and institutional bodies play in shaping the sector. National governments and industry bodies are commonly tasked to provide guidance, policies and set direction. Likewise, these organizations provide essential monitoring and regulatory roles — ensuring that labor and business-related concerns are managed and implemented. As such, the role of the city with regards to outsourcing should not be viewed as one, which has become entirely independent of the country. Rather, one should view the evolution of the city as a direct result of a country’s inherent capabilities as an outsourcing provider. Referring to Prague as a “Center for Excellence” for software development, or Ho Chi Minh City for IT Outsourcing (ITO) processes, for example, highlights the respective country’s strengths. The Locations & the Year Gone By
The past eighteen months have been an incredibly dynamic period for the global outsourcing industry. The ongoing slowdown in the U.S. economy, the continuing maturation of the outsourcing model, the rise of tier-2 and tier-3 cities as delivery centers, the heightened level of competition and emergence of “global Business Process Outsourcing (BPO) providers” are some of the key ecosystem movements we continue to closely monitor. We have noticed that with each fundamental shift in the market, stakeholders in turn are requiring a deeper understanding of delivery locations. This level of knowledge has become essential not only to maintain financial objectives, but more so to ensure competitive advantages and longevity in an increasingly competitive market environment. The region-wise analysis reveals something near to obvi18 GlobalServices
LOCATION FIRST By Shyamanuja Das
A
h! The debate is still alive. It is more than a decade since Jack Welch made the world believe in his 70-70-70 formula — 70 percent of the GE’s processes can be outsourced; 70 percent of what can be outsourced can be offshored; and 70 percent of what can be offshored can be executed in India. Many technology and pure services firms have actually bettered on that formula. There are start-up firms in the valley that are born global — just a few heads in the U.S. and rest in India. Yet, the debate remains. I will but add one more page to that. But as the Nobel Prize winning economist Amartya Sen, well, argues, sometimes the arguments are as important as the final conclusion. At least majority of Indians believe so and I am no exception either. First let us examine the question a little carefully: Should you choose a location first or a partner first? The question, then, inherently excludes the captive option. It is for a company that has decided to outsource to a third-party service provider (a partner). The reason I am specifically pointing this out in the beginning is that the importance of location selection is minimized significantly, if not eliminated completely in this case. Now, let us build typical scenarios. Let’s say, to start with, a very large company with global business presence is looking at a mega outsourcing deal. In this case, it is safe to assume that it will need the work to be executed in different languages, for different time zones with some business continuity or at least disas-
ous. That is, Asian cities are the ones that rock the top 50 cities chart. However, the interesting thing is that not only the tier-1 cities in the Asia-Pacific region are ruling the outsourcing industry but also there are many tier-2 and tier-3 Asia-Pacific cities that are fast emerging as outsourcing destinations. Of the top nine emerging cities, six — Cebu City (The Philippines), Shanghai (China), Beijing (China), Ho Chi Minh City (Vietnam), Kolkata (India) and Shenzhen (China) — are from the Asian continent. Thirty-eight percent of the top cities list have been occupied by such locations followed by 26 percent by Central & Eastern European cities.
www.globalservicesmedia.com
October 2008
cstory_Final.qxp
9/22/2008
3:26 PM
Page 19
The Global Services-Tholons Study
OR PARTNER FIRST?
ter-recovery capability built in. All these point to a multilocation strategy. Any large service provider that can execute this contract should either have presence in multiple locations or capability to quickly add some locations, or ideally both. Fortunately for the customers of outsourcing, most large global service providers, irrespective of their country of origin, are today building that capability. Whether it is IBM, Accenture or EDS or TCS, Infosys and Wipro, all of them today have a strong global delivery strategy. Let us say a small or medium company wants to outsource what could be of significant size for that company but general IT or business process, like finance and accounting work or entire customer-service work, even though by sheer dollar
terms it may not be classified as a mega deal. In that case, it may not always be possible for the company to influence the service provider to go to a location of its choice. But in practical terms, it may not be a major roadblock, as most service providers today are fairly mature in generic business-process delivery, and they will always find a good fit for the work. So, this one too goes to partner first. But what about a large (or even) small company looking to outsource very specialized work? Say, design of some automotive components or design of algorithms? In that case, while a partner-first approach can be convenient, one would argue that a better approach is to select a location first. And considering that most specialized work does not happen in hundreds of locations, the company will have to choose between two to three locations; that is not that tough. In many such cases, it is important to choose not just the country but specific location. Take engineering design services. Within India, there are a few places like Pune (otherwise a tier-2 location), Bangalore, Hyderabad and Chennai that come on top, rather than Mumbai or Delhi. The rational behind choosing/shortlisting locations first, in these cases, is not just because of the capability of the workforce, but there is the danger of missing out good, small, specialized players, if one does not have a first-hand evaluation of GS these locations. Shyamanuja is Editor, Dataquest, CyberMedia.
Losers & Gainers
The Bangalores …
With each passing year, our location assessment continues to be a target that’s moving and morphing like an amoeba, with a new set of market variables that need to be considered. Our location-assessment framework, thus, follows a deeper approach to identify the emerging global outsourcing locations. Thus, we see new entrants — even some among the ones who topped the emerging cities list — spanning over the list as well some going away from the listing. The cities that were recognized in our last year’s list and that could not make to the list this time can be seen in the table below which also shows the list of new entrants (See Table 1).
The year’s list of top global Bangalores is bigger than the last year’s. Our Top 5 Global Outsourcing Cities list has now become Top 8 Global Outsourcing Cities with some new members — Chennai (India), Hyderabad (India), Makati City (The Philippines) and Pune (India). As expected, Indian cities dominate the top list once again. Makati City, as part of the Philippines NCR (National Capital Region) holds its ground, while Indian cities with the entrance of Chennai, Hyderabad and Pune continue to dominate the top chart. (See Table 2.)
October 2008
www.globalservicesmedia.com
Continued on page 26
GlobalServices 19
cstory_Final.qxp
9/22/2008
3:26 PM
Page 20
The Global Services-Tholons Study Chart 1
REGION-WISE BREAKUP (%)
8
n=50
24 4
6
38 20
Middle East Africa Western Europe North America South America Central & Eastern Europe Asia Pacific
26
TOP GLOBAL
OUTSOURCING
Table 2
CITIES
The region-wise analysis reveals something near to obvious — Asian cities are the ones that rock the top 50 cities chart. However, an interesting point is that not only the tier-1 cities in the Asia-Pacific region are ruling the outsourcing industry but also many tier-2 and tier-3 Asia-Pacific cities are fast emerging as outsourcing destinations. Of the top nine emerging cities, six — Cebu City (The Philippines), Shanghai (China), Beijing (China), Ho Chi Minh City (Vietnam), Kolkata (India) and Shenzhen (China) — are from the Asian continent. Thirty-eight percent of the top cities list has been occupied by such locations followed by 26 percent by Central & Eastern European cities.
Makati City
Table 1
DROPOUTS Rank (2008) 31 36 37 38 45 50
City Perth Baguio City Leeds (Yorkshire & Humber) Birmingham, Alabama Oklahoma City, Oklahoma Juarez
Bangalore l Chennai l Delhi NCR l Dublin l Hyderabad l Makati City l Mumbai l Pune l
Country Australia The Philippines U.K. U.S. U.S.
India India India Ireland India The Philippines India India
Mexico
NEW ENTRANTS* Rank (2008) 21 22 26 30 31 36 37 44 45
City Quezon City Toronto Rio de Janeiro Mexico City Jaipur Singapore Chengdu Guadalajara Mandaluyong City
Country The Philippines Canada Brazil Mexico India Singapore China Mexico The Philippines
Singapore
Dublin Docklands With a rapidly maturing, expanding global outsourcing industry, our last year’s “Top 5 Global Outsourcing Cities” chart has now become “Top 8 Global Outsourcing Cities.” Makati City, as part of the Philippines NCR (National Capital Region) holds its ground, while Indian cities with the entrance of Chennai, Hyderabad and Pune continue to dominate the top chart.
*THE NEW ENTRANTS HAVE BEEN PROFILED IN THE NEXT PAGES STARTING FROM PAGE NO. 30 TO PAGE NO. 34.
20 GlobalServices
www.globalservicesmedia.com
October 2008
cstory_Final.qxp
9/22/2008
3:27 PM
Page 21
The Global Services-Tholons Study
Top
50 Emerging Global Outsourcing Cities
Table 3
Rank Rank
Cities
Country
(2008) (2007)
Time Zone (GMT)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50
4 8 10 6 16 5 11 15 14 13 12 9 17 20 23 18 21 19 7 25 NEW NEW 22 24 28 NEW 29 26 27 NEW NEW 33 32 34 40 NEW NEW 43 42 41 46 30 44 NEW NEW 47 39 35 48 49
October 2008
Cebu City Shanghai Beijing Ho Chi Minh City Kraków Kolkata Cairo São Paulo Buenos Aires Shenzhen Hanoi Chandigarh Curitiba Prague Pasig City Dalian (Dairen) Coimbatore Santiago Colombo Johannesburg Quezon City Toronto Guangzhou (Canton) Belfast Budapest Rio de Janeiro San José Warsaw Brno Mexico City Jaipur St. Petersburg Kuala Lumpur Accra Bratislava Singapore City Chengdu Bucharest Moscow Sofia Monterrey Glasgow City Brasília Guadalajara Mandaluyong City Tallinn San Antonio Halifax Kiev Ljubljana
Philippines China China Vietnam Poland India Egypt Brazil Argentina China Vietnam India Brazil Czech Republic Philippines China India Chile Sri Lanka South Africa Philippines Canada China Ireland Hungary Brazil Costa Rica Poland Czech Republic Mexico India Russia Malaysia Ghana Slovakia Singapore China Romania Russia Bulgaria Mexico U.K. Brazil Mexico Philippines Estonia U.S. Canada Ukraine Slovenia
+8 +8 +8 +7 +1 +5:30 +2 -3 -3 +8 +7 +5:30 -3 +1 +8 +8 +5:30 -4 +5:30 +2 +8 -4 +8 Offset +1 -3 -6 +1 +1 -6 +5:30 +3 +8 Offset +1 +8 +8 +2 +3 +2 -6 Offset -3 -6 +8 +2 -6 -4 +2 +1
Population (in mn) est. in 2007
0.8 21.6 15.9 5.4 0.8 13.6 7.7 10.9 3.0 26.3 2.2 2.3 1.8 1.9 0.6 3.9 4.7 5.4 2.5 3.9 2.3 2.5 14.2 0.6 2.5 6.1 0.4 1.7 0.7 8.5 6.5 4.8 1.9 2.0 0.5 4.6 7.8 1.9 11.0 1.3 1.1 0.6 2.5 1.6 0.3 0.4 1.3 0.4 2.7 0.3
www.globalservicesmedia.com
Currency
Exchange Rate (as of Sept. 10th, '08) USD 1 =
Philippine peso (PHP) Chinese yuan (CNY) Chinese yuan (CNY) Vietnamese dong (VND) Polish zlotych (PLN) Indian rupee (INR) Egyptian pound (EGP) Brazilian reai (BRL) Argentine peso (ARS) Chinese yuan (CNY) Vietnamese dong (VND) Indian rupee (INR) Brazilian reai (BRL) Czech koruna (CZK) Philippine peso (PHP) Chinese yuan (CNY) Indian rupee (INR) Chilean peso (CLP) Sri Lankan rupee (LKR) South African rand (ZAR) Philippine peso (PHP) Canadian dollar (CAD) Chinese yuan (CNY) Euro (EUR) Hungarian forint (HUF) Brazilian reai (BRL) Costa Rican colon (CRC) Polish zlotych (PLN) Czech koruna (CZK) Mexican peso (MXN) Indian rupee (INR) Russian ruble (RUR) Malaysian ringgit (MYR) Ghanaian Cedi (GHS) Slovak koruna (SKK) Singapore Dollar (SGD) Chinese yuan (CNY) Romanian leu (RON) Russian ruble (RUR) Bulgarian lev (BGN) Mexican peso (MXN) British pound (GBP) Brazilian reai (BRL) Mexican peso (MXN) Philippine peso (PHP) Estonian kroon (EEK) U.S. dollar (USD) Canadian dollar (CAD) Ukrainian hryvna (UAH) Slovenian tolars (SIT)
PHP 46.59 CNY 6.84 CNY 6.84 VND 16,527.50 PLN 2.46 INR 44.80 EGP 5.41 BRL 1.77 ARS 3.06 CNY 6.84 VND 16,527.50 INR 45.12 BRL 1.77 CZK 17.59 PHP 46.59 CNY 6.84 INR 45.12 CLP 529 LKR 107.88 ZAR 8.06 PHP 46.59 CAD 1.07 CNY 6.84 EUR 0.71 HUF 170.66 BRL 1.77 CRC 548.79 PLN 2.46 CZK 17.59 MXN 10.55 INR 45.12 RUB 25.61 MYR 3.46 GHS 1.16 SKK 21.39 SGD 1.44 CNY 6.84 RON 3.59 RUB 25.61 BGN 1.39 MXN 10.55 GBP 0.56 BRL 1.73 MXN 10.55 PHP 46.59 EEk 11.08 USD 1 CAD 1.07 UAH 4.38 SIT 169.70
GlobalServices 21
ad.qxp
9/22/2008
6:56 PM
Page 22
ad.qxp
9/22/2008
6:56 PM
Page 23
cstory_Final.qxp
9/22/2008
3:27 PM
Page 24
The Global Services-Tholons Study
Top
50 Emerging Global Outsourcing Cities
Rank
Key Service Providers
Major Universities
(2008)
1
Accenture, ACS, Convergys, eTelecare, People Support
2
Accenture, Cognizant, EDS, Infosys, Neusoft, TCS, Wipro, Unisys
Univ. of the Philippines, Univ. of San Carlos East China Univ. of Science & Technology, Shanghai Jiao Tong Univ.
3
Accenture, Capgemini, EDS, IBM, Infosys, TCS, Wipro, Unisys
Beijing Univ. of Tech., Peking Univ., Renmin Univ. of China
4
FPT Software, IBM, Luxoft, Vietnam Software Outsourcing Co.
Ho Chi Minh City National Univ., Univ. of Technical Education
5
Capgemini, HCL, Hewitt, IBM, LogicaCMG, Philip Morris
AGH Univ. of Science & Technology, Cracow Univ. of Technology
6
Capgemini, Cognizant, Genpact, HCL, IBM Daksh, TCS, Wipro
Univ. of Calcutta, Bengal Engineering & Science Univ.
7
C3, Convergys, EDS, Raya Contact Center, Tamima, Xceed, Unisys
Al-Azhar Univ., Ain Shams Univ., Cairo Univ., Call Center Academy
8
Accenture, Convergys, Cisco, Dell, EDS, Fidelity, Satyam, TCS
Univ. of Sao Paulo, Federal Univ. of Sao Paulo
9
Accenture, Convergys, Cognizant, EDS, HP, Globant, TCS, TeleTech
Universidad Catolica Argentina, Universidad de Buenos Aires
10
ACS, AT&T, HP, IBM, Siemens, Satyam
Shenzhen Univ., Shenzhen Institute of Technology
11
Vietnam Offshore Services, Spi, Vietnam Software Outsourcing Co.
Hanoi Univ. of Technology, Hanoio National Univ.
12
IBM Daksh, Infosys, Net Solutions, Netsoft Global Services, Quark
Punjab Univ.
13
Accenture, Atos Origin, Wipro, Unisys
The Federal Univ., Catholic Univ., The Federal Technical Univ.
14
Accenture, HP, Infosys, LogicaCMG, Unisys
Charles Univ., Czech Technical Univ.
15
Sitel, Unisys
Univ. of the City of Pasig
16
Accenture, Convergys, IBM Global Services
Dalian Univ. of Technology, Dalian Maritime Univ.
17
Cognizant, TCS, Wipro
Anna Univ., Bharathiar Univ.
18
Accenture, EDS, TCS, Unisys
Pontificia Universidad CatÓlica de Chile, Univ. of Chile
19
Astron BPO, IBM, Lingua, LogicaCMG, Virtusa, WNS
Univ. of Ceylon, Univ. of Colombo, Univ. of Peradeniya
20
Accenture, Satyam, TCS, Unisys
Univ. of Johannesburg, Univ. of the Witwatersrand
21
IBM Daksh, C3, Sitel, One Touch Center, eTelecare, Sykes
St. Paul Univ. Quezon City, Univ. of the Philippines
22
Accenture, Cognizant, EDS, Infosys, LogicaCMG, TCS, Unisys
Univ. of Toronto, York Univ., Ryerson Univ.
23
Accenture, Atos Origin, Capgemini, EDS, Siemens, Unisys
Sun Yat-sen Univ., South China Univ. of Technology, Guangzhou Univ.
24
Firstsource, HCL BPO Services, TeleTech
Queen's Univ. Belfast, Univ. of Ulster
25
Accenture, Convergys, EDS, EPAM, Genpact, LogicaCMG, TCS
Budapest Univ. of Tech. & Economics, Corvinus Univ. of Budapest
26
DBA, EDS, Politec, Satyam, Teleperformance, Unisys
Federal Univ. of Rio de Janeiro, Federal Univ. of State of Rio de Janeiro
27
Accenture, CCC, IBM, Unisys, SlashSupport
Univ. of Costa Rica
28
Accenture, EDS, TCS, Unisys
Univ. of Warsaw, Warsaw Univ. of Technology
29
Accenture, CSC, IBM Global Services, Ness Technologies
Masaryk Univ., Brno Univ. of Technology
30
Accenture, ACS, EDS, Hildebrando, Softtek, Stefanini, TCS, Unisys
National Autonomous Univ. of Mexico, Metropolitan Autonomous Univ.
31
Infosys, Genpact, ST Microsystems, Spanco
Rajasthan Univ., Rai Univ.
32
EPAM, Exigen Services
Herzen State Pedagogical Univ. of Russia, Saint Petersburg State Univ.
33
Accenture, Convergys, HCL, LogicaCMG, TCS, Wipro
Univ. of Malaya, Univ. of Kuala Lumpur, Tech. Univ. of Malaysia
34
ACS
Methodist Univ. College Ghana, Wisconsin Intl. Univ. College
35
Ness Technologies, Unisys
Comenius Univ., Univ. of Economics, Slovak Technical Univ.
36
Accenture, CSC, Cognizant, EDS, HCL, IBM, TCS, Unisys, Wipro
National Univ. of Singapore, Nanyang Technological Univ., SIM Univ.
37
Augmentum, Dextrys, EDS, Genpact, Neusoft, Wipro
Southwest Jiaotong Univ., Chengdu Univ. of Technology
38
Genpact, Ness Technologies, Perot Systems, Unisys, WNS
Univ. of Bucharest, Univ. Politehnica of Bucharest
39
Accenture, Convergys, EDS, EPAM, IBM, LogicaCMG
Moscow State Technical Univ., Bauman Moscow State Technical Univ.
40
HP, Sofica, SBND Tech., Sutherland Global Services, Unisys
Saint Clement of Ohrid Univ. of Sofia, Technical Univ. of Sofia
41
Accenture, ACS, Sutherland Global Services
Univ. of Monterrey
42
Unisys, LogicaCMG
Univ. Of Glasgow, Univ. Of Strathclyde, Glasgow Caledonian Univ.
43
Accenture, Convergys, Politec, TCS, Unisys
Univ. of Brasilia
44
TeleTech, Hispanic Teleservices, Perot Systems, TCS
Universidad de Guadalajara, Universidad Panamericana
45
CPI Outsourcing, eTelecare, IBM Daksh, ICT Group
Don Bosco Technical College, The Jose Rizal Univ., The Rizal Tech. Univ.
46
IBM, Hansapank, LogicaCMG, SAS (SSC*), SEM IT Partner, Solvus
47
Tallinn Univ., Tallinn Univ. of Technology, Tallinn College of Engineering Univ. of Texas, St. Mary's Univ., Trinity Univ.
48
ADP, EDS, Keane, TeleTech, CSC, Unisys, Fujitsu
49
EPAM, Luxoft, GlobalLogic, LogicaCMG
Kyiv National Technical Univ., Kiev National Taras Shevchenko Univ.
50
Unisys
Univ. of Ljubljana
24 GlobalServices
Dalhousie Univ., Saint Mary's Univ., Univ. of King's College
www.globalservicesmedia.com
October 2008
cstory_Final.qxp
9/22/2008
3:28 PM
Page 25
The Global Services-Tholons Study
CHINA, CHINA, EVERYWHERE Language Skills English English, Japanese English, Japanese, Korean Chinese, English, French English, Polish, Japanese English Arabic, English, French, German, Spanish English, Portuguese, Spanish English, French, Portuguese, Spanish Chinese, English Chinese, English, French English English, Portuguese, Spanish English, German English Chinese, English English English, Spanish English English English English, French Chinese, English English, Irish English, German English, Portuguese, Spanish English, Spanish English, Polish English English, Spanish English English English English English English Chinese, Japanese, English English, Romanian English, Russian English, French English, Spanish English English, Portuguese, Spanish English, Spanish Filipino, English, Chinese English, French, German, Finnish English English and French English, Russian, Ukrainian
Whether it is the 2008 Olympic Games, or the list of emerging global outsourcing locations, China dominates both. In the former, Chinese athletes bagged the maximum gold medals, and in the latter Chinese cities claimed six places. These cities are: l Shanghai (at the 2nd position) l Beijing (at the 3rd) l Shenzhen (at the 10th) l Dalian (at the 16th) l Guangzhou (at the 23rd) l Chengdu (at the 37th). Of them, Shanghai is already known as one of the mature destinations for providing services offerings such as F&A, product development, R&D and testing, and Guangzhou is known for engineering-services offering. Outsourcing services such as application development and maintenance and business analytics are now also being offered from Shenzhen and Shanghai, respectively. Consequently, the country has become home to numerous IT and BPO services providers. While global providers such as Accenture, ACS, Atos Origin, AT&T, Capgemini, Cognizant, Convergys, EDS, Genpact, HP, Infosys, IBM, Satyam, TCS, Wirpo and Unisys have their presence across China, local providers such as Augmentum, Bleum, Dextrys and Neusoft are also known at a global scale. Even though a lot is happen-
ing in the Chinese outsourcing space, there are some other areas — encouraging the usage of English language in schools — which the Chinese government is focussing on. With supportive government and favorable outsourcing conditions, China’s outsourcing industry is set to flourish further. That means we might see some new Chinese names in this list or some of the top emerging cities moving to the top outsourcing cities’ list in our next study on outsourcing GS cities.
English, Slovene
October 2008
www.globalservicesmedia.com
GlobalServices 25
cstory_Final.qxp
9/22/2008
3:28 PM
Page 26
The Global Services-Tholons Study
Outsourcing Cities by Functions Table 4 Functions
Established
ADM Business Analytics Engineering Services
Bangalore, Chennai, Dublin, Hyderabad, Mumbai Bangalore, Chennai, Delhi (NCR), Kraków, Mumbai, Bangalore, Chennai, Guangzhou, Pune, St. Petersburg
Finance and Accounting Human Resources Legal Services Product Development Research and Development Testing
Emerging
Ho Chi Minh, Pune, Shenzhen Bucharest, Cairo, Shanghai Coimbatore, Delhi (NCR), Moscow, Prague Bangalore, Kraków, Makati City, Mumbai, Shanghai Cebu City, Colombo, Pune Bangalore, Bucharest, Budapest, Makati City, Prague Cebu, Kraków, Tallinn Chennai, Makati City, Mumbai Cebu City, Johannesburg, Pune Bangalore, Chennai, Ho Chi Minh, Moscow, Shanghai Bucharest, Pune, São Paulo Bangalore, Dublin, Moscow, Shanghai, St. Petersburg Beijing, Bucharest, Chennai, Prague Bangalore, Chennai, Ho Chi Minh, Hyderabad, Shanghai, Bucharest, Cairo, São Paulo Toronto
White: Same as last year; Red: Jumped from 2007 emerging list to 2008 list of established cities; Black: New entrants NEW CATEGORIES Functions Contact Center (Multilingual) Contact Center (English)
Established
Emerging
Bucharest, Buenos Aires, Cairo, Dalian, Kraków, Mexico City Bangalore, Delhi (NCR), Dublin, Makati City, Mumbai, Toronto
Casablanca, San José, São Paulo
Can You Name this One?
In the 2008 Top 50 Emerging Global Outsourcing Cities list, there is a city that springs the biggest surprise. Here’s a set of clues to find that out: l In this city, the outsourcing industry continues to flourish tremendously. The outsourcing facilities of global companies such as Capgemini, HCL and Philip Morris are already operational here. l In this city, the obvious choices for customers are to outsource their F&A, business analytics and multilingual contact-center. The city has had skills in these areas in the past too. The city is also an emerging location for nearshoring HR services. l In this city, the labor costs are quite competitive. An entry-level techie can mint $680 to $600 per month, while a BPO exec with similar experience can expect his salary to Cathedral, Mexico City
26 GlobalServices
Cebu City, Kolkata, Pune
be between $380 and $100 per month. l In this city, many U.S. and Western European companies enter much before than other Eastern European cities to source their F&A and business-analytical services from. l In this city, many educational institutions are producing thousands of students every year. l In this city, the outsourcing industry is expected to grow further. This city is Kraków, the capital of Poland. The comparative analysis reveals that this year Kraków has bagged the fifth place with an improvement of 11 positions from last year’s 15th rank. City by Functions
As the global outsourcing market becomes increasingly competitive, we expect the cities to be more focused in identifying appropriate service lines and in developing their service-delivery capabilities. This means, as the industry matures, cities will be compelled to recognize the services they can deliver best. The concept of an individual location being a “one-stop-shop” has given way to “smart/ multi/selective sourcing” models, wherein selected processes are outsourced only to the most appropriate destination. Therefore, we deviate from the notion of an “ideal location for all outsourcing services.” This study is more inclined toward the fact that there are locations which are more suitable for specific outsourcing processes — services logically gravitate to destinations where conditions are most optimal for their delivery.
www.globalservicesmedia.com
October 2008
cstory_Final.qxp
9/22/2008
3:28 PM
Page 27
The Global Services-Tholons Study
The lower cost equation does not always work. It’s always a trade-off between cost benefit and complexity. In many instances, where the cost benefit is an advantage for distant offshore locations, the complexity of services that can be processed is consequently lower. For instance, offshore cities such as St. Petersburg, Shanghai, Bangalore, Makati City, Ho Chi Minh City and Delhi (NCR), to name a few, provide high-end, complex functions but not at a lower cost. Similarly, customers can easily get the less complex work done from onshore locations such as San Antonio and Glasgow at a lower price. Crystal Ball Gazing
As the outsourcing industry matures and the quest for cost-effective and resourceful services-delivery locations continues, we would see some new tier-2 cities making headlines. A few of them are: l Nizhniy Novgorod, Russia: This tier-2 city in Russia is already witnessing huge R&D activities. Intel’s R&D facility is already operational in the city.
l Cork, Republic of Ireland: The city is not only supporting the small outsourcing operations but also encouraging them to expand further. l Tianjin, China: Another tier-2 Chinese city is getting ready to serve the global outsourcing services’ buyers on a larger scale. Vast labor pool and low-cost of operations in the city are sufficient enough to allure the outsourcers. l Bacolod City, The Philippines: We tag this Filipino city as the promising next wave outsourcing city in the country. l Amman, Jordan: The government is actively supporting the capital region of Jordan, Amman, to count it among the most attractive outsourcing locations in the Middle East and African continent.
About the Study
For the third consecutive year, Global Services and Tholons have identified the top 50 emerging global outsourcing cities. These locations are not Bangalores or Continued on page 34
THE RELATIONSHIP BETWEEN COST BENEFIT & COMPLEXITY OF THE PROCESS
High
Chart 2
H
H
St. Petersburg
H
Complexity
Toronto
HH
H H
Shanghai
Kraków Bucharest
Dublin
H H H H H
Delhi
Low
São Paulo San Antonio Buenos Aires
Low
October 2008
H (NCR)
Glasgow
On-site
H Bangalore
Onshore
Dalian
Cairo
Nearshore
Cost benefit
www.globalservicesmedia.com
H H
Makati Ho Chi Minh
Offshore High
GlobalServices 27
A
Report
An IT Services Outsourcing Country Guide States and Cities that Offer Unique IT Business Opportunities By Daniel Tkach
Mexico City Mexico City (population: 8,890,000; 19.3 million metro area included,) is the capital city of Mexico and the economic heart of the country. Greater Mexico City (the metropolitan area) has a population of 19.2 million. Mexico City has a per capita income of more than 23,000 USD (purchasing power parity adjusted 2006) and ranks as the eighth-richest urban agglomeration in the world. From 1999 to 2007, the city has received 106 billion USD in foreign direct investment– mainly in sectors such as financial services, retail, pharmaceutical, and tourism. Higher Education and Professional Workforce: The National Autonomous University of Mexico (UNAM) is the largest (with 269,000 students) university in the Americas. Other major higher-education institutions are the National Polytechnic Institute, the Metropolitan Autonomous University (UAM), the ITAM, the ITESM, the Universidad Panamericana (UP), and the Universidad La Salle. 13,000 IT professionals graduate every year. Why Invest in Mexico City: Mexico City is a very attractive place for foreign investment due to its high infrastructure and human capital standards, as well as the robustness of its internal market. The city welcomes investments and productive projects in the IT field and provides incentives and grants for relevant projects.
State of Mexico The State of Mexico (population: 14,000,000) surrounds Mexico City, with which it has practically merged. The main cities in the state are Toluca (the capital), Naucalpan and Tlalnepantla. The IT companies of the State of Mexico offer a large variety of services including IT consulting, data centers, infrastructure management, and application development and testing. Industry solutions focus on the automotive, biotechnology and pharmaceutical sectors. BPO services include contact centers, data mining, help desk, market analysis, F&A services and loan application processing. Higher Education and Professional Workforce: The State of Mexico is the home of three of the most prestigious universities in Mexico—the National Autonomous University, the State of Mexico University and a campus of the Monterrey Technology Institute. 5,200 IT professionals graduate every year. Why Invest in the State of Mexico: The State of Mexico has a large number of already established multinational companies. The state population enjoys a high quality of life. There is significant availability of qualified human resources, and the state has an excellent infrastructure. The government of the state actively supports foreign investments in IT, and offers a rich set of incentives and tax exemptions for investors.
Sponsored Report
State of Jalisco The State of Jalisco (population: 6,800,000) strongly supports the growth of IT Mexican companies. It has developed a robust infrastructure for global companies to conduct business in- and- from Jalisco and created advanced technology centers. Jalisco’s main cities are Guadalajara, Chapala and Puerto Vallarta. Guadalajara is known as the Mexican Silicon Valley. Over 70 international companies, such as General Electric, IBM, Intel, Hitachi, Hewlett Packard, Siemens, Flextronics and Solectron have established facilities in Guadalajara. IT companies in Guadalajara offer advanced IT services including application design, development and testing, embedded software for the automotive and aerospace industries, wireless applications, printers, medical devices, and multimedia. Higher Education and Professional Workforce: Guadalajara is a very important center of universities and educational centers with national and worldwide prestige that include the Universidad Panamericana, ITESO, Universidad de Guadalajara, Monterrey Institute of Technology and the Universidad Autónoma de Guadalajara (U.A.G.). 3,200 IT professionals graduate every year. Why Invest in Jalisco: Many leading IT and BPO companies conduct operations in the state because of its advantages such as a convenient geographic location, qualified IT human resources, excellent infrastructure and state investment incentives.
State of Nuevo Leon The State of Nuevo Leon (population: 4,500,000) shares a 9 miles border with the U.S. state of Texas. It features a secure highbandwidth communications network and research and technology parks. The main cities in the state are Monterrey, (the capital), Guadalupe, and Apodaca. Monterrey is well known in the global IT marketplace and many large Mexican and Indian IT service providers have established their delivery centers in the city. Higher Education and Professional Workforce: Monterrey is home to two of the nation’s most prestigious universities, the National Autonomous University of Nuevo Leon and the Instituto Tecnologico de Estudios Superiores de Monterrey (Monterrey Institute of Technology and Higher Education). Other reputed universities include the University of Monterrey (UDEM) and the Universidad Regiomontana. The state has 44 higher education institutions from which 3,000 IT professionals graduate every year. Why Invest in Nuevo Leon: Nuevo Leon borders the US, and investors are attracted by an American-style business culture, the availability of highly educated professionals, an excellent infrastructure and a high quality of life. The state government offers incentives and tax exemptions to investors.
A
Report
“Nearshore” outsourcing to Mexico for U.S. buyers offers the advantages of proximity, cultural affinity, timezone alignment, relatively lower costs, fast and simple visa attainment, ease of software and hardware procurement, and the legal and IP protection provided by the NAFTA treaty. The decision of where to conduct business in Mexico, however, depends on your fi rm’s strategy. Some companies prefer the states with the largest population of IT professionals, such as Mexico City, Jalisco, and Nuevo Leon. Others prefer locations with a fast-growing IT industry, good universities and a friendly local environment such as Baja California, State of Mexico, Puebla, Sinaloa, Sonora and Veracruz.
State of Puebla
State of Sonora
The State of Puebla (population: 5,600,000) is located in the center east of Mexico. Puebla is a strategic state for trade between Europe and the Americas. The main cities in the state are Puebla (the capital), Tehuacan and Cholula. The most dynamic sectors in Puebla are the automotive, textile and apparel, metalworking, furniture, and chemical industries. The state is home to a competitive workforce specialized in industry and services. Higher Education and Professional Workforce: Puebla is a national and international center for higher education that features many universities and technical schools such as the Universidad de las Américas, Universidad Iberoamericana, Benemérita Universidad Autónoma de Puebla, Universidad Popular Autónoma del Estado de Puebla and the Monterrey Institute of Technology and Higher Education. 1500 IT professionals graduate in Puebla every year. Why Invest in the State of Puebla: Puebla is rated as “an excellent destination for foreign direct investment” by Standard & Poor’s and Fitch Ratings. The main foreign companies with operations in Puebla are of German, Brazilian, Canadian, Swiss, French and American origin. The Government of Puebla offers attractive incentives for IT investments.
State of Sinaloa
The State of Sonora (population: 3,100,000) shares an extensive border with the U.S. state of Arizona and a shorter one with New Mexico. The main cities in the state are Hermosillo (the capital), Ciudad Obregón and Nogales. The industry in Sonora has been oriented to automotive, aerospace and electronics and is now growing fast in Information Technology. Sonora has built a Technology Park designed specifically for the IT Industry, and two additional Technology Parks are in the planning stage. Higher Education and Professional Workforce: Sonora features 48 Universities and multiple specialization schools. The main institution of higher education is the University of Sonora (UNISON), There are 17 universities in Sonora, including two campuses of the ITESM (Monterrey Institute of Technology). 1000 IT professionals graduate every year. Why Invest in the State of Sonora: The state’s proximity to the U.S., the availability of talented professionals (usually educated in the USA), the high use of English language and the significant lower operations costs make Sonora a very attractive location for IT investments, and a natural option to serve the U.S. West Coast. The government of Sonora actively supports foreign investments in IT through its “soft-landing” program.
State of Veracruz
The State of Sinaloa (population: 2,700,000) is located in the north west of the Mexican Republic The main cities in the state are Culiacán (the Capital), Mazatlan and Los Mochis. The technology sector of the state of Sinaloa is growing at a yearly rate of 300%. The main focus of the IT industry in Sinaloa is on Contact Centers and nearshoring of application development services. The state has one of the largest IT clusters in Mexico that gathers fifty-five companies of advanced IT maturity level. Higher Education and Professional Workforce: Sinaloa features 48 Universities and multiple specialization schools. 3000 IT professionals graduate every year, and a large percentage of them are English – Spanish bi-lingual. Why Invest in the State of Sinaloa: Sinaloa is an excellent location for IT industry investments for global IT providers that want to establish a nearshore delivery center in Mexico with the low cost environment offered by a tier-2 location. The state is conveniently located very close to the U.S., and its time zone is CST. The state government offers generous incentives for investors in technology.
The State of Veracruz (population: 7,200,000) is located in the east-central part of the Gulf of Mexico The main cities in the state are Xalapa (the capital), and the port cities of Veracruz and Coatzacoalcos. The state’s principal natural resource and dominant industry is oil; it is the main extraction, processing, and transport hub for much of the country’s oil reserves and is a leading producer of agricultural products. The ver@cluster is a regionally highly competitive IT cluster. Higher Education and Professional Workforce: Veracruz has 49 universities that offer degrees in information technology. The main universities are Universidad Veracruzana, Universidad Autónoma de Veracruz and Universidad Mexicana, plantel Veracruz. 1100 IT professionals graduate every year. Why Invest in the State of Veracruz: The government of Veracruz is strongly committed to the growth of the state and provides incentives and tax breaks, creating excellent opportunities for investment. The environment is friendly and the cost of living, conducting business and building infrastructure is very low. Daniel Tkach is the CEO of PartnersMarket Consulting, Inc. Strategic Marketing advisors to MexicoIT. Contact: [email protected]
Learn more about the Mexican states and cities at www.mexico-it.com or call 1-866-639-4248.
cstory_Final.qxp
9/22/2008
21
3:28 PM
Page 30
The Global Services-Tholons Study
Quezon City, The Philippines
Supportive government, world-class infrastructure, vast and affordable talent pool help the city to bag 21st position in the list
Q
uezon City is the most populous city in the country with 2.3 million people; a third of its residents under 15 years. These demographics point toward the city’s readiness to tackle new opportunities in the next three to five years. With the help of 65 colleges and universities, the city produces an enormous number of educated workerforce every year. To leverage the vast talent pool for the growth of the BPO industry, the city’s government is taking several innovative steps including the introduction of a 320-hour competency course for call-center agents for poor on Sept. 15th, 2008. Besides free meal, transportation allowance will also be provided. As of now, the city has lured close to 57,000 business establishments, with BPOs finding the city a cost-effective location. At present the city has over 60 BPOs and about 35 call centers. A BPO agent in the city earns more than $250 per month. Also the labor costs in the city are comparable to other major global outsourcing cities. Even though the monthly rental charges in Quezon City is $2 to $4 per square feet, registering property for any business purposes can take about 39 days in order to complete the eight property registration procedures. Quezon City has good infrastructure, and is well networked with the major highways, thoroughfares and mass transit systems of Metro Manila. Even the longest highway in the metropolis and the country’s widest highway run through the City. Two elevated light rail systems also make commuting, to and from Quezon City easy. GS
Above: Libis by night located at the Southeastern corner of Quezon City Below: Katipunan Avenue, a major road in Quezon City
22
Toronto, Canada One of the good options for the U.S.-based companies to nearshore their testing and contact-center functions
T Above: Toronto city Below: Yonge-Dundas Square
30 GlobalServices
oronto, the city with a population of 2.5 million, is known for the immense R&D activities, skilled talent pool, renowned universities, supportive government initiatives and world-class infrastructure. The information and communication technology sector is the region’s largest private-sector employer in the technology hotbed of Canada, Toronto. The city is home to a mature and diverse IT-services industry. However, labor cost in Toronto is higher than the wages in most of the other global outsourcing destinations. An IT professional in Toronto pockets no less than $2,200, which could go up to $3,000. Even a BPO executive earns between $2,000 and $2,400 per month. The per month rental charges for commercial real estate in the city are $2 to $3 per square feet. In addition, Toronto-based businesses typically can use investment tax credits to offset up to 75 percent of its federal tax for a year, with unused balances carried forward 10 years, according to Toronto’s Economic Development Body. The city has a well-educated and skilled talent pool. University of Toronto, York University and Ryerson University and several other colleges and IT training facilities churn out a large educated workforce suitable for knowledge-based industries. Toronto’s extensive road and rail connections further make it a flourishing destiGS nation in addition to the great international connections. www.globalservicesmedia.com
October 2008
cstory_Final.qxp
9/22/2008
26
3:29 PM
Page 31
The Global Services-Tholons Study
Rio de Janeiro, Brazil
A tempting treat for global outsourcing service providers to set up their shop
R
io de Janeiro is the second largest city in Brazil with its vibrant population of some 6.1 million. Over years, the city has been a tempting treat to many providers such as DBA, Politec, Satyam and Teleperformance to set up operations here. Apart from playing host to the third-party centers, some companies including Citigroup and Oracle have set up their captive centers in the city. The city’s universities churn out approximately 265,000 students and 20,000 researchers every year. There are almost 110 universities and educational institutions in Rio de Janeiro that offer 566 programs for technical education. Therefore, the city provides an alternative source of highly skilled and low-cost technical professionals for IT projects and staff augmentation. Techies can be hired at a lower cost of $420 to $440 per month. Favorable time zone — depending on the season the city is just one or three hours later than New York — cultural proximity and large pool of English- and Spanish-speaking people make it an ideal destination for setting up call-center facilities and BPOs. An entry-level BPO worker can make $360 to $330 per month. With 15 procedures, starting a business in Rio de Janeiro takes 68 days, and the total start-up cost could go up to 10.9 percent of GDP per capita. The per month rental charges in the city are between $4 and $5 per sqft. With 14 procedures, it takes 75 days to register a property and set up a shop in the city. And it takes about three GS percent of the property value to register a property in the region.
Mexico City, Mexico
Above: Rio de Janeiro city Below: Leme Beach
30
The NAFTA status boosts outsourcing in most of the tier-1 and tier-2 Mexican cities such as Mexico City and Monterrey
M Above: Mexico City Cathedral Below: Santa Fe business district
October 2008
exico City, the capital region of Mexico, is the most vital industrial, economic and cultural center in the country. In the top 50 cities’ list, this new entrant has been positioned at the 30th place, and has left many global, well-known counterparts behind — St. Petersburg (Russia) and Bucharest (Romania) to name a few. Even though Mexico City has been known as one of the top outsourcing destinations in Mexico, this is the first time that this city managed to get a place in our top 50 cities’ list. Today many U.S. and European companies outsource their IT-services requirements to Mexico City. Apart from being a delivery location for many of the global IT-services providers — such as Accenture, EDS, Softtek and TCS to name a few — the city also supports large contact centers and BPO markets. Proficiency in English and Spanish languages helps the country to cater to the large Hispanic community in the U.S. More than 70 percent of the Mexico City BPO market is concentrated in the Mexico City axis. At $340 to $360 per month, the salary of entry-level BPO employees in Mexico City is $20 to $40 higher than the BPO agents in Guadalajara and Monterrey while there is no variation in the salaries of entry-level techies in all the three cities — they earn $360 to $380 per month. Unlike Indian outsourcing cities there is no major difGS ference between the salaries of techies and BPO agents in Mexico City. www.globalservicesmedia.com
GlobalServices 31
cstory_Final.qxp
9/22/2008
31
3:29 PM
Page 32
The Global Services-Tholons Study
Jaipur, India
Being geographically closer (5 to 6 hrs drive) to Delhi NCR, Jaipur’s infrastructure is able to attract and retain global providers
W
ith the inauguration of the much-awaited IT Special Economic Zone (SEZ), Mahindra World City, in Aug. ’08, Jaipur has allured numerous IT and BPO companies. Many such companies including Infosys, Wipro and Connexions are already operating or intending to operate out of the SEZ. Infosys’ BPO center at the SEZ is the company’s second facility in the city with a seating capacity of 3,200 employees. Infosys’ first such center in Jaipur was built in 2006 with a seating capacity of 890 employees. Beyond the SEZ, the city has other BPOs like Spanco, and captives like Ericsson to name a few. GECIS (now GE) and Genpact were one of the earliest entrants into the city with the employee base of 1,200 and 1,000 people, respectively. An entry-level BPO agent earns from $140 to $160 per month, while an entry-level techie pockets no less than $200 per month. The city with a population of 6.5 million people (estimated in 2007) offers big cost-saving opportunities to the outsourcing industry. Jaipur’s 410 colleges and 15 universities including 25 engineering colleges and 27 business-management institutes churn out thousands of graduates per annum. Even though the standard of living in the city is not as great as many other Indian cities, the per month rental charges in Jaipur is $1 to $3 per square feet. Also Jaipur’s railway and airport are well connected with all major cities in India. GS
Above: Hawa Mahal Below: Carving at Amer Fort
Singapore City, Singapore
36
Not only does the city have local and skilled talent to pitch on but it also employs thousands of foreign white-collared workers
W
Above: Central Business District Below: C751B train at Eunos MRT Station
32 GlobalServices
ith tremendously increasing countrywide economic developments, there is hardly any difference left between Singapore and its capital region Singapore City. No doubt, it is now referred as the “city-state.” In 2007, the per capita GDP of Singapore was about $37,289, with a 7.7 percent annual growth rate and an annual inflation rate of 2.1 percent. Fourteen bilateral and multilateral trade agreements including USSFTA (the U.S.-Singapore Free Trade Agreement), EFTA (European Free Trade Association: Iceland, Liechtenstein, Norway, Switzerland), mark the city-state as one of the most business-friendly countries in Asia. Singapore, therefore, houses thousands of multinational corporations. The labor costs in Singapore are relatively higher than other Asian countries. However, they are lower than those in the U.S. A BPO agent in Singapore earns (from $1,400 to $2,000) seven times more than what an agent in India gets for the same job. Interestingly, techies earn almost double than BPO employees in Singapore. Even the real-estate costs are very high in the city. The per month rental charges are $10 to $11 per square feet. However, the city-state enjoys the benefit of having the strongest intellectual property protection in the entire region of Asia, according GS to The World Economic Forum. www.globalservicesmedia.com
October 2008
cstory_Final.qxp
9/22/2008
37
3:29 PM
Page 33
The Global Services-Tholons Study
Chengdu, China
An important outsourcing hub in China and home to global providers such as EDS, Wipro and Genpact to name a few
C
hengdu is the economic center of Southwestern China. The city is an important global IT outsourcing destination. Several IT companies such as EDS, IBM, HP, Neusoft, Dextrys (formerly known as DarwinSoft), Augmentum, Wipro, Genpact have their presence in the city. The city with a population of 7.8 million people has a large pool of highly skilled IT professionals. A large number of universities and research institutions in Chengdu churn out over 20,000 students per year. In addition, Chengdu’s labor cost is quite competitive, which is about two thirds the wages in coastal cities, and the employee turnover rate is below 10 percent, according to Invest Chengdu’s statistics. On an average, a mechanical engineer earns about $4,488.65 per year, while a software engineer gets $9,299 per annum. Also, Chengdu is an important R&D center in China. The city houses several SEZs including Chengdu Hign-tech Industrial Development Zone and Chengdu Economic and Technological Development Zone. Chengdu Information Association and Chengdu New and High Technology Industry Area have established an “Implementation Plan for Speeding up the Development of Chengdu Software Outsourcing.” Chengdu has a world-class infrastructure, and is well connected with the other metropolis such as Beijing and Shanghai. Chengdu Shuangliu International Airport is the sixth largest airport in mainland China. The city has one of China’s densest highGS way networks with 10 expressways so far.
Guadalajara, Mexico
Above: Jin RIver & Anshun Bridge Below: Temple in Chengdu
44
The city’s educational system makes it suitable for engineering services outsourcing
G Above: Puerta de Hierro Below: Mormon Temple
October 2008
uadalajara, Mexico’s Silicon Valley and the second largest city with a population of 1.7 million people, has attracted significant levels of foreign investment. The multinational enterprises that Guadalajara hosts have helped to transform the city into an excellent place to do business. The city’s IT industry in the city boomed after the inking of the North America Free Trade Agreement. Since then the foreign direct investments has been growing. However, the industry noticed a shakeout in 2001 to 2003 when most of the MNCs started shifting their shops toward “far” East. Guadalajara is the hotspot for the engineering-services industry because of its capability to churn out engineers from universities such as Universidad de Guadalajara and Universidad Panamericana, to name a few. Many educational institutions and the government are working together to groom up world-class techies. The engineering services in the city were earlier related to just the manufacturing segment but now it has grown to other areas such as design engineering. Guadalajara houses several IT outsourcing firms such as Perot Systems and TCS. The BPO sector is already flourishing in the city with key BPO providers such as Hispanic Services and TeleTech. An entry-level BPO executive can make $320 to $340 per month. In addition, Guadalajara is also a major national and international transportation and shipping hub. The city is also served by Guadalajara International Airport. GS www.globalservicesmedia.com
GlobalServices 33
cstory_Final.qxp
9/22/2008
45
3:29 PM
Page 34
The Global Services-Tholons Study
Mandaluyong City, The Philippines
Besides entering our list for the first time, Mandaluyong has recently bagged The World Bank’s business-friendly city status
I
n a small population of 295,733 people, the overall literacy rate in the City of Mandaluyong is pegged at 99 percent with exactly one percent belonging to the illiterate group, as per the Philippines’ National Statistics Office’s results. There are three major universities — Don Bosco Technical College, The Jose Rizal University, The Rizal Technological University — and 47 colleges in the city. Over 40,000 students graduate every year from these educational institutions. Most of the colleges offer short-term courses on computer and technical education. A techie can earn $320 to $340 per month during his initial professional journey. While Cebu city in the Philippines is the undisputable BPO hub, Mandaluyong City is gearing up to share the load. BPO players such as eTelecare are also expanding in the city. Last year, eTelecare completed a facility in Mandaluyong City — accommodating up to 3,000 employees. An entry-level BPO executive pockets around $280 to $300 per month. In 2007, new businesses in the city grew 21 percent from the year before. Interestingly, it takes only 21 days to register a property in the City of Mandaluyong. The per month rental charges in the city is between $2 and $4 per sqft. Mandaluyong City is considered to be the heart of Metropolitan Manila as it has three routes to link the two cities together. Mandaluyong City’s biggest asset GS is its easy road access – both within the city and to the adjacent cities.
Continued from page 27
Makatis. These are the ones that are not only capable enough, but are also gearing up fast to compete with such global “Silicon Valleys” for providing IT and BPO services. To make the location assessment further easier for the global buyers of outsourcing services, we have also identified established and emerging cities by various functions such as application development and management, business analytics, contact center (multilingual and English), engineering services, finance and accounting, HR, legal services, product development, R&D and testing. In addition, we have also identified the top eight global outsourcing locations. Methodology
To determine delivery and consumption trends for global outsourcing services in specific destinations, Tholons utilized similar surveys and interviews with tier-1 and tier-2 providers and service buyers. The data gathering methodologies were also applied to determine market and labor sizes as well as expansion strategies of tier-1 and tier-2 providers. In addition, governments, industry bodies and related stakeholders were also interviewed to provide both primary data and validation of analysis. 34 GlobalServices
Mandaluyong City skyline
We obtained historical stats from governments, global institutions and agencies, and economic-related data from monetary bodies. Publicly released data from government sources were also considered when using country-specific market data. Publicly available financial records such as quarterly and annual reports, industry bulletins and trade publications were used to verify market assumptions and analysis. A combination of comprehensive quantitative and qualitative analysis was considered in developing the rankings. The proprietary weighting and ranking system was developed and refined by senior Tholons consultants. Further, qualitative analysis was implemented to provide perspective to the quantitative results of the report. Tholons carefully considered numerous variables when providing final rankings, and considered the impact which nonnumerical data plays in the assessment of global outGS sourcing locations. Avinash Vashistha is the CEO of Tholons, a global advisory, investment and research firm. With additional inputs from the Tholons' team — Manuel Ravago, Skanda Jankiram, Paul Santos and Vinu Kartha — and Global Services' team — Keerthi Nair and Namita Goel
www.globalservicesmedia.com
October 2008
ad_1.qxp
9/19/2008
3:57 PM
Page 35
Frost & Sullivan 2nd Annual Smart IT Sourcing 2008 Mastering the Complexities of Global IT Outsourcing and IT Enabled BPO
December 7-10, 2008 www.frost.com/out Marriott Marco Island Resort, Golf Club & Spa, Marco Island, FL
Today’s successful business is about more than outsourcing – it’s about smart sourcing. This unique event from Frost & Sullivan covers the complex nature of global IT outsourcing and IT enabled BPO, so you will walk away with the knowledge to drive real business value to your organization.
Don’t miss this opportunity to:
Customize your agenda Network with an executive-level audience Benchmark against proven success strategies Enjoy nightly cocktail receptions and wine and dines Create true partnerships with your sourcing partners
You will also walk away with best practices and next practices and gain real world experience from a roster of contemporary thought leaders. Twelve interactive sessions enable you to actively engage in candid discussions with your peers and tailor the content to your specific needs.
P l e a s e u s e c o d e O U T G S 2 5 0 w h e n re g i s t e r i n g a t w w w. f ro s t . c o m / o u t Media Partners
Event Sponsors
The gateway to the global sourcing of IT and BPO services
Register now and receive $250 savings off the General Session Registration courtesy of Global Services Magazine.
Don’t miss this incredible event – Contact us today! 1.877.GO FROST (1.877.463.7678) or email: [email protected]
feature-SOA_Final.qxp
9/22/2008
11:08 AM
Page 36
Service-oriented
36 GlobalServices
www.globalservicesmedia.com
October 2008
feature-SOA_Final.qxp
9/22/2008
11:09 AM
Page 37
Tools & Technologies
Architecture Is Service-oriented Architecture (SOA) still a buzzword? Why would a company spend money to sponsor a so-called technical initiative by the IT team instead of financing some other business feature development by the team? Is it true that a lack of SOA in an enterprise with a complex IT ecosystem has a direct impact on the IT costs, and hence the bottom line, in the long run?
By Jayaprakash Nair, Delivery Manager, Aspire Systems
L
ET US TAKE A quick look at a few things commonly observed in the industry today. OBSERVATION 1: Companies make investments in various “best of breed” products for their Line-of-Business (LOB) functionalities. These are typically monolithic systems tightly coupled together using traditional Enterprise Application Integration (EAI) approaches (and proprietary technologies to glue them together), leading to a heterogeneous and brittle IT ecosystem. Any seasoned industry observer will identify this as an omnipresent scenario. OBSERVATION 2: The major software product companies had hitherto left gaps in their offerings, which were filled by smaller Independent Software Vendors (ISVs) with their niche offerings. (See Diagram 1.)
The following problems are likely to occur with this arrangement. Problem 1: In due course of time, the company may want to get the ISV’s product extended to replace part of the functionality of P2 that belongs to another provider, and the functionality that needs to be changed could be anywhere amidst the existing workflow provided by P2. So, there would be a need to build more interfaces between the products to ensure that the flow is seamless. (See Diagram 2.) This leads to an increasingly fragmented IT ecosystem. You can consider this akin to the continuous fragmentation that happens on the hard disk because of deletion of some files/folders and addition of new files/folders which do not fit the size of an existing gap. This increased fragmentation leads to an increase in the cross-references between the difDiagram 1
Gap in the eco-system: P1 P1 P1 P1 P1 P1
P2 P2 P2 P2 P2 P2 P2 P2 P2 P2 P2 P2
Your product fills the gap: P1 P1 P1 P1 P1 P1
* * * * * * * *
Integration point 1
P2 P2 P2 P2 P2 P2 P2 P2 P2 P2 P2 P2
Integration point 2 P1 Product 1
October 2008
www.globalservicesmedia.com
*
ISV’s Product
P2 Product 2
GlobalServices 37
feature-SOA_Final.qxp
9/22/2008
11:09 AM
Page 38
Tools & Technologies
ferent storage blocks on the hard disk, which is exactly what happens in a typical enterprise IT setup, leading to a spaghetti type of integration. Problem 2: The company may decide to replace product P1 with another product (say P3), by another provider. There’s a good likelihood that the company would need to approach the ISV to customize its product, or at least repair the integration point with the new product, in order to maintain the workflow/dataflow within the enterprise. OBSERVATION 3: The company might introduce some changes in its business processes/rules, which would lead to further breakages in the integration. OBSERVATION 4: In many cases, the trading partners of companies having business-to-business integration can change the interface points, thus breaking the integration. As you would be well aware, the above observations are, by no means, hypothetical, and such occurrences are expected to increase, while moving forward. Let’s see what can be done to alleviate some of the hurdles. The Solution — SOA
In the instances mentioned above, the existing IT ecosystem in an enterprise had potential breakage points. From a solution perspective, the firm will have two options:
components/products use the same language to communicate with each other, and it becomes easy to continuously realign or “re-integrate” them. This, in turn, leads to a very “amoebic” enterprise architecture, i.e. an architecture, which can continuously change shape, without any harm to its fundamental constitution. CUSTOMIZATION/ENHANCEMENT: A typical software application solves one or more business problems, and business problems are manifested in business processes. An application can be effective only if it has a direct relevance to the business processes followed by the company, and most of them are likely to change very frequently. There are two problems identified in traditional product implementations: Problem 1: Atomicity. The atomic level of a traditional application is normally a module, which is nothing but a set of closely knitted classes (here we assume that the application is developed in a disciplined object-oriented manner with the right composition of modules). Modules are typically significant in size, highly cohesive and put into production after different levels of rigorous testing. Now if there’s a change in any of the business processes contained within a module, it would mean that the module needs to be broken open, possibly gutted and reworked on. It would require multiple analyze-code-test loops for the module to Diagram 2
P1 P1 P1 P1 P1 P1
* * * *
Integration point 1
P2 P2 P2 P2 P2 P2
Integration point 2
* * * *
Integration point 3 P1 Product 1
l Either continue with the existing IT setup and keep on increasing the ever-so-brittle integration interfaces between the different products/applications, thus increasing the complexity of the integration/implementation of the IT ecosystem. l Or, convert the enterprise architecture into a SOA. From the options, the first one is not really a “solution” and just amounts to maintaining the status quo (or maybe worsening the situation), whereas the second option is a solution that the company can adopt. Service-orientation describes an architecture that uses loosely coupled services to support the requirements of business processes and users.
How SOA Can Reduce Costs
INTEGRATION: A successfully implemented SOA will reduce the coupling between the different components in the system. This is possible because of the standards based (typically XML) interfaces that SOA adopts. This manner of using services for integrating the disparate systems is called Service Oriented Integration (SOI). This approach is totally different from the proprietary interfaces used by traditional EAI. What happens in an SOA scenario is that the different 38 GlobalServices
P2 P2 P2 P2 P2 P2
Integration point 4
*
ISV’s Product
P2 Product 2
be put back in production. And then, there’s always the huge risk of regression errors (and subsequent negative ripple effects) creeping into the module. Problem 2: Non-segregation of variable and fixed business processes. Every business has a set of core business processes, which are relatively fixed in nature, i.e. they hardly change over a period of time. Then there are business processes that change very frequently. Now in a typical traditional application, modules are structured around features, and as such, contain a mix of business processes, which are fixed, and the ones that are not. Thus, every time a change is required in a business process, a module needs to be dismantled and reworked on. Both the above problems can be solved, if the application adapts to an SOA. SOA requires that the code implementation of stable business processes be segregated from those, which change very frequently. Also, it requires that the atomic unit of cohesiveness be the “service” and not the module. This makes the whole application easily customizable, thus reducing customization/enhancement costs. To sum it up, as the complexity of the IT ecosystem in a company increases, (primarily because of heterogeneity) the
www.globalservicesmedia.com
October 2008
feature-SOA_Final.qxp
9/22/2008
11:09 AM
Page 39
Tools & Technologies
revenue savings obtained from SOA also increases, provided SOA is implemented in a disciplined manner with proper governance in place. Also it has been observed that the IT ecosystems are indeed getting more and more complex. Now let’s take a look at the first steps a company can take to implement SOA.
ment. Also, you need to be aware which provider you will hold responsible in case of any issues. In short, you need to find a provider who has the ability to provide you with a “cost-effective” and “pragmatic turn-key” solution without disrupting any of your existing business activities.
Call for Action
Different Approaches
As a first step, you will need to talk to SOA consultants/providers and identify those with the required capabilities. Here are some of the things that you could keep in mind for narrowing down your list of prospective providers: l Check if the provider has any standing in the IT-services space, since that will be crucial for your provider to understand your stated as well as unstated challenges, and work out solutions to alleviate those. l Does the provider have consulting capabilities? Can they identify the cross-section within your enterprise where SOA can be implemented end-to-end with maximum impact? Note that at this stage, your provider should be focusing mainly on business process, and not too much on the technology. l Check if that provider has a solid implementation team, because once the candidate cross-section for (converting to) SOA has been identified, and the architecture is in place, the next step would be to actually implement the solution using services. Here, you need to ensure that the provider has a proven track record in the requisite technologies. l Does the provider have proven capabilities in the appropriate softwaredevelopment methodologies (engineering as well as project management), which are apt for SOA implementation? For instance, using a waterfall model for this would be akin to fitting a round keg in a square hole. SOA and waterfall normally don’t work well together. What you need is a provider who has sufficient expertise in Agile (or at least some other Iterative) methodologies. l Any code that is developed needs to be tested. Now “SOA Testing” is a different beast. So check if your provider has that expertise. l Check if your provider has a quality-management system in place to ensure consistently good quality. l Needless to say, check if your provider will do all these at a low cost. One option is to go for an amalgamation of different providers to meet the above goals, but you then need to be prepared to shell out the extra cost involved in project management, communication management and risk manage-
There are three approaches that companies typically consider, for SOA adoption: TOP-DOWN APPROACH: Here, the company builds an SOA framework suitable for their requirements (in terms of governance), creates services which cater to specific business processes, and then plugs these new services into the framework. The cons with this approach are the same as what has been seen with the waterfall model of software development. l By the time the framework is built, some of the assumptions/policies of the company’s business processes would have changed, and the framework would need to be reworked. l It takes a lot of time to actually see any tangible result in the “SOAfication” of the enterprise. BOTTOM-UP APPROACH: In this approach, the company starts at the leaf level, i.e. builds services, and then tries to stitch them together and arrive at a framework. With this approach, the risk is that, being focused on the trees, it is easy to lose sight of the forest. So, instead of an SOA, one could very well end up with Just a Bunch Of Web Services (JBOWS), without a uniform governance framework, which is so critical for any SOA implementation to be successful. “START IN THE MIDDLE AND SCALE OUT” APPROACH: A complete overhauling of your architecture may not be feasible. But will the evergreen Pareto Rule be applicable to your product? That is, will converting 20 percent of your product into SOA reduce 80 percent of your integration pains and, if yes, will the ROI justify the 20 percent investment? Here, SOA is implemented in a cross-section of the enterprise, i.e. in a complete end-to-end LOB chain. A good cross-section of business-workflow is identified as a candidate, the required governance framework is built only for that section, and the corresponding services are designed, built, tested and deployed. This approach overcomes most of the cons of the above two approaches. Normally, the last option is the best — start small, identify your main bottlenecks, hit at those places with well-govGS erned services, see the results, and then extrapolate.
AS THE COMPLEXITY OF THE IT ECOSYSTEM INCREASES, THE REVENUE SAVINGS OBTAINED FROM SOA ALSO INCREASES, PROVIDED SOA IS IMPLEMENTED IN A DISCIPLINED MANNER WITH PROPER GOVERNANCE IN PLACE
October 2008
www.globalservicesmedia.com
GlobalServices 39
feature-mng disputes_final.qxp
9/22/2008
11:39 AM
Page 40
Managing
DISPUTES Who suffers the most in case of a dispute — customer or service provider? Whose fault is it anyway? Who’s holding the ball at the time of deal termination or disagreements? Is it possible to carry on an outsourcing relationship after a nasty scrap? Here’s a reality check
40 GlobalServices
www.globalservicesmedia.com
October 2008
feature-mng disputes_final.qxp
9/22/2008
11:39 AM
Page 41
Strategies
By Namita Goel
S
TARBUCKS TERMINATES HRO Contract with Convergys; Liverpool Victoria Replaces EDS with Atos Origin; Deutsche Post Kills Huge HP Outsourcing Deal. These are a few headlines about outsourcing deal terminations. The reasons were the same as they were a decade ago — cost overruns, governance failure and delivery failure. In 2005, a research report released by Deloitte Consulting clearly stated that the year 2004 saw a significant rise in distrust in outsourcing relationships and more customers opted for deal terminations — 44 percent chose deal termination over litigation, re-negotiation and other remedies that involved mutual understanding. The trend has improved a bit as both customers and service providers have matured. The recent report released by Deloitte, “Why Settle for Less,” reveals that 70 percent of the respondents — in all 300 global players — reported being satisfied with the outsourcing setup, yet a disturbing 39 percent revealed to have terminated at least one contract and moved to other service providers. Europe too is getting matured in handling outsourcing relationships. While evaluating the U.K. IT-services deals, Pierre Audoin Consultants, the U.K.-based consultancy, revealed that just 13 percent of the U.K.-based companies that updated their outsourcing deals during the first seven months of 2008 terminated the initial deal to move on to a new provider. There have been numerous articles that compare outsourcing relationships with marriage, and to extend the analogy, outsourcing contracts have started resembling the infamous pre-nups. The trend is that service providers and customers now more strongly believe in deciding beforehand about the exit strategies and the payouts, even before signing the deal. Definitely, the cynicism is infectious and what happens in a marriage is making way into business too. October 2008
Disputes to Disagreements
Legally, the term dispute has a strong connotation attached to it. “They are never disputes, they are disagreements. I have had customers wanting to terminate the deal due to change in the business needs and the contract did not provide for any regulations in such a situation. Sometimes the disagreements arise due to mismanagement of change management,” said William Bierce, Partner, Bierce & Kenerson, a law firm. Change management and governance failure are reported to be the top reasons for break up between the provider and customer. Problems relating to delivery failure or cost overruns can still be sorted out through discussions, where as the case of governance and change management that challenges the very essence of the contract takes a hit. “In some cases the initial contract is scrapped and a brand new contract is drafted. While in the other the scope of the contract, SLAs and cost changes are incorporated,” said Stephen Nordahl, Partner, Global Technology Transactions Group, Milbank, Tweed, Hadley & McCloy. “Here at Milbank, we have two sorts of disputes, small-d-disputes and capital-D-disputes. If it is the latter, then we know it’s been on for a while and the two parties failed to reach an agreement, so they seek the help of a third party; whereas in the former case they probably might need to incorporate some changes in the contract due to the changing business needs,” added Nordahl. The study by Deloitte also shows that contract termination is not the first thought that crosses the mind of the customer and provider. “Sixty-one percent of the respondents reported that in case of issues during the first year of the contract, the matters were immediately escalated to senior management, with 15 percent reporting five or more such escalations. Fifty-three percent continued to have to escalate in the second year. Clearly, outsourcing is working financially for most of the respondents, but their relationships
www.globalservicesmedia.com
GlobalServices 41
feature-mng disputes_final.qxp
9/22/2008
11:40 AM
Page 42
Strategies
with their providers have not been without problems, with escalations being a common practice and terminations and cancellations viewed as real possibilities,” states the study. Initiation of Disagreement and Termination
The customer and the service provider could both initiate a disagreement and seek legal recourse, but often it is the customer who usually does so. This trend could change. “In the past, customers had more powers, and were usually the ones to find faults and raise arguments. However, the last few years have seen a change in the trend and a lot of providers have also come up with issues of non-cooperation or lack of sufficient information to deliver the services adequately,” said Bierce of Bierce & Kenerson. It is a general belief that the power of contract termination lies in the hands of the customer. The fact is to some extent true, but lately the trend is that even providers have voiced out their disagreement with the customer. It is more of a reputation issue for the service provider whenever a contract terminates. So the providers prefer re-negotiation to termination or litigation. “I would say it is mutual. Whenever there is a situation of discomfort in a contract, both of them — customer as well as service provider — feel it and sometimes say it together, while most of the times one of them have to initiate it. So it is the matter of timing,” added Nordahl of Milbank. “Being a provider, we have had also raised disagreements at times. But termination is usually not our opted choice. And the situation for termination does not come in to discussion until the matter of disagreement reaches out to the senior management on both the sides. From the service providers point of view, disagreements are normal as they sometimes help in improving the relationship but termination just leaves a bad taste for both the provider and the customer,” said Kirill Degtiarenko, BDC Executive Director, IBA Group, a service provider. Retardation of the Deal
Outsourcing deals on an average have a term of five to seven years and usually the disagreements come during the
OPINIONS ON
“
"Termination-assistance clauses are usually drafted to help the customer stay in control on termination or expiration. The customer will want a choice of replacing the incumbent service provider with another service provider, or taking some or all of the outsourced services in-house. There could be a reconfiguration of the in-scope services, with partial outsourcing and partial insourcing after the termination or expiration. Termination-assistance clauses set forth how the customer or its substitute provider will be able to receive something useful. Such clauses define how the service provider will transfer the ‘platform’ on which the outsourced services are performed. If the platform involves third-party technology, there are licensing issues that need to be resolved. In general, since each technology platform and the outsourced business process is somewhat unique, it's advisable to plan and occasionally review the plan for transferring the platform, not just the data. Without such a clause, there could be anarchy in terms of a complex process that is essential to
first two years of the contract due to work transition. “If the deal can go along these initial years with probably minor disagreements that can be amended, then the deal goes on till the end,” explained Bierce. Nordahl agreeed, “Nothing is certain in a contractual cycle. However, the chances of the deal termination increases with the increase in the degree of unpleasantness in the initial years. Else, the deal rolls peacefully with minor troubled waters here and there.”
THE FEW MAJOR DEALS TERMINATED FROM SEPT. ’07 TO SEPT. ’08 Deal Customer-Provider
Actual deal term vs. Signed deal term* Reason for termination
l Triad-Perot
2 vs. 10
Lack of cost effectiveness and delivery failure
l AA-IBM
2 vs. 5
AA merged with Saga
l Starbucks-Convergys
Not defined
Change in Starbucks business needs
l Liverpool
4 vs. 13
Moves the process in-house
l State
Victoria-EDS
of Texas-Accenture 3 vs. 5
l Deutsche
Post-HP
Service delivery failure
Six months vs. 7
Lack of cost advantage. *IN YEARS; SOURCE: GLOBAL SERVICES
42 GlobalServices
www.globalservicesmedia.com
October 2008
feature-mng disputes_final.qxp
9/22/2008
11:40 AM
Page 43
Strategies
TERMINATION-ASSISTANCE CLAUSES
William Bierce,
Partner, Bierce and Kenerson “These provisions typically cover topics such as, wind-down of services, provision of transition-out services (i.e. termination-assistance services), transfer of IP, transfer of hardware, transfer of third-party agreements, right to hire project staff to name a few. As these exit provisions or termination-assistance provisions are highly negotiated, it is not clear that they "favor" one party versus the other. And also based on my experience, I would say no to the fact that they are more in favor of
The painful time is when the deal gets messed up amidst all these disagreements. The staff and the service delivery bear the brunt of it. Usually it takes six to nine months for the disagreements to settle down with the help of lawyers, but in the worst case scenario, it can also span over a year. Life After Resolution or Termination
It definitely leaves a bad taste in the mouths of both the customer and provider. If there is a resolution, then the continuing relationship between the two parties is a bit strained, at least till both are able to prove themselves that they won’t repeat the actions that lead to displeasure. The terms of the contract become more legally stringent and alternate compensatory options are created in favor of both the parties in case of any similar occurrence in the future. “It can be difficult, even under the best of circumstances where the dispute is settled in a manner both sides deem as fair, for the parties to resume the course of the deal because major issues tend to ‘percolate up’ for a October 2008
providers. The negotiations typically permit the customer to get what it needs to continue on with its business. However, providers usually are tougher on issues related to the disposition of their proprietary IP to the customer and hiring of their employees by the customer.” Stephen Nordahl,
Partner, Milbank, Tweed, Hadley & McCloy “Outsourcing contracts normally include termination for cause and termination for convenience provisions. These clauses normally favor the customer and are intended to protect the customer and its dependence on the provider from the risk of early termination, while preserving termination as an option for the customer, should the deal prove unfavorable. Ironically, even though customers may have the option to terminate for convenience, exercising such option tends to be difficult given the dependence that customers have on service delivery.”
“
business continuity. Indeed, termination-assistance clauses are among the most important provisions since they give comfort for a relatively smooth transition upon termination or expiration. The key to drafting such clauses is to give the customer reasonable control over the processes and assure the provider's cooperation and a plan for the continuity of operations. Service providers will want to negotiate economic issues, including costs, payment terms, scheduling and roles."
Michael S. Mensik
Partner, Baker & McKenzie
while and this can generate frustration and ill-will between the parties. Sometimes, it can be useful to replace those affected by a particularly contentious re-negotiation by new people so that the relationship can start fresh,” said Michael S. Mensik, Partner, Baker & McKenzie. If there is a termination, then the contract goes ahead with the termination-assistance clauses. Life is more predictable in this case as the conditions are pre-decided. However, there is always room for negotiations for the reason that while designing the contract none of the parties could predict the exact circumstances of the termination. But apart from the customary compensation clauses in the contract, the deal termination carries a whole lot of intangible effects on both the parties that lower morale and heighten mistrust. It is a sure hit on the reputation of both, however, the impact is more for the service provider. That’s why some of the deal terminations are either not made public or are followed by explanaGS tions to each other’s case.
www.globalservicesmedia.com
GlobalServices 43
experts lead-China’s challenges_Final.qxp
9/22/2008
11:41 AM
Page 44
xperts E
China’s Challenges to Develop a Global BPO Capability Known as a global engineering-services outsourcing destination, China also has potential to develop a compelling Business Process Outsourcing (BPO) industry. However, there are many obstacles the country needs to combat in order to develop this beyond an industry that is merely serving a sub-region By Phil Fersht
I
n our current economic climate, enterprises are vigorously looking at ways to retain their core talent and processes while containing costs on routine, tactical functions, for example administrative finance, HR, customer management and procurement processes. The industry for Business Process Outsourcing (BPO) — the transfer of management responsibility of these routine business processes over to a thirdparty — has been enjoying steady growth over the last decade and we anticipate this to accelerate with current economic conditions. BPO is a logical direction for many enterprises to take, where enterprises can drive cost-efficiencies and improved process-rigor through service provider offerings that appropriate low-cost offshore talent and standardized processes underpinned by the latest technology tools and platforms. Is China, with its unprecedented base on cheap labor, low-cost product manufacturing, de-regulated banking sector, booming domestic economy and developing infrastructure, poised to challenge India, the Philippines, Central and Eastern Europe and Latin America, 44 GlobalServices
as a powerful delivery center for global BPO services? We believe it will perform well in the medium term delivering knowledge-based services to Chinese speaking businesses — and some Japanese and Korean — but will struggle to break into the global market to deliver services to Western enterprises for the following reasons: l China is in a time-crunch. China is already touting its tier-2 cities, such as Xi’an and Chengdu, as its mainstays of Beijing and Shanghai are already suffering from chronic job attrition (30 percent) and wage inflation. India, and other offshore locales such as the Philippines and Eastern Europe, have enjoyed a stable period of several years to develop their BPO infrastructures before these issues crept in. China is moving into BPO with little breathing space to establish its infrastructure and build critical mass. It is easier for BPO firms to combat attrition and wage inflation once there is critical mass of staff and infrastructure available. l Wages and attrition for knowledge workers in China are already high. Wages are not much lower than in India, which has more experience in www.globalservicesmedia.com
BPO and much better English-language skills. Moreover, we are seeing attrition rates as high as 30 percent in the major cities of Beijing, Guangzhou and Shanghai. l Providers wary of the “India experience” all over again. With all the initial teething problems firms ensured sending out BPO services to India, why would they want to go through all this again with China? Some outsourcing giants such as Infosys and TCS have only established a token foothold in the region — in the hundreds of employees as opposed to the multiple thousands in India, this seems to indicate that these firms are still hedging their bets on China. Only IBM has surpassed 1000 employees in China for BPO services. l Latin America is offering a compelling alternative for delivering BPO services to U.S. businesses. We are already seeing a strong competition for BPO services from the Latin American countries for the following reasons: n Wage rates are comparable n Little need to relocate staff into the U.S. n No need for bridge teams" which spend their time overlapping developOctober 2008
experts lead-China’s challenges_Final.qxp
ment work with both onshore and offshore teams n Staff travel costs are far lower for nearshore n English competency is strong n Staff attrition is lower in LatAm countries than in India or China. The strong competency for Latin American workers to deliver both English and Hispanic voice-based services and their ability to administer routine business services makes the region an attractive location for services providers to develop BPO service delivery centers. For example, enterprises can now source administrative accounting tasks for comparable rates in Mexico, than they can in China or India. l China’s core competency is engineering. China is more of a manufacturing/industrial powerhouse, and we do view it being so adept at performing administrative business services. R&D services are in the Chinese DNA, rather than BPO services, which is the direction we see China taking, for example industrial design work, contract manufacturing, biotech services to name a few. l Movement away from mere labor arbitrage. BPO services are increasingly moving away from the “body shopping” game, and more towards the provision of value-added business services and innovative offerings. Moreover, most of the offshore BPO providers increasingly prefer to price their services by transactions, for example, invoices produced per day, or reports per month, as opposed to cost savings per employee salary. Pricing services by employees provided as opposed to services delivered expose
October 2008
9/22/2008
11:42 AM
Page 45
the service provider to increase its wage and currency appreciation, which is threatening to erode the offshore service models of today’s BPO providers. With China’s prime attraction for BPO services being low-cost workers, moving work over here could be a regressive step for many enterprises, with the current wage appreciation and employee attrition dynamics. Having said that, experienced outsourcing providers delivering China-based BPO services can claim to have learned from past mistakes and seek to rectify these. l China’s English-competency is a major minus for BPO. Whereby Singapore and Hong Kong adopted English as their mother tongue many years ago, China is still a good decade away from being able to boast good English-speaking competency. Beyond the Chinesespeaking languages, and some surrounding Asian languages such as Japanese and Taiwanese, it is difficult to see China becoming more than a local hub for its domestic economy and some of the Asian-speaking countries. To run truly pan Asia-Pacific services, not having a strong English-speaking competency is a major issue with BPO. When running the vast majority of BPO services, there needs to be elements of close interaction between the outsourcer, or offshore worker, and the mother company outsourcing the services. l China’s legal system’s policies and enforcement of data privacy and patent protection is extremely poor. BPO services rely on sensitive employee, customer and financial data being sent to remote locations and adhering to a mul-
www.globalservicesmedia.com
titude of industry regulations, data privacy and compliance standards. l China’s “Great Firewall” could inhibit its knowledge services industry. Just last month, there were 868 arrests made of people providing unhealthy content over the Internet. Google reports that the most searched for words in China are related to “money” and “technology,” which indicates that this unhealthy content probably wasn’t all pornography. People talk a lot about how “China will be changed more by the Internet than the Internet will change China,” but if the Chinese government manages to keep most Western sites from being accessed, and persists with stepping up attempts to block this unhealthy content, will there surely be a limit to the level with which China can change? If the Chinese middle-classes are continually blocked from integrating their online culture with the rest of the world, won’t this impact their ability to assimilate, understand Western business culture and deliver knowledge services for customers outside of the Great Firewall? The constant attempts by the government to keep China sectioned off from the rest of the world over the Web could substantially hold back the country from delivering knowledge-based business services for Western companies. GS Phil is Research Director, Global Services and Outsourcing, for leading industry analyst AMR Research, Inc. He also authors the popular blog “Horses for Sources” which can be accessed at http://www.fersht.typepad.com
GlobalServices 45
experts_Matt smith_Final.qxp
9/22/2008
3:03 PM
Page 46
xperts Sales Strategies to Succeed in a Tough Economy
By Matt Smith, VP and co-founder, 3forward
The basics of selling and account management do not change in a tough economy. Regardless of the level of business economic conditions, the selling teams in service provider companies only need to make some tactical adjustments to reach their revenue goals
T
he U.S. Slowdown: Survive & Thrive reads one headline, while Grim Outlook for IT Spending reads the next. While Outsourcing Takes a Hit says a Wall Street Journal blog, the same day CIO News posts TPI’s report of outsourcing’s best two quarters in 10 years. Although the headlines clearly disagree on the impact a slower economy has on outsourcing sales, there remains little argument that the U.S. economy and many others worldwide continue showing weakness. How is it that, with economic conditions the same for everyone, there are such varying results across the provider industry? It is, at least, partly because successful firms are making better tactical adjustments to their selling and marketing strategies to accommodate for the economic changes. So what did they change and where did they start?
46 GlobalServices
REVISITING SALES AND MARKETING BASICS Regardless of the level of business economic conditions, outsourcing sales success begins with an external audit of customer markets, including needs, trends, competition and product alternatives. At the same time, an internal audit examines organizational capabilities, available resources, financial requirements, experience and offerings. Strategic marketing plans are then constructed, including differentiation approaches and promotion, pricing, and channel decisions. Good times or tough, all these elements work together to determine sales success for the outsourcing provider.
THE IMPACT OF SLOW ECONOMIES It is a reality that slow economies make it harder for IT Outsourcing (ITO) and Business Process Outsourc-
www.globalservicesmedia.com
ing (BPO) firms to achieve the desired sales results. A few of the familiar reasons illustrate why: ● Many sectors spend less on IT services in uncertain times and some stop spending entirely. ● Competitors without plans for economic down-cycles often make desperate pricing decisions or agree to unrealistic contract terms that only make matters worse. ● Outsourcing decisions take longer because more people share in the review process when cash is tight. At any hint of risk, the safe answer seems to be to delay the purchase. Challenges like these require different sales tactics and the following are five of the best options to consider. Depending on the outsourcer’s vertical expertise some may apply more than others, but the concepts can apply to most ITO and BPO markets.
October 2008
experts_Matt smith_Final.qxp
9/22/2008
11:43 AM
Page 47
Intensify focus on existing accounts. Even in healthy economies, IT decision-makers generally find their existing solution providers less risky than unknown providers. FIVE TACTICAL ADJUSTMENTS FOR TOUGH ECONOMIC CONDITIONS Some sectors thrive in bad economic times — like outsourcing. Throughout 2008, study after study from firms such as TPI, Everest, Gartner and others have shown an acceleration of outsourcing activities as companies search for more cost-effective ways to continue delivering IT services and business processes. Segments under heavy cost pressure like banking, manufacturing and retail are particularly receptive to outsourcing solutions that can demonstrate savings. Other segments, which excel in downturns, are also great industries to target — perhaps with a value proposition emphasizing the greater capabilities outsourcing can enable. Fox Business.com recently highlighted Five Sectors That Can Survive a Recession and they include “green” providers, financial services, alternative medicine, on-line advertising and engineering. Companies in these industries should be high on the target list of any outsourcer with solutions that can help them maximize their success.
October 2008
Intensify focus on existing accounts. Even in healthy economies, IT decision makers generally find their existing solution providers less risky than unknown providers. Two proven approaches to increasing outsourcing sales in existing accounts are portfolio expansion — selling solutions that are already in your portfolio but not yet being utilized by the target — and incorporating partnerdelivered solutions for even broader capabilities. The latter can also be a worthy defensive strategy to keep competitors from gaining access. In either case, the sales cycle will be shorter and less costly than trying to win a new customer and the revenue ramp up will also be faster. An excellent example of this strategy is highlighted in Cognizant’s 2007 annual report titled Management’s Discussion and Analysis where they identify account expansion as a key driver to revenue growth in 2007: “Expansion of our service offerings enabled us to cross-sell new services to our customers and meet the rapidly growing demand for complex large-scale outsourcing solutions.” “Increased penetration at existing cus-
www.globalservicesmedia.com
tomers, including strategic customers. Specifically, 96.2% of our 2007 revenues were derived from customers who had been using our services at the end of 2006.” Consider indirect sales channels. For outsourcing companies trying to penetrate the U.S. mid-size and small business market, an indirect sales strategy through the ValueAdded Reseller (VAR) and System Integrators (SI) channel is often the only viable approach because of the overwhelming number of small and medium business prospects. Many VAR’s and SI’s focus on a particular geographic market or vertical, and have extremely high credibility with those customers. Selling through Original Equipment Manufacturers (OEMs), other tech firms and even other outsourcers is another very strong indirect sales market for many niche ITO and BPO outsourcers. These larger companies are a great way to penetrate the top corporations, the challenging U.S. midmarket and even small business. Fine tune your value proposition. Spend time analyzing and refining how you explain the benefits your products and solutions provide cus-
GlobalServices 47
experts_Matt smith_Final.qxp
9/22/2008
tomers. Marketers are taught to ask the question, “So what?” Do you take steps out of a process? Add features? Provide capabilities that did not exist previously? Those are great, but “so what!” A strong value proposition takes these statements at least one more level and makes the outsourcing benefit tangibly evident to the customer. In strong or weak economic times, customers are looking for the same benefits from outsourcing: Increased revenues, reduced costs, improved market share, gain in competitive advantages and delivery of improved service. Outsourcing can definitely deliver these results, but it is each company’s unique value proposition that determines their opportunity to make the sale. Consider outsourcing certain sales activities. Companies, which outsource certain sales or marketing activities do so for the same reasons many other functions are outsourced — cost reduction, acceleration of results, and the benefits of performance-based agreements. Circumstances when sales outsourcing can make sense include: ● Entering new markets, geographies or customer segments ● Creating or exploring indirect sales channels ● Mentoring new sales leaders and business development teams ● Supplementing existing sales, business development or solution teams. Under the right circumstances, outsourcing sales or market development is a very efficient, productive approach to quickly develop new sales
48 GlobalServices
11:43 AM
Page 48
Outsourcing can definitely improve revenues, service delivery and market share, but it is each company’s unique value proposition that determines their opportunity to make the sale. opportunities and may be an option for some outsourcers to explore.
PUTTING IT ALL TOGETHER WITH TWO CASE STUDIES A U.S.-based provider of technology support services has found great success with their indirect sales strategy. In addition to selling directly to large corporate accounts they also market their services through three indirect channels — OEMs, end-to-end IT outsourcers and resellers. These indirect channels allow the provider to reach customer markets that would be too costly to sell to otherwise, including consumer, small business and mid-market. Indirect sales have now grown to represent nearly half of company’s total revenues. In early 2008 a mid-sized ITO anticipated that the slowing U.S. economy would create additional growth opportunities in outsourcing services. Their market research suggested they
www.globalservicesmedia.com
focus on two particular segments, banking and financial services, and energy and utilities. To keep the marketing message simple, they highlighted just two solutions — remote infrastructure management and customer service desk. These two services could be sold as stand-alone solutions and therefore had the potential to close faster than a more complex endto-end program. Lastly, to keep their existing sales organization focused on expanding sales with their existing accounts, they outsourced the market development and qualification process to an outside sales specialist. The program is now generating several qualified prospects each month.
LASTLY, DON'T PANIC — FOLLOW PLAN!
A
If tough economic conditions are forcing your company to consider new selling models, first analyze your existing approaches and reconfirm your underlying strategies. Tactical course corrections as market or economic conditions change are exactly what effective outsourcing sales organizations are always doing. Don’t panic when adjustments are required. Instead, consider the many options available and look to those companies delivering the best results as models for success. It is a great time to “survive and thrive!” GS Matt Smith is the Executive VP and Co-founder of 3forward, a Dallas, Texas-based company specializing in sales, marketing and alliances for outsourcing companies in India and the U.S.
October 2008
ad_strip_1.qxp
7/15/2008
4:08 PM
Page 20
Handshakes, Eyeballs Readers & Viewers Empowering the Knowledge Nation
expert_Optimizers_Final.qxp
9/19/2008
11:50 AM
Page 50
xperts
By Allan Schweyer and Tony Marzulli
Placing Talent at the Center of Integrated Talent Management For effective Talent Management (TM), integrated TM solution platform is required. An “employeecentric” mindset too is necessary; one that makes talent a partner in the lifecycle. But is that followed in organizations?
W
hen employees are at the center of the talent-management lifecycle, they are better able to understand what it takes to be considered “top talent” and to be a part of the leadership succession pool. TM is the end-to-end and integrated process of planning, recruiting, developing, managing and compensating employees throughout the organization. An integrative and talent-centric “mindset” and initiatives led by a senior executive with overall responsibility for talent is critical. Much has been written about the benefits of integrated TM. What has been less discussed and researched is the employee’s role in integrated TM — what can and should employees participate in for their benefit and the benefit of the organization? In this regard, Human Capital Institute, with Workscape, conducted a survey of its membership to identify current market perceptions and emerging needs surrounding the integration of benefits and TM solutions into a single, “employee-centric” solution offered on an integrated platform.
INTEGRATED TM Skilled human capital is the most important element in running a successful business. TM touches a wide range of Human-capital Management (HCM) disciplines such as perfor50 GlobalServices
mance management, workforce planning, skills management, succession planning, recruiting, and resource scheduling. In order to garner the greatest competitive advantage from the organization’s resources, an organization needs to bring these processes into an integrated whole. Six areas stand out as key elements within this framework: l Competency and skills management: These pieces of the workforceplanning puzzle help organizations identify the critical talents essential for each role within the company. l Recruitment: The first step in hiring the right talent is being able to accurately evaluate candidates to match their skills to the requirements of current openings and future business goals. l Learning management: A learning management system helps determine skills gaps in key positions and provides a way to bring workers up to necessary levels. l Performance management: For ongoing auditing and monitoring of talent productivity, this important area compares and connects employee performance results to organizational objectives. l Compensation: Proper rewards, including base and incentive pay and equities, help HR staff and line managers recognize achievements and push employees to strive for higher levels of effectiveness. www.globalservicesmedia.com
l Career and succession planning: This area provides a window into what's possible — the new roles and responsibilities that represent growth and advancement for each worker.
EMPLOYEE-CENTRIC TM Employee involvement, through a formal referral program is, inarguably, the best method of recruiting by every meaningful measure (cost per hire, quality of hire, time to performance and length of retention). Most organizations know this and do it well. Two areas that are less developed in organizations (in terms of employee involvement) are development and succession planning. Where employees are at the center of the talent management lifecycle, they are better able to understand what it takes to be considered “top talent” and to be a part of the leadership succession pool. Career pathing, whether leading to leadership or not, is too often nonexistent in organizations. Our research found that where employees are given more involvement in charting their own paths, including paths to leadership, the system runs more fluidly and less expensively; that way talent is GS likely to stay longer. Allen is President and Executive Director, Human Capital Institute. Tony is Chief Marketing Officer for Workscape. October 2008
Partner:
Remote Infrastructure Management
MICROSITE Articles
News
Experts’ Views
Case Studies
Resources
FEATURED ARTICLES
Contact Us
Register
EXPERTS’ VIEWS
CASE STUDIES FEATURED NEWS
http://rim.globalservicesmedia.com
ABOUT PARTNER
Experience IT. Now!
RNI No.DELENG/2006/17056 Posting Date: 29&30 of advance month. Posted at MBC/1B.
DPR No.DL(S) 01/3284/2007-2009
9/22/2008
12:54 PM
Page 1
Service-oriented Architecture p. 36
Managing Disputes p. 40
globalservicesmedia.com Rs. 250
October 2008 Vol. 03, Issue 33
The gateway to the global sourcing of IT and BPO services Dublin
TOP
50
Singapore
Shanghai
G N I G EMER OUTSOURCING GLOBAL
Toronto
CITIES 52 pages including cover
Global Services-Tholons Study
They are not Bangalores or Makatis yet; but they could get there sooner. There are nine new entrants and six dropouts from the 2007 list
ARGENTINA . . . . . . .31 ARS AUSTRALIA . . . . . . .13 AUD BRAZIL . . . . . . . . . .21 BRL
CANADA . . . . . . . . . .12 CAD CHINA . . . . . . . . . . .77 CNY EUROPE . . . . . . . . .7.5 EURO
HONGKONG . . . . . . .78 HKD INDIA . . . . . . . . . . .250 INR JAPAN . . . . . . . . .1170 JPY
Budapest
MEXICO . . . . . . . . .112 MXN PHILIPPINES . . . . .485 PHP RUSSIA . . . . . . . .260 RUB
SINGAPORE . . . . . . .15 SGD SOUTH AFRICA . . . .74 ZAR UK . . . . . . . . . . . . . .5 GBP
USA . . . . . . . . . .9.99 USD SINGLE COPY PRICE; SHIPPING & HANDLING CHARGES EXTRA
ISG.qxp
12/20/2007
1:23 PM
Page 15
with all Great Achievements you find
Passion
Building on Our Global Heritage
Working Together: IT-Enabled BPO
The Taj Mahal is acclaimed as a masterpiece of architecture and of the heart — an enduring testament to the power of love and a builder’s passion for creating beauty. At Genpact, we too, are passionate about our work and see beauty in managing and simplifying business processes for companies around the world. Our 31,700+ associates span 9 countries are united by a passion for excellence and commitment to work as a team. By combining our passion for excellence with teamwork, Genpact redefines what is possible, expanding from service to one company, GE, to more than 35 global enterprises in less than three years.
Enterprises are searching for ways to continuously improve what they do. An emerging trend is the integration of Business Process Outsourcing (BPO) with Information Technology Outsourcing (ITO) to create even greater value. Genpact’s propriety technology tools, coupled with domain knowledge in major industry verticals, transforms client cost structures while reducing complexity and risk.
Cultivating Quality: Lean and Six Sigma As companies wrestle with growing global complexity and competition, they look to Lean Six Sigma and Reengineering methods to ensure consistently high levels of performance and service delivery. As part of their efforts to sustain customer and shareholder value, global leaders search for partners whose dedication to process excellence is part of their DNA. Like other great builders, Genpact has the culture and tools to get it right the first time. Our building blocks are the deep industry domain knowledge, technology know-how and multi-shore delivery that we combine with Lean Six Sigma to ensure process excellence with every customer engagement.
A Passion for Excellence. At Genpact we’re passionate about our customers, our people and the communities we serve. Our passion is a special energy that defines us and constantly raises the bar on what we can achieve as we strive to exceed customer expectations and drive business impact. Our dedication to this principle drives us to be the Employer of Choice wherever we operate. We recruit top talent, train and reward them to be their best and create an environment of learning, openness and respect. This passion for excellence is part of Genpact’s DNA, rooted in our GE heritage and fervent belief that the customer comes first.
visit us at genpact.com and learn how we can work together to make the impossible possible New York +1 646 624 5900 • London +44 (0)20 7535 5400 • Gurgaon +91 124 402 2000 • Shanghai +86 21 6133 3555 • Tokyo +81 3 3543 1816
masthead_India_final.qxp
9/19/2008
11:18 AM
Page 3
The gateway to the global sourcing of IT and BPO services
Vision
A CYBERMEDIA PUBLICATION
The gateway to the global sourcing of IT and BPO services
MANAGEMENT
SALES & MARKETING
Shyam Malhotra Raman Roy Hoshie Ghaswalla
DIRECTORY OF SERVICES Print Magazine
Satish Gupta Head-Sales & Marketing [email protected] 91 987-199-7785
EDITORIAL Ed Nair, Editor [email protected]
The monthly magazine dedicated to the buyers of IT and BPO services focuses on bringing high-quality content to its audience. Our credible content comes from a network of highly experienced writers and industry insiders. e-Magazine
Arun M., Assistant Product Manager [email protected] 91 987-332-2490
Keerthi Nair, Associate Editor [email protected]
Gunjan Sharma, Assitant Manager, Sales [email protected]
Namita Goel, Assistant Editor [email protected] Imrana Khan, Senior Correspondent [email protected]
Deepak Jindal, Circulation Executive [email protected]
COLUMNISTS
PRINT SERVICES
Allan Schweyer Lori Blackman Phil Fersht Shyamanuja Das
N.C. George AVP [email protected]
Now, enjoy reading and downloading the entire issue from the digital version of Global Services magazine at www.globalservicesmedia.com
Online
T. Srirengan General Manager [email protected]
DESIGN www.globalservicesmedia.com :
This portal on global sourcing gives you news, features, blogs, and unique tools to search for providers, deals and events.
Shilpi Bhargava, Manager, Design [email protected]
OFFICES U.S.A.
e-Newsletter
Global Services Media LLC. 1091 Amboy Ave, Suite C, Edison, NJ 08837 T: 678-665-6005, F: 626-604-3966
Get all the latest news, stories, blogs, experts’ comments and announcements by subscribing to our twice-a-week newsletters. To subscribe, log on to
INDIA Cyber Media (India) Ltd. Cyber House, B-35, Sector 32, Gurgaon, NCR Delhi 122001 T: 91 124 4031234, F: 91 124 2380694
www.globalservicesmedia.com
SINGAPORE
Events
Global Services organizes various events such as conferences, buyer-seller meetings, destination series and custom round tables. For more information, write to [email protected]
Cyber Media (Singapore) Pte Ltd. #14-03, High Street Centre, 1 North Bridge Road, Singapore 179094 T: 00-63369142-44, F: 00-63369145 Printed and published by Pradeep Gupta on behalf of Cyber Media (India) Limited, D-74, Panchsheel Enclave, New Delhi – 110017, and printed by him at Rakesh Press, A-7, Naraina Industrial Area, Phase II, New Delhi - 110028. Editor – Shyamanuja Das
Reprints of Articles
All rights reserved. No part of this publication may be reproduced by any means without prior written permission from the publisher
If you would like to use any of the articles published in this magazine for marketing, sales or other purposes, write to [email protected].
Subscriptions in India: Available at Rs.2500 (12 issues). Single copies are available for Rs.250 plus shipping and handling. Subscriptions: One year (12 issues): free to qualifying subscribers, or US $95, Canada $125. International subscriptions (other than India): US$177 for one year. Single copies are available for $9.99 plus shipping and handling.
The Global Services 100
The annual survey conducted by Global Services and neoIT, an outsourcing advisory firm, brings out the list of top 100 innovative IT and BPO service providers. http://www.globalservicesmedia.com/content/ globalservices100.asp
Letters to the Editor
Send letters to [email protected], or to any of our writers. We reserve the right to edit all letters. Postings submitted to our blogs and letters to the editor may be published in our magazine or Website.
Subscription
In the Next Issue
41,000+ people have subscribed for the Global Services magazine. If you would like to subscribe to the magazine, go to www.globalservicesmedia.com (Canada and U.S.), or e-mail to [email protected] (rest of the world).
l
October 2008
The Innovation Imperative Key trends, vendor positioning, recent deals in the FAO industry l Setting up the Governance Structure. l
www.globalservicesmedia.com
GlobalServices 3
contents_final.qxp
9/22/2008
10:45 AM
Page 4
O c t o b e r 2 0 0 8 Vo l u m e 0 3 , I s s u e 3 3
The gateway to the global sourcing of IT and BPO services
FEATURES
14
TOP
50
NG I G R E EM OUTSOURCING GLOBAL
CITIES Global Services-Tholons Study
By Avinash Vashistha, Tholons, and Imrana Khan, Global Services
36
40
SERVICE-ORIENTED ARCHITECTURE By Jayaprakash Nair, Delivery Manager, Aspire Systems
MANAGING DISPUTES By Namita Goel
Is SOA still a buzzword? Why would a company spend money to sponsor a so-called technical initiative by the IT team instead of financing some other business feature development by the team? Is it true that a lack of SOA in an enterprise with a complex IT ecosystem has a direct impact on the IT costs, and hence the bottom line, in the long run?
Who suffers the most in case of a dispute — customer or service provider? Whose fault is it anyway? Who’s holding the ball at the time of deal termination or disagreements? Is it possible to carry on an outsourcing relationship after a nasty scrap? Here’s a reality check
4 GlobalServices
www.globalservicesmedia.com
October 2008
contents_final.qxp
9/22/2008
10:46 AM
Page 5
24X7
8
THE FINANCIAL CRISIS AND OUTSOURCING The news about Lehman Brothers and Merrill Lynch shook the global financial-services industry like never before. Will outsourcing by the sector also see a drastic fall? What happens to projects that are already underway? Are there any new opportunities that the crisis throws up?
SECTOR 10 PUBLIC SIGNS SIX BIG ITO DEALS IN AUG. ’08 By Datamonitor AMERICA MSS 10 LATIN MARKET SET TO GROW TO $332.7 MILLION BY 2013 By Imrana Khan
COLUMNISTS SHYAMANUJA DAS
8
HP TO CUT 24,600 EDS JOBS By Imrana Khan
11
U.S NEWSPAPER INDUSTRY EMBARKS ON OFFSHORING By Imrana Khan
Shyamanuja pioneered outsourcing journalism in India in 1998 with bpOrbit, a newsletter for the domestic Indian BPO industry. He is now Editor, Dataquest magazine, Cybermedia. ALLAN SCHWEYER
12
INFOSYS-AXON M&A DEAL KICKS OFF A NEW TREND By Tholons
13
DEMAND DOWNTURN: TOP REASON FOR JOBS CUT IN AUG. By Namita Goel
Allan is the President and Executive Director of the Human Capital Institute and author of Talent Management Systems. PHIL FERSHT
9
OUTSOURCING TO SENEGAL By Keerthi Nair
Phil is Research Director, Business Process Outsourcing, offshoring and IT sourcing, for leading industry analyst firm AMR Research, Inc.
EXPERT VIEWS
44 CHINA’S CHALLENGES TO DEVELOP A GLOBAL BPO CAPABILITY By Phil Fersht, AMR Research
October 2008
46
50
SALES STRATEGIES IN SERVICE PROVIDER COMPANIES TO SUCCEED IN A TOUGH ECONOMY By Matt Smith, 3forward
PLACING TALENT AT THE CENTER OF INTEGRATED TALENT MANAGEMENT By Allan Schweyer, HCI and Tony Marzulli, Workscape
www.globalservicesmedia.com
GlobalServices 5
editors note_final.qxp
9/19/2008
11:19 AM
Page 6
EDITOR’S NOTE
Where Do You Want to Go Today?
I ED NAIR Editor [email protected]
The entire onus of developing the right climate and conditions does not rest on the government alone. The private sector, the universities, the commercial institutions and the industry associations perhaps have a bigger role to play
6 GlobalServices
n this issue, we list out 50 emerging cities that are vying for a piece of action in the outsourcing space. They are at a stage where they can be called “outsourcing destinations” because they demonstrate a few qualifying attributes and level of activity such locations need to have. How does a city get there? Through sustained efforts directed at creating an environment that helps attract investments, develop talent pools, and create a “pull” factor for the industry. The role played by the country government, in general, and the local government, in particular, is no less. But the entire onus of developing the right climate and conditions does not rest on the government alone. The private sector, the universities, the commercial institutions and the industry associations perhaps have a bigger role to play. The stellar role played by India’s tech industry association — Nasscom — in developing India’s software exports industry and catapulting it to global prominence makes a good case study. Other examples like the Philippines’ BPAP, the industry association for business process outsourcing, and development agencies like Singapore’s IDA have also demonstrated success. The other key aspect in developing a destination is to have a few anchor companies, ideally globally leading ones, who can set the ball rolling. These companies then start acting as reference cases and when these companies scale up, they are able to create an ecosystem of support services that the larger industry would require. These companies also largely determine the area of technical competence that the place can choose to specialize. For instance, way back in the late eighties, Texas Instruments and Tektronix were amongst the first ones to choose Bangalore for software development. Many other companies then followed suit and in about eight years, Bangalore became a hub of software development. It takes time for a city to develop into a favorable destination for outsourcing. As it is said, “Rome was not built in a day.” Credit is due to the cities that are featured in this issue for their sustained efforts at developing the outsourcing industry. And they have many more peaks to scale. GS
www.globalservicesmedia.com
October 2008
ad.qxp
9/11/2008
5:11 PM
Page 29
24x7_final_revised.qxp
9/22/2008
11:17 AM
Page 8
x 4 7 2
Jobscut p. 13
HP to Cut 24,600 EDS Jobs
T
24x7
1
he tech behemoth HP announced plans to cut 7.5 percent (about 24,600 EDS jobs) of the combined entity’s manpower under the company’s restructuring program that is expected to save $1.8 billion annually. The affected employees will be provided with severance packages, counseling and jobplacement services. HP said in a statement that the company plans to replace 50 percent of those jobs by 2011. The replacement intends to board the right talent with services delivery capabilities in order to cater to its global clients from various industries. Most of EDS’ employees are U.S.based and expensive. Handling EDS’ expensive manpower in order to save cost was one of the topmost challenges for HP after the merger. Thus, it was expected that HP would axe EDS’ jobs after inking the HP-EDS merger accord. The HP-EDS merger announcement was made initially on May 13th. However, the acquisition was formalized and completed on Aug. 26th, 2008. Under the terms of the acquisition, the company bought EDS for $13.9 billion. EDS’ buyout is HP’s largest acquisition in the ITservices space. With this buyout, HP has one of the technology industry’s largest portfolios of products, services and end-toend solutions. GS
8 GlobalServices
The Financial Crisis and Outsourcing BY IMRANA KHAN
T
he news about Lehman Brothers and Merrill Lynch shook the global financial-services industry like never before. It is almost clear that the financial industry is going to cut more jobs in the coming future. The industry has already shed nearly 103,000 workers in 2008, and it seems that it’s going to unleash another round of heavy layoffs in the sector. “A year-end spike in financial cuts, ignited by these latest actions, could send 2008 job cuts in the sector past the 2007 record total of 153,105,” according to Challenger, Gray & Christmas, a global outplacement consultancy. The financial sector is one of the biggest buyers of IT and Business Process Outsourcing (BPO) services. If companies in the sector start falling like ninepins, many of the current outsourcing projects would get short-circuited and the existing providers would bear the brunt. The industry experts believe that these announcements will impact the outsourcing industry badly. “There will be a negative impact and this will show up in lower/slow growth. There will also be an impact on the price. As the supply of talent in the U.S. will increase, it will, thereby, depress the wage in the U.S. and place a subsequent negative impact on arbitragedriven value proposition. Also, conwww.globalservicesmedia.com
solidation in the industry will lower the overall demand and the company will reap synergy. This will, subsequuently, show up in lower demand for services in India,” says Vikas Sehgal, Principal and Executive Director, India Business, Booz Allen Hamilton, a Virginia-headquartered strategy and technology-consulting firm. The future of the BPO captives and outsourcing setups of these banks is uncertain. The careers of employees in these setups are also in doubt. On one hand, they could be laid off at any point of time, but on the other, there would be trained talent available to other BPO companies. For companies that are looking at adding scale, the captives would be an easy buy. And, what will happen to the projects that are already underway? “Some for sure will go away as the companies are gone; for those that are merged, you'll see elimination of redundant contracts. Some projects that were for growth will either be canceled or lowered in volume,” adds Sehgal. However, every bad news precedes something good. So there will be some opportunities as well. “Especially for the providers going for value play. India can help in consolidation of banking in U.S. by offering services to integrate the systems and finance processes across new and old entities,” states Sehgal. GS October 2008
24x7_final_revised.qxp
9/22/2008
11:17 AM
Page 9
OUTSOURCING TO
SENEGAL Five places to visit
A
former French colony, Senegal, is fast luring outsourcing opportunities from the Francophone world — its stability, similar time zone, low wages and stock of young, educated employees being the bonus. An extensive and modern telecommunication infrastructure — in place with a digital and fiber-optic network nationally and an optic marine and satellite network internationally — is making the country’s telecommunications as good as any in Europe. The icing on the cake comes with French as one of Senegal’s national languages. Dakar call-center staff have an accent neutral enough to pass for native French, and this allures French organizations toward Senegal. The major four call centers in Senegal — PCCI, Call Me, Access Value, Center Value — offer services mainly for French companies. With the minimum education being a college degree, around 600 operators aged between 20 and 25 work up to 40 hours a week equipped with a French-sounding pseudonym. Senegal, in addition, plans a competitive and trained workforce in order to attract more foreign companies. For example, Senegal plans a network within the country linked by satellite to the University of New York (Project SMKS) to enable students to obtain American diplomas. “Since Senegal is the country in
the world, after Japan, to have developed a very sophisticated government intranet system, the Senegalese have the opportunity to gain a significant amount of training from their home country, thus avoiding the financial burden of going overseas,” says Lance T. Artis, President, Apyo Technologies, a French-speaking technology/outbound telemarketing firm. Though Senegal ranks among the 20 least developed countries in the world, and has an unemployment rate of 48 percent, the center taps into a pool of well-educated, young Senegalese people who are respectful than the staff in Europe. Also the quality of certain public services (electricity) hinder the country’s economic development and industrialization, being focused only in Dakar, makes the city overpopulated. To counter all this, Senegal has not only taken the initiative to promote telecoms in rural zones, but has also started implementing ambitious plans for the period 2005 to 2015 such as improve roads and expand Dakar Port. With high-levels of human skills, diversified service fabric and a deterministic approach, Senegal is bound to become a similar outsourcing magnet for the French call-center industry as India has become for Britain and the U.S., putting it in competition with Morocco, Tunisia and Mauritius. GS
SOURCES: © 2007 PEARSON EDUCATION, OXFORD BUSINESS GROUP, © 2008 CondéNet, INC.
October 2008
www.globalservicesmedia.com
Ile de Goree Also known as the Goree Island, Ile de Goree is a magnificent, lovely and captivating place with lovely palaces, mansions and colorful little alleys lined with pastel colonial buildings and a mighty fortress. UNESCO declared this island a World Heritage Site. Saint Louis Saint Louis or Ndar retains a nostalgic atmosphere in its narrow streets flanked by beautiful colonial houses, balconies and verandas. Two spectacular national parks grace the city — the Langue de Barbarie National Park and the Djoudj National Park. Tambacounda The town is known for its varied agricultural potential and rail connections with Dakar to the northwest and Mali to the northeast as well as a paved road to Kédougou in the southwest. Niokolo Koba National Park, Senegal’s largest national park, is located here. The Petite Côte The Petite Côte is an excellent beach, a great fishing center and shelters the beautiful forests of baobab-trees in Senegal — an excellent base to discover this country. SalyPortudal or Saly and Mbour are the popular tourist resorts of this region. Compiled by Keerthi Nair
GlobalServices 9
2
24x7
BY KEERTHI NAIR
Dakar The capital region of Senegal, Dakar, is a modern metropolis where colonial-style villas, big modern buildings, and the Medina — the old quarter — share an implausible mix. The Institut Fondemental d'Afrique Noir (IFAN) and Galérie Nationale are some major attractions.
24x7_final_revised.qxp
9/22/2008
11:17 AM
Page 10
Metrics Latin America’s
ITdeals
Public Sector Signs Six Big ITO Deals in Aug. ’08
BY IMRANA KHAN
L
BY DATAMONITOR
D
emand from the public sector continued to drive outsourcing contract signing activity in Aug. ’08. Of the 10 biggest deals announced during the month, six involved publicsector customers. The U.S. Army awarded the month’s largest deal to a defense-services contractor, ManTech International. Under the two-year, $820 million agreement, ManTech will provide equipment and systems to support mine detection and retrieval programs in Southwest Asia, including Iraq and Afghanistan. The contract win is one of the biggest in ManTech’s history, and completes a successful few months for the company, which signed two deals worth over $100 million each in July ’08 and acquired security-services provider, Emerging Technologies Group. One of ManTech’s rivals, SAIC, also secured a major defense-services award last month. It was selected by General Services Administration to provide project management, helpdesk support and system-integration services to the U.S. Army’s HR command. SAIC has now
signed 10 deals worth over $100 million since the beginning of 2008, all with U.S. federal government agencies. Lockheed Martin, a major player in the U.S. public sector, secured a significant deal with a government agency in the U.K. in August. The company will head up a consortium, also including Logica, Oracle, Steria and Cable & Wireless, tasked with supporting the 2011 census in England, Wales and Northern Ireland. The team will design, install and support systems using character recognition and color processing for paper census forms, as well as ensure that the census can be completed via the internet. In the private sector, the biggest deal worth $431 million was signed between China Mobile and Motorola to provide GSM network upgrades and expansions. Some 16 network-services deals have been signed in China this year, as the country looks to improve its telecommunications infrastructure. Aside from Motorola, Alcatel-Lucent, Nokia Siemens Networks and Ericsson GS have secured big deals.
THE 10 LARGEST IT SERVICES DEALS IN AUGUST 2008 Customer
24x7
3
Provider
Engagement(s)
Value Duration ($ mn) (yrs)
l
U.S. Army
ManTech International
Maintenance, training
820
2
l
China Mobile
Motorola
Network mgmt.
431
—
l
General Services Administration
SAIC
Helpdesk mgmt., systems 410 integration
5
l
Boeing
AT&T
Network mgmt.
400
5
l
Health Net
IBM
Infra mgmt.
300
5
l
Office for National Statistics Lockheed Martin
Processing services
276
—
l
Health and Safety Executive Capita Group
BPO
257
10
l
U.S. Army
Telecommunication Systems Application mgmt.
246
3 (est.)
l
Absa
Telkom
237
5
l
NOAA
Diversified Global Partners ADM*
200
9
Network mgmt.
atin America’s Managed Security Services (MSS) market is set to surge by 30 percent in the next five years — from $66 million in 2007 to $333.7 million in 2013 — according to the latest findings of a Calif.-headquartered business-research and consulting firm, Frost & Sullivan. With the highest annual growth rate, the MSS market in the entire region is expected to reach about $90 million in 2008. In the current market scenario, the outsourcing of network security in the region is now being accepted at a larger pace. Thus, Latin American IT-services providers are leveraging full outsourcing agreements. Most of the developed industries such as telecom, IT and manufacturing, to name a few, share the biggest pie (46 percent) of the region’s MSS market. However, the finance and banking industry still prefers to manage the network security in-house. Brazil and Mexico are the two domi-
U.S Newspaper Industry Embarks on Offshoring BY IMRANA KHAN
T
he $11 billion Indian Business Process Outsourcing (BPO) industry — slated to reach $30 billion by 2012, and which employs over 700,000 people — has become a monster to manage. Recent stats on the sector’s employee turnover show an unprecedented rise; enough to keep business leaders awake at night. Any offshoring announcement by U.S. newspaper publishers always makes headlines. Especially when the publishers decide to offshore the services beyond
*Application Development & Maintenance; SOURCE: DATAMONITOR IT SERVICES CONTRACTS DATABASE
10 GlobalServices
www.globalservicesmedia.com
October 2008
24x7_final_revised.qxp
9/22/2008
11:18 AM
Page 11
MSS Market Set to Grow to $332.7 Million by 2013 REVENUE FORECAST
CURRENT MARKET CONDITIONS IN LATIN AMERICA Current status
20
100
10 2007
2008
Total revenues
2013
Ecuador, Peru, Bolivia and Chile l Brazil l Central America & Caribbean
0
Annual growth rate l Mexico SOURCE: FROST & SULLIVAN
nant markets in Latin America. In 2007, these markets together accounted for over 65 percent of the region’s MSS market. According to the study, titled Latin America Managed Security Services Markets, the primary drivers behind this growth are: Increasing threat levels, pressure from regulatory bodies to adopt security measures, improving awareness about the growing necessity for fool-
their typical ad-production work. Many a times such announcements are met with resistance due to jobs cut announcements. Over 6,500 jobs cut have been reported in the first six months of the year 2008. Even the blogspace gets flooded with sentiments of angst against “the outsourced newspapers.” Quite a bit of muck was raised when The Orange County Register, one of the leading regional newspapers, recently announced its plan to offshore copy-editing and page-layout work to India. In 2007, when Calif.based news Website hired Indian journalists to cover meetings of the Pasadena City Council, the reaction of the locals was quite uncomplimentary. Plunging revenues is the biggest con-
October 2008
l Southern Cone
With 14 percent participation, this region has shown great growth potential, especially in Colombia and Venezuela, detaining Latin America’s highest CAGR for the forecasted time period Is region’s largest and most established market, detaining 40.9 percent of MSS revenues Very underdeveloped region, with growth potential for all MSS solutions. Costa Rica, Puerto Rico and Panama are the main markets in this region, fuelled by government investments and the presence of multinational companies Represents 24.1 percent of MSS revenues and has very similar market characteristics as the much larger Brazilian market Accounting for 16.2 percent of the region’s revenues, driven particularly by Argentina’s very high GDP growth over the past years and by Chile’s developed financial vertical. SOURCE: FROST & SULLIVAN
proof network-security solutions, lack of qualified IT professionals to manage inhouse IT departments, and companies’ desire to reduce the costs with IT-security expenditure to focus on core business.
However, many factors such as lack of awareness of current threats and available solutions in the market and lack of quantifiable ROI hinder the growth of this market largely. GS
cern for U.S. newspapers publishers. The newspaper industry in the region is going through a major crisis. So the ultimate solution for survival is to save costs by outsourcing production and content services to low-cost offshoring destinations such as India. Even though offshoring by U.S. newspapers primarily revolved around adproduction work, some copy-editing and page design work is now also being sent to these locations. From India’s perspective, the country has a huge untapped market. India shares a very small pie — $35 million — of the total offshore opportunity from newspaper publishers, which is expected to be about $3,500 mil-
lion, estimated a business intelligence and research firm, ValueNotes. Currently, there are a handful of providers such as Express KCS, Affinity Express, 2AdPro and Mindworks Global that serves this market, but there’s the opportunity for more providers to come in. Going forward, according to ValueNotes’ study, the current Indian penetration into this market stands at around one percent. The revenues of Indian service provides could grow to $120 million by 2012. Also the number of total workforce involved in this industry is set to cross 5,500 in the next GS four years.
www.globalservicesmedia.com
GlobalServices 11
4
24x7
30
200
0
Region
l Andean countries — Colombia,
300
Growth rate (% )
Revenues ($ millions)
40
24x7_final_revised.qxp
9/22/2008
11:18 AM
Page 12
Infosys-Axon M&A Deal Kicks Off a BY NISHANT VERMA, PRINCIPAL, AND AVINASH VASHISTHA, CEO, THOLONS
A
ugust ’08 witnessed the announcement of the largest Indian cross-border deal wherein Infosys, an India-based ITservices giant, acquired Axon Group, the U.K.-based SAP consulting-services firm, for a total transaction value of $753 million. This acquisition seems to be a trendsetter. Since the announcement, a spurt of similar activities is being noticed. Infosys has the largest exposure to Western customers. Of which, around 68 per-
cent of total revenue comes from the U.S. and around 30 percent comes from the European regions, unlike other India-based tier-1 firms such as Wipro (44 percent from the U.S. and 24 percent from Europe) and TCS (50 percent from the U.S. and 29 percent from Europe). From a geographical expansion perspective, the target is expected to provide a strong local presence and a front-end for Infosys in Europe. The deal is further
MEGA M&As OF AUGUST '08 Acquirer l Infosys
Technologies
l Serco l Sungard l Nuance
Capital
Communications
l KKR l Singapore
Axon
753
Si International
525
Gl Trade
443
Snapin
180
Anite Public Sector
107 99
Superoffice
95
Medisolution's Healthcare Information Systems Division
50
l Spectris
Ncode International
44
l Adaptec
Aristos Logic
41
l Nuance
Zi
35
l Salesforce.com
Instranet
32
l Sbi
Sbi Net Systems
25
Pyxis Solutions
25
Kantone
24
Mizi Research
16
Dacolian
15
l Callwave
Webmessenger
9
l Ucs
Computer Software Consultant
9
Tronic International
7
Dawoori Entertainment
6
Heartland Data
6
U.S.: 44
Norway: 1
5
Belgium: 3
Singapore: 3
Canada: 7
South Korea: 1
l Healthvision
Solutions
Communications
Holdings
l ITC l Champion l Wind
Asa
Group
l Creative l Kn
Technology
River Systems
l Q-Free
24x7
Deal size ($ mn)
Telecommunications Singapore Computer Systems
l Superinvest
5
Target
marked by the synergetic benefits arising from 2,000 employees offering SAP consulting services to customers from the aerospace, retail, manufacturing, utilities, financial and other commercial sectors, providing the global giant with strong cross-sell and up-sell opportunities. The acquisition would also strengthen the position of Infosys in the U.S., China and other Asian geographies. However, this deal would dilute the higher profit margins of Infosys. Due to the cultural barriers and non-offshore benefits, Indian acquirers have always stayed away from large transactions in European regions. This could be further elaborated by the fact that Europe witnessed over 80 IT and business process outsourcing transactions in the past eight months, where around 50 percent are domestic, 40 percent are U.S.-based acquirers and 10 percent are from others. Another large transaction of the month was the U.S.-based acquirer SunGard Capital acquiring French financial software solutions firm GL Trade for $443 million.
Master Bermuda
Wave
l Wiseman l Info-Drive l Global
Software
Technoprism
Med Technologies
l Salary.Com
Edonor
5
Germany: 7
U.K.: 13
Infobasis
5
Hong Kong: 4
Others: 13
To see the full table, please visit www.globalservicesmedia.com SOURCE: THOLONS
12 GlobalServices
DEAL COUNT BY TARGET COUNTRY (%)
www.globalservicesmedia.com
Japan: 4 SOURCE: THOLONS
October 2008
24x7_final_revised.qxp
9/22/2008
11:18 AM
New Trend DEAL VALUE BY TARGET COUNTRY (%)
Page 13
Jobscut
Demand Downturn: Top Reason for Jobs Cut in Aug. BY NAMITA GOEL
T U.K. 32
Others: 17
Japan: 1
Belgium: 0 (est.)
Norway: 3
Canada: 2
Singapore: 4
Germany: 1
South Korea: 1
Hong Kong: 1 SOURCE: THOLONS
The acquisition will expand the financial software offerings of SunGard to European customers and would enable it to penetrate the small and mid-sized market segment. Firms based in the U.S. have emerged as favorite targets with 31 transactions, followed by the U.K. with nine deals, Canada and Germany with five deals each. Other target geographies targeted were Hong Kong, Japan, Norway, Singapore, South Korea, Sweden, Australia, China, France, India, Israel, Netherlands, South Africa, GS UAE and Sweden. October 2008
www.globalservicesmedia.com
MONTH-BY-MONTH TOTALS Month l May l June l July l August
2008 103,522 81,755 103,312 88,736
2007 71,115 55,726 42,897 79,459
MORTGAGE / SUB-PRIME LAYOFFS Month May l June l July l August l
2008 15,505 18,936 14,735 1,337
2007 3,948 3,713 1,175 30,892
AUGUST JOBS CUT REASONS Reasons l Demand downturn l Closing l Cost-cutting l Restructuring l Market conditions l Bankruptcy l Merger/acquisition l No clear reason l Fluctuating sales l Relocation l Rising Costs l Order cancellation/ reduction l Outsourcing l Voluntary severance l Reorganization/ consolidation l Technological update Total
Number of layoffs 20,614 16,779 15,617 11,821 8,294 3,871 3,646 2,655 1,986 1,092 930 733 450 115 103 30 88,736
SOURCE: CHALLENGER, GRAY & CHRISTMAS
May 2007. The 144 exits are 16.1 percent higher than the previous month GS when 124 exits were recorded. GlobalServices 13
6
24x7
U.S. 38
he number of jobs cut in Aug. ’08 was 14 percent less than the number quoted in July. August witnessed slightly better market conditions compared to the last couple of months, though the number is still stubbornly high at 88,736, states the jobs cut report released by global outplacement consultancy, Challenger, Gray & Christmas. Demand downturn has been stated as the top reason by employers for the jobs cut, however, the year-to-date category market conditions is still topping the chart for the reasons behind the cuts. Till now, employers in various sectors have announced 667,996 jobs cut, which is 29 percent higher than 2007 eight-month total of 515,855. The months of May and July have jolted the entire jobs market so badly that there are very less chances of recovery within this year. After the phase of 2001 to 2005 that repeatedly saw over a million yearly positions cut by employers, just three years later, 2008 is set to join the “over a million” jobs cut club. Even though 2002 was a bad year with 1,466,823 jobs cut in total, the summer of 2008 beats the summer of 2002. Hopes of a late summer reprieve in layoffs were dashed by heavy downsizing in the automotive and government sectors, where employers announced 17,233 and 12,328 job cuts, respectively. This level of summer job cutting has not been seen since 2002, when the country was still struggling to recover in the wake of the 2001 recession and September 11, according to the firm. The number of CEOs exits touched 144, the highest mark since
coverstory_ik.qxp
9/22/2008
12:29 PM
Page 14
coverstory_ik.qxp
9/22/2008
5:24 PM
Page 15
TOP
50
G N I G EMER OUTSOURCING GLOBAL
CITIES Global Services-Tholons Study
They are not Bangalores or Makatis yet; but they could get there sooner. There are nine new entrants and six dropouts from the 2007 list Premier Sponsor
cstory_Final.qxp
9/22/2008
3:25 PM
Page 16
The Global Services-Tholons Study
THE LOCATION
By Avinash Vashistha, Tholons, and Imrana Khan, Global Services
T
IER-1 GLOBAL SERVICE PROVIDERS such as Accenture, ACS, Cognizant, Capgemini, CSC, EDS, Genpact, HP, IBM, Infosys, LogicaCMG, TCS, Satyam and Wipro continue to increase their global presence. The difference is that service providers such as IBM and Accenture are looking to tier-2 and tier-3 Indian cities for expansion, while the Indian providers Infosys, TCS and Wipro are heading toward cities in South America and Eastern Europe. In a way, the choice of the right city has become more important than the choice of the country. It is rather the city (than the country), which represents a more accurate package of attributes that service providers seek. Thus, Cebu City and Monterrey matter more than the Philippines and Mexico from a decision-making standpoint. This study identifies those locations that are globally recognized for their “specific” outsourcing services offerings as well as the ones that are establishing themselves as specialized locations for particular outsourcing functions. To make the study complete, like last year, we have also come up with the names of top emerging outsourcing cities as that’s the main focus of this study. There are eight such cities instead of five that we had reported last year. (See Table 2 —“Top 8 Global Outsourcing Locations.”) This year’s list of top 50 emerging global outsourcing cities, though, has quite a few surprises. We profiled nine “new entrants” — including Quezon City (The Philippines), Toronto (Canada), Rio de Janeiro (Brazil), Mexico City (Mexico), Jaipur (India), Singapore (Singapore), Chengdu (China), Guadalajara (Mexico) and Mandaluyong City (The Philippines) — to the list. (See Table 3.) Last year we had profiled top 15 emerging outsourcing locations.
16 GlobalServices
THE PARAMETERS OF EVALUATING THE CITIES In order to provide location assessment, Tholons has considered “six general categories” — “Scale & Quality of Workforce (including education),” “Business Catalyst,” “Cost”, “Infrastructure,” “Risk Profile” and “Quality of Life.” Within these six segments are fifteen sub-categories, each possessing a corresponding weight. The parameters above are the same components, which differentiate cities, and to a large extent determine their individual capacities to fulfill particular services. Cities with large, English-proficient labor pools, for example, may be better equipped to provide voicebased customer support while a smaller city with robust infrastructure and adequate supply of network engineers may be better candidates to provide infrastructure managed services. Consequently, there is no definitive set or order of parameters, which will provide a definitive advantage for each city across all service lines. Each parameter must take into consideration a number of determining factors: Type of service, desired scale, and nature of delivery, to name a few aspects. THE LOCATION-ASSESSMENT FRAMEWORK Our “Location-assessment Framework” takes into consideration an expansive set of variables when evaluating a city’s potential as a delivery center. Further, the quantitative data gathered is substantiated and analyzed qualitatively. In analyzing the capacity and potential of individual city centers, Tholons identifies the inherent characteristics of a location — its key differentiator and at the same time, its primary inhibitor. The recognition of these city-specific aspects is also essential in correlating which specific service lines a city has the potential or is most capable in delivering. City A for example, can have a high percentage of its labor pool that is Englishproficient, but may also have a smaller percentage of IT or technical-related university graduates as compared to City B — having a low number of English-speaking graduates, but a more favorable ratio of IT graduates. In this case, we can infer from a resource perspective, that City A may be more suitable for delivery of customersupport services, while City B may be better equipped to fulfill ITO-related services such as engineering or software development. From a service-delivery perspective, the more successful outsourcing cities have leveraged on their
The Perspective of the City
Location assessment based on a city as opposed to a country is reflective of the ongoing trend we are witnessing in the global outsourcing arena. Service providers are look-
www.globalservicesmedia.com
October 2008
cstory_Final.qxp
9/22/2008
3:26 PM
Page 17
The Global Services-Tholons Study
ASSESSMENT available resources to capture specific market segments. Cities in the Philippines for example, continue to avail of their large English-proficient workforce in catering to the U.S. customer-service market. The same holds true for Central and South American cities that have been quick to capitalize on the growing Hispanic population in the U.S. Further, despite the U.S. currency’s recent slide, these destinations continue to be more cost efficient as compared to onshore (U.S.) delivery centers. Due to the deteriorating political situation in the state of West Bengal, we continue to put Kolkata on the watch list. Political disturbances contributing to an unfavorable climate for business would prove to be a big hindrance for the city to attract investments. However, we expect the government to take steps to restore normalcy and to continue on the growth path as an outsourcing destination. Cities are differentiated not only by their available resources (quality/type of labor force, cost, available infrastructure and such), but also by their long-term potential in fulfilling demand for specific services. In many instances, these scalerelated inhibitors can directly impact what type and size of outsourced services that location can fulfill. For headcount-dependent processes such as voice-based customer support, lower
cost and large population bases are often required. There are also various regional and ecosystem dynamics, which differentiate the capacities of cities. A converging Europe is a prime example. As Europe continues to expand its unified market, cost-effective destinations in Eastern Europe will continue to increase their market share of outsourced services from customer nations in Western Europe. In this regard, Eastern European cities such as Kraków and Prague will continue to leverage their nearshore and cultural compatibility advantages. Alternatively, cities in countries with large population bases such as India and China will maintain competitive advantage by offering scale and labor costs, which most destinations will be unable to counter. Cities in these two countries — with millions of people — will also have the best potential to offer a wider array of outsourced services. However, this does not necessarily imply that the advantage is exclusive to such mega cities. Cities such as Ho Chi Minh City, Vietnam, and even smaller destinations like Monterrey, Mexico have made inroads in high-value ITO and engineering services. For similar sized cities that may have demographic constraints, identifying the available strengths within their ecosystem is essential in developGS ing their respective niche markets.
Budapest
Shanghai
Santiago
CITY CHARACTERISTICS WITH RESPECT TO SPECIFIC SERVICE ITO (Infrastructure Managed Services)
Priority Low
Cost Scale & Quality of Workforce Infrastructure Risk Profile Business Catalyst Quality of Life
High
BPO (Contact Center)
Scale & Quality of Workforce Infrastructure Business Catalyst Cost Risk Profile Quality of Life Singapore
ing to identify and tap the inherent capabilities and capacities of specific locations. This transition on how service providers view locations illustrate both the maturity of the outsourcing model and heightened focus on optimization of October 2008
service-delivery. Today, a single provider can have centers in multiple countries and cities, with each city having the optimal conditions to fulfill specific service lines. Software development can be done in Bangalore, customer service can be
www.globalservicesmedia.com
GlobalServices 17
cstory_Final.qxp
9/22/2008
3:26 PM
Page 18
The Global Services-Tholons Study
done out of Makati City, while engineering services are delivered out of Kraków. The one-stop-shop country model has in fact given way to the more efficient, multicity, bestof-breed city model. Further, this also reflects the increased responsibilities, which local government units now have in developing their respective cities. City officials, infrastructure providers and local stakeholders are often better able to promote, stimulate and market their city’s specific capabilities to potential outsourcing service providers. Moreover, local stakeholders are able to address infrastructure and ecosystem concerns in a timelier manner. Many city mayors and local government units, for example, can provide city-specific tax incentives and telecom providers can deploy connectivity in a much more targeted scale. In contrast, nationwide agendas and developmental rollouts, as otherwise mandated by national governments, are often prolonged and drawn out — a pace unfavorable to most service providers. Though we highlight the increasingly vital role, which individual cities play in a country’s outsourcing industry, we do not discount the significance that national governments and institutional bodies play in shaping the sector. National governments and industry bodies are commonly tasked to provide guidance, policies and set direction. Likewise, these organizations provide essential monitoring and regulatory roles — ensuring that labor and business-related concerns are managed and implemented. As such, the role of the city with regards to outsourcing should not be viewed as one, which has become entirely independent of the country. Rather, one should view the evolution of the city as a direct result of a country’s inherent capabilities as an outsourcing provider. Referring to Prague as a “Center for Excellence” for software development, or Ho Chi Minh City for IT Outsourcing (ITO) processes, for example, highlights the respective country’s strengths. The Locations & the Year Gone By
The past eighteen months have been an incredibly dynamic period for the global outsourcing industry. The ongoing slowdown in the U.S. economy, the continuing maturation of the outsourcing model, the rise of tier-2 and tier-3 cities as delivery centers, the heightened level of competition and emergence of “global Business Process Outsourcing (BPO) providers” are some of the key ecosystem movements we continue to closely monitor. We have noticed that with each fundamental shift in the market, stakeholders in turn are requiring a deeper understanding of delivery locations. This level of knowledge has become essential not only to maintain financial objectives, but more so to ensure competitive advantages and longevity in an increasingly competitive market environment. The region-wise analysis reveals something near to obvi18 GlobalServices
LOCATION FIRST By Shyamanuja Das
A
h! The debate is still alive. It is more than a decade since Jack Welch made the world believe in his 70-70-70 formula — 70 percent of the GE’s processes can be outsourced; 70 percent of what can be outsourced can be offshored; and 70 percent of what can be offshored can be executed in India. Many technology and pure services firms have actually bettered on that formula. There are start-up firms in the valley that are born global — just a few heads in the U.S. and rest in India. Yet, the debate remains. I will but add one more page to that. But as the Nobel Prize winning economist Amartya Sen, well, argues, sometimes the arguments are as important as the final conclusion. At least majority of Indians believe so and I am no exception either. First let us examine the question a little carefully: Should you choose a location first or a partner first? The question, then, inherently excludes the captive option. It is for a company that has decided to outsource to a third-party service provider (a partner). The reason I am specifically pointing this out in the beginning is that the importance of location selection is minimized significantly, if not eliminated completely in this case. Now, let us build typical scenarios. Let’s say, to start with, a very large company with global business presence is looking at a mega outsourcing deal. In this case, it is safe to assume that it will need the work to be executed in different languages, for different time zones with some business continuity or at least disas-
ous. That is, Asian cities are the ones that rock the top 50 cities chart. However, the interesting thing is that not only the tier-1 cities in the Asia-Pacific region are ruling the outsourcing industry but also there are many tier-2 and tier-3 Asia-Pacific cities that are fast emerging as outsourcing destinations. Of the top nine emerging cities, six — Cebu City (The Philippines), Shanghai (China), Beijing (China), Ho Chi Minh City (Vietnam), Kolkata (India) and Shenzhen (China) — are from the Asian continent. Thirty-eight percent of the top cities list have been occupied by such locations followed by 26 percent by Central & Eastern European cities.
www.globalservicesmedia.com
October 2008
cstory_Final.qxp
9/22/2008
3:26 PM
Page 19
The Global Services-Tholons Study
OR PARTNER FIRST?
ter-recovery capability built in. All these point to a multilocation strategy. Any large service provider that can execute this contract should either have presence in multiple locations or capability to quickly add some locations, or ideally both. Fortunately for the customers of outsourcing, most large global service providers, irrespective of their country of origin, are today building that capability. Whether it is IBM, Accenture or EDS or TCS, Infosys and Wipro, all of them today have a strong global delivery strategy. Let us say a small or medium company wants to outsource what could be of significant size for that company but general IT or business process, like finance and accounting work or entire customer-service work, even though by sheer dollar
terms it may not be classified as a mega deal. In that case, it may not always be possible for the company to influence the service provider to go to a location of its choice. But in practical terms, it may not be a major roadblock, as most service providers today are fairly mature in generic business-process delivery, and they will always find a good fit for the work. So, this one too goes to partner first. But what about a large (or even) small company looking to outsource very specialized work? Say, design of some automotive components or design of algorithms? In that case, while a partner-first approach can be convenient, one would argue that a better approach is to select a location first. And considering that most specialized work does not happen in hundreds of locations, the company will have to choose between two to three locations; that is not that tough. In many such cases, it is important to choose not just the country but specific location. Take engineering design services. Within India, there are a few places like Pune (otherwise a tier-2 location), Bangalore, Hyderabad and Chennai that come on top, rather than Mumbai or Delhi. The rational behind choosing/shortlisting locations first, in these cases, is not just because of the capability of the workforce, but there is the danger of missing out good, small, specialized players, if one does not have a first-hand evaluation of GS these locations. Shyamanuja is Editor, Dataquest, CyberMedia.
Losers & Gainers
The Bangalores …
With each passing year, our location assessment continues to be a target that’s moving and morphing like an amoeba, with a new set of market variables that need to be considered. Our location-assessment framework, thus, follows a deeper approach to identify the emerging global outsourcing locations. Thus, we see new entrants — even some among the ones who topped the emerging cities list — spanning over the list as well some going away from the listing. The cities that were recognized in our last year’s list and that could not make to the list this time can be seen in the table below which also shows the list of new entrants (See Table 1).
The year’s list of top global Bangalores is bigger than the last year’s. Our Top 5 Global Outsourcing Cities list has now become Top 8 Global Outsourcing Cities with some new members — Chennai (India), Hyderabad (India), Makati City (The Philippines) and Pune (India). As expected, Indian cities dominate the top list once again. Makati City, as part of the Philippines NCR (National Capital Region) holds its ground, while Indian cities with the entrance of Chennai, Hyderabad and Pune continue to dominate the top chart. (See Table 2.)
October 2008
www.globalservicesmedia.com
Continued on page 26
GlobalServices 19
cstory_Final.qxp
9/22/2008
3:26 PM
Page 20
The Global Services-Tholons Study Chart 1
REGION-WISE BREAKUP (%)
8
n=50
24 4
6
38 20
Middle East Africa Western Europe North America South America Central & Eastern Europe Asia Pacific
26
TOP GLOBAL
OUTSOURCING
Table 2
CITIES
The region-wise analysis reveals something near to obvious — Asian cities are the ones that rock the top 50 cities chart. However, an interesting point is that not only the tier-1 cities in the Asia-Pacific region are ruling the outsourcing industry but also many tier-2 and tier-3 Asia-Pacific cities are fast emerging as outsourcing destinations. Of the top nine emerging cities, six — Cebu City (The Philippines), Shanghai (China), Beijing (China), Ho Chi Minh City (Vietnam), Kolkata (India) and Shenzhen (China) — are from the Asian continent. Thirty-eight percent of the top cities list has been occupied by such locations followed by 26 percent by Central & Eastern European cities.
Makati City
Table 1
DROPOUTS Rank (2008) 31 36 37 38 45 50
City Perth Baguio City Leeds (Yorkshire & Humber) Birmingham, Alabama Oklahoma City, Oklahoma Juarez
Bangalore l Chennai l Delhi NCR l Dublin l Hyderabad l Makati City l Mumbai l Pune l
Country Australia The Philippines U.K. U.S. U.S.
India India India Ireland India The Philippines India India
Mexico
NEW ENTRANTS* Rank (2008) 21 22 26 30 31 36 37 44 45
City Quezon City Toronto Rio de Janeiro Mexico City Jaipur Singapore Chengdu Guadalajara Mandaluyong City
Country The Philippines Canada Brazil Mexico India Singapore China Mexico The Philippines
Singapore
Dublin Docklands With a rapidly maturing, expanding global outsourcing industry, our last year’s “Top 5 Global Outsourcing Cities” chart has now become “Top 8 Global Outsourcing Cities.” Makati City, as part of the Philippines NCR (National Capital Region) holds its ground, while Indian cities with the entrance of Chennai, Hyderabad and Pune continue to dominate the top chart.
*THE NEW ENTRANTS HAVE BEEN PROFILED IN THE NEXT PAGES STARTING FROM PAGE NO. 30 TO PAGE NO. 34.
20 GlobalServices
www.globalservicesmedia.com
October 2008
cstory_Final.qxp
9/22/2008
3:27 PM
Page 21
The Global Services-Tholons Study
Top
50 Emerging Global Outsourcing Cities
Table 3
Rank Rank
Cities
Country
(2008) (2007)
Time Zone (GMT)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50
4 8 10 6 16 5 11 15 14 13 12 9 17 20 23 18 21 19 7 25 NEW NEW 22 24 28 NEW 29 26 27 NEW NEW 33 32 34 40 NEW NEW 43 42 41 46 30 44 NEW NEW 47 39 35 48 49
October 2008
Cebu City Shanghai Beijing Ho Chi Minh City Kraków Kolkata Cairo São Paulo Buenos Aires Shenzhen Hanoi Chandigarh Curitiba Prague Pasig City Dalian (Dairen) Coimbatore Santiago Colombo Johannesburg Quezon City Toronto Guangzhou (Canton) Belfast Budapest Rio de Janeiro San José Warsaw Brno Mexico City Jaipur St. Petersburg Kuala Lumpur Accra Bratislava Singapore City Chengdu Bucharest Moscow Sofia Monterrey Glasgow City Brasília Guadalajara Mandaluyong City Tallinn San Antonio Halifax Kiev Ljubljana
Philippines China China Vietnam Poland India Egypt Brazil Argentina China Vietnam India Brazil Czech Republic Philippines China India Chile Sri Lanka South Africa Philippines Canada China Ireland Hungary Brazil Costa Rica Poland Czech Republic Mexico India Russia Malaysia Ghana Slovakia Singapore China Romania Russia Bulgaria Mexico U.K. Brazil Mexico Philippines Estonia U.S. Canada Ukraine Slovenia
+8 +8 +8 +7 +1 +5:30 +2 -3 -3 +8 +7 +5:30 -3 +1 +8 +8 +5:30 -4 +5:30 +2 +8 -4 +8 Offset +1 -3 -6 +1 +1 -6 +5:30 +3 +8 Offset +1 +8 +8 +2 +3 +2 -6 Offset -3 -6 +8 +2 -6 -4 +2 +1
Population (in mn) est. in 2007
0.8 21.6 15.9 5.4 0.8 13.6 7.7 10.9 3.0 26.3 2.2 2.3 1.8 1.9 0.6 3.9 4.7 5.4 2.5 3.9 2.3 2.5 14.2 0.6 2.5 6.1 0.4 1.7 0.7 8.5 6.5 4.8 1.9 2.0 0.5 4.6 7.8 1.9 11.0 1.3 1.1 0.6 2.5 1.6 0.3 0.4 1.3 0.4 2.7 0.3
www.globalservicesmedia.com
Currency
Exchange Rate (as of Sept. 10th, '08) USD 1 =
Philippine peso (PHP) Chinese yuan (CNY) Chinese yuan (CNY) Vietnamese dong (VND) Polish zlotych (PLN) Indian rupee (INR) Egyptian pound (EGP) Brazilian reai (BRL) Argentine peso (ARS) Chinese yuan (CNY) Vietnamese dong (VND) Indian rupee (INR) Brazilian reai (BRL) Czech koruna (CZK) Philippine peso (PHP) Chinese yuan (CNY) Indian rupee (INR) Chilean peso (CLP) Sri Lankan rupee (LKR) South African rand (ZAR) Philippine peso (PHP) Canadian dollar (CAD) Chinese yuan (CNY) Euro (EUR) Hungarian forint (HUF) Brazilian reai (BRL) Costa Rican colon (CRC) Polish zlotych (PLN) Czech koruna (CZK) Mexican peso (MXN) Indian rupee (INR) Russian ruble (RUR) Malaysian ringgit (MYR) Ghanaian Cedi (GHS) Slovak koruna (SKK) Singapore Dollar (SGD) Chinese yuan (CNY) Romanian leu (RON) Russian ruble (RUR) Bulgarian lev (BGN) Mexican peso (MXN) British pound (GBP) Brazilian reai (BRL) Mexican peso (MXN) Philippine peso (PHP) Estonian kroon (EEK) U.S. dollar (USD) Canadian dollar (CAD) Ukrainian hryvna (UAH) Slovenian tolars (SIT)
PHP 46.59 CNY 6.84 CNY 6.84 VND 16,527.50 PLN 2.46 INR 44.80 EGP 5.41 BRL 1.77 ARS 3.06 CNY 6.84 VND 16,527.50 INR 45.12 BRL 1.77 CZK 17.59 PHP 46.59 CNY 6.84 INR 45.12 CLP 529 LKR 107.88 ZAR 8.06 PHP 46.59 CAD 1.07 CNY 6.84 EUR 0.71 HUF 170.66 BRL 1.77 CRC 548.79 PLN 2.46 CZK 17.59 MXN 10.55 INR 45.12 RUB 25.61 MYR 3.46 GHS 1.16 SKK 21.39 SGD 1.44 CNY 6.84 RON 3.59 RUB 25.61 BGN 1.39 MXN 10.55 GBP 0.56 BRL 1.73 MXN 10.55 PHP 46.59 EEk 11.08 USD 1 CAD 1.07 UAH 4.38 SIT 169.70
GlobalServices 21
ad.qxp
9/22/2008
6:56 PM
Page 22
ad.qxp
9/22/2008
6:56 PM
Page 23
cstory_Final.qxp
9/22/2008
3:27 PM
Page 24
The Global Services-Tholons Study
Top
50 Emerging Global Outsourcing Cities
Rank
Key Service Providers
Major Universities
(2008)
1
Accenture, ACS, Convergys, eTelecare, People Support
2
Accenture, Cognizant, EDS, Infosys, Neusoft, TCS, Wipro, Unisys
Univ. of the Philippines, Univ. of San Carlos East China Univ. of Science & Technology, Shanghai Jiao Tong Univ.
3
Accenture, Capgemini, EDS, IBM, Infosys, TCS, Wipro, Unisys
Beijing Univ. of Tech., Peking Univ., Renmin Univ. of China
4
FPT Software, IBM, Luxoft, Vietnam Software Outsourcing Co.
Ho Chi Minh City National Univ., Univ. of Technical Education
5
Capgemini, HCL, Hewitt, IBM, LogicaCMG, Philip Morris
AGH Univ. of Science & Technology, Cracow Univ. of Technology
6
Capgemini, Cognizant, Genpact, HCL, IBM Daksh, TCS, Wipro
Univ. of Calcutta, Bengal Engineering & Science Univ.
7
C3, Convergys, EDS, Raya Contact Center, Tamima, Xceed, Unisys
Al-Azhar Univ., Ain Shams Univ., Cairo Univ., Call Center Academy
8
Accenture, Convergys, Cisco, Dell, EDS, Fidelity, Satyam, TCS
Univ. of Sao Paulo, Federal Univ. of Sao Paulo
9
Accenture, Convergys, Cognizant, EDS, HP, Globant, TCS, TeleTech
Universidad Catolica Argentina, Universidad de Buenos Aires
10
ACS, AT&T, HP, IBM, Siemens, Satyam
Shenzhen Univ., Shenzhen Institute of Technology
11
Vietnam Offshore Services, Spi, Vietnam Software Outsourcing Co.
Hanoi Univ. of Technology, Hanoio National Univ.
12
IBM Daksh, Infosys, Net Solutions, Netsoft Global Services, Quark
Punjab Univ.
13
Accenture, Atos Origin, Wipro, Unisys
The Federal Univ., Catholic Univ., The Federal Technical Univ.
14
Accenture, HP, Infosys, LogicaCMG, Unisys
Charles Univ., Czech Technical Univ.
15
Sitel, Unisys
Univ. of the City of Pasig
16
Accenture, Convergys, IBM Global Services
Dalian Univ. of Technology, Dalian Maritime Univ.
17
Cognizant, TCS, Wipro
Anna Univ., Bharathiar Univ.
18
Accenture, EDS, TCS, Unisys
Pontificia Universidad CatÓlica de Chile, Univ. of Chile
19
Astron BPO, IBM, Lingua, LogicaCMG, Virtusa, WNS
Univ. of Ceylon, Univ. of Colombo, Univ. of Peradeniya
20
Accenture, Satyam, TCS, Unisys
Univ. of Johannesburg, Univ. of the Witwatersrand
21
IBM Daksh, C3, Sitel, One Touch Center, eTelecare, Sykes
St. Paul Univ. Quezon City, Univ. of the Philippines
22
Accenture, Cognizant, EDS, Infosys, LogicaCMG, TCS, Unisys
Univ. of Toronto, York Univ., Ryerson Univ.
23
Accenture, Atos Origin, Capgemini, EDS, Siemens, Unisys
Sun Yat-sen Univ., South China Univ. of Technology, Guangzhou Univ.
24
Firstsource, HCL BPO Services, TeleTech
Queen's Univ. Belfast, Univ. of Ulster
25
Accenture, Convergys, EDS, EPAM, Genpact, LogicaCMG, TCS
Budapest Univ. of Tech. & Economics, Corvinus Univ. of Budapest
26
DBA, EDS, Politec, Satyam, Teleperformance, Unisys
Federal Univ. of Rio de Janeiro, Federal Univ. of State of Rio de Janeiro
27
Accenture, CCC, IBM, Unisys, SlashSupport
Univ. of Costa Rica
28
Accenture, EDS, TCS, Unisys
Univ. of Warsaw, Warsaw Univ. of Technology
29
Accenture, CSC, IBM Global Services, Ness Technologies
Masaryk Univ., Brno Univ. of Technology
30
Accenture, ACS, EDS, Hildebrando, Softtek, Stefanini, TCS, Unisys
National Autonomous Univ. of Mexico, Metropolitan Autonomous Univ.
31
Infosys, Genpact, ST Microsystems, Spanco
Rajasthan Univ., Rai Univ.
32
EPAM, Exigen Services
Herzen State Pedagogical Univ. of Russia, Saint Petersburg State Univ.
33
Accenture, Convergys, HCL, LogicaCMG, TCS, Wipro
Univ. of Malaya, Univ. of Kuala Lumpur, Tech. Univ. of Malaysia
34
ACS
Methodist Univ. College Ghana, Wisconsin Intl. Univ. College
35
Ness Technologies, Unisys
Comenius Univ., Univ. of Economics, Slovak Technical Univ.
36
Accenture, CSC, Cognizant, EDS, HCL, IBM, TCS, Unisys, Wipro
National Univ. of Singapore, Nanyang Technological Univ., SIM Univ.
37
Augmentum, Dextrys, EDS, Genpact, Neusoft, Wipro
Southwest Jiaotong Univ., Chengdu Univ. of Technology
38
Genpact, Ness Technologies, Perot Systems, Unisys, WNS
Univ. of Bucharest, Univ. Politehnica of Bucharest
39
Accenture, Convergys, EDS, EPAM, IBM, LogicaCMG
Moscow State Technical Univ., Bauman Moscow State Technical Univ.
40
HP, Sofica, SBND Tech., Sutherland Global Services, Unisys
Saint Clement of Ohrid Univ. of Sofia, Technical Univ. of Sofia
41
Accenture, ACS, Sutherland Global Services
Univ. of Monterrey
42
Unisys, LogicaCMG
Univ. Of Glasgow, Univ. Of Strathclyde, Glasgow Caledonian Univ.
43
Accenture, Convergys, Politec, TCS, Unisys
Univ. of Brasilia
44
TeleTech, Hispanic Teleservices, Perot Systems, TCS
Universidad de Guadalajara, Universidad Panamericana
45
CPI Outsourcing, eTelecare, IBM Daksh, ICT Group
Don Bosco Technical College, The Jose Rizal Univ., The Rizal Tech. Univ.
46
IBM, Hansapank, LogicaCMG, SAS (SSC*), SEM IT Partner, Solvus
47
Tallinn Univ., Tallinn Univ. of Technology, Tallinn College of Engineering Univ. of Texas, St. Mary's Univ., Trinity Univ.
48
ADP, EDS, Keane, TeleTech, CSC, Unisys, Fujitsu
49
EPAM, Luxoft, GlobalLogic, LogicaCMG
Kyiv National Technical Univ., Kiev National Taras Shevchenko Univ.
50
Unisys
Univ. of Ljubljana
24 GlobalServices
Dalhousie Univ., Saint Mary's Univ., Univ. of King's College
www.globalservicesmedia.com
October 2008
cstory_Final.qxp
9/22/2008
3:28 PM
Page 25
The Global Services-Tholons Study
CHINA, CHINA, EVERYWHERE Language Skills English English, Japanese English, Japanese, Korean Chinese, English, French English, Polish, Japanese English Arabic, English, French, German, Spanish English, Portuguese, Spanish English, French, Portuguese, Spanish Chinese, English Chinese, English, French English English, Portuguese, Spanish English, German English Chinese, English English English, Spanish English English English English, French Chinese, English English, Irish English, German English, Portuguese, Spanish English, Spanish English, Polish English English, Spanish English English English English English English Chinese, Japanese, English English, Romanian English, Russian English, French English, Spanish English English, Portuguese, Spanish English, Spanish Filipino, English, Chinese English, French, German, Finnish English English and French English, Russian, Ukrainian
Whether it is the 2008 Olympic Games, or the list of emerging global outsourcing locations, China dominates both. In the former, Chinese athletes bagged the maximum gold medals, and in the latter Chinese cities claimed six places. These cities are: l Shanghai (at the 2nd position) l Beijing (at the 3rd) l Shenzhen (at the 10th) l Dalian (at the 16th) l Guangzhou (at the 23rd) l Chengdu (at the 37th). Of them, Shanghai is already known as one of the mature destinations for providing services offerings such as F&A, product development, R&D and testing, and Guangzhou is known for engineering-services offering. Outsourcing services such as application development and maintenance and business analytics are now also being offered from Shenzhen and Shanghai, respectively. Consequently, the country has become home to numerous IT and BPO services providers. While global providers such as Accenture, ACS, Atos Origin, AT&T, Capgemini, Cognizant, Convergys, EDS, Genpact, HP, Infosys, IBM, Satyam, TCS, Wirpo and Unisys have their presence across China, local providers such as Augmentum, Bleum, Dextrys and Neusoft are also known at a global scale. Even though a lot is happen-
ing in the Chinese outsourcing space, there are some other areas — encouraging the usage of English language in schools — which the Chinese government is focussing on. With supportive government and favorable outsourcing conditions, China’s outsourcing industry is set to flourish further. That means we might see some new Chinese names in this list or some of the top emerging cities moving to the top outsourcing cities’ list in our next study on outsourcing GS cities.
English, Slovene
October 2008
www.globalservicesmedia.com
GlobalServices 25
cstory_Final.qxp
9/22/2008
3:28 PM
Page 26
The Global Services-Tholons Study
Outsourcing Cities by Functions Table 4 Functions
Established
ADM Business Analytics Engineering Services
Bangalore, Chennai, Dublin, Hyderabad, Mumbai Bangalore, Chennai, Delhi (NCR), Kraków, Mumbai, Bangalore, Chennai, Guangzhou, Pune, St. Petersburg
Finance and Accounting Human Resources Legal Services Product Development Research and Development Testing
Emerging
Ho Chi Minh, Pune, Shenzhen Bucharest, Cairo, Shanghai Coimbatore, Delhi (NCR), Moscow, Prague Bangalore, Kraków, Makati City, Mumbai, Shanghai Cebu City, Colombo, Pune Bangalore, Bucharest, Budapest, Makati City, Prague Cebu, Kraków, Tallinn Chennai, Makati City, Mumbai Cebu City, Johannesburg, Pune Bangalore, Chennai, Ho Chi Minh, Moscow, Shanghai Bucharest, Pune, São Paulo Bangalore, Dublin, Moscow, Shanghai, St. Petersburg Beijing, Bucharest, Chennai, Prague Bangalore, Chennai, Ho Chi Minh, Hyderabad, Shanghai, Bucharest, Cairo, São Paulo Toronto
White: Same as last year; Red: Jumped from 2007 emerging list to 2008 list of established cities; Black: New entrants NEW CATEGORIES Functions Contact Center (Multilingual) Contact Center (English)
Established
Emerging
Bucharest, Buenos Aires, Cairo, Dalian, Kraków, Mexico City Bangalore, Delhi (NCR), Dublin, Makati City, Mumbai, Toronto
Casablanca, San José, São Paulo
Can You Name this One?
In the 2008 Top 50 Emerging Global Outsourcing Cities list, there is a city that springs the biggest surprise. Here’s a set of clues to find that out: l In this city, the outsourcing industry continues to flourish tremendously. The outsourcing facilities of global companies such as Capgemini, HCL and Philip Morris are already operational here. l In this city, the obvious choices for customers are to outsource their F&A, business analytics and multilingual contact-center. The city has had skills in these areas in the past too. The city is also an emerging location for nearshoring HR services. l In this city, the labor costs are quite competitive. An entry-level techie can mint $680 to $600 per month, while a BPO exec with similar experience can expect his salary to Cathedral, Mexico City
26 GlobalServices
Cebu City, Kolkata, Pune
be between $380 and $100 per month. l In this city, many U.S. and Western European companies enter much before than other Eastern European cities to source their F&A and business-analytical services from. l In this city, many educational institutions are producing thousands of students every year. l In this city, the outsourcing industry is expected to grow further. This city is Kraków, the capital of Poland. The comparative analysis reveals that this year Kraków has bagged the fifth place with an improvement of 11 positions from last year’s 15th rank. City by Functions
As the global outsourcing market becomes increasingly competitive, we expect the cities to be more focused in identifying appropriate service lines and in developing their service-delivery capabilities. This means, as the industry matures, cities will be compelled to recognize the services they can deliver best. The concept of an individual location being a “one-stop-shop” has given way to “smart/ multi/selective sourcing” models, wherein selected processes are outsourced only to the most appropriate destination. Therefore, we deviate from the notion of an “ideal location for all outsourcing services.” This study is more inclined toward the fact that there are locations which are more suitable for specific outsourcing processes — services logically gravitate to destinations where conditions are most optimal for their delivery.
www.globalservicesmedia.com
October 2008
cstory_Final.qxp
9/22/2008
3:28 PM
Page 27
The Global Services-Tholons Study
The lower cost equation does not always work. It’s always a trade-off between cost benefit and complexity. In many instances, where the cost benefit is an advantage for distant offshore locations, the complexity of services that can be processed is consequently lower. For instance, offshore cities such as St. Petersburg, Shanghai, Bangalore, Makati City, Ho Chi Minh City and Delhi (NCR), to name a few, provide high-end, complex functions but not at a lower cost. Similarly, customers can easily get the less complex work done from onshore locations such as San Antonio and Glasgow at a lower price. Crystal Ball Gazing
As the outsourcing industry matures and the quest for cost-effective and resourceful services-delivery locations continues, we would see some new tier-2 cities making headlines. A few of them are: l Nizhniy Novgorod, Russia: This tier-2 city in Russia is already witnessing huge R&D activities. Intel’s R&D facility is already operational in the city.
l Cork, Republic of Ireland: The city is not only supporting the small outsourcing operations but also encouraging them to expand further. l Tianjin, China: Another tier-2 Chinese city is getting ready to serve the global outsourcing services’ buyers on a larger scale. Vast labor pool and low-cost of operations in the city are sufficient enough to allure the outsourcers. l Bacolod City, The Philippines: We tag this Filipino city as the promising next wave outsourcing city in the country. l Amman, Jordan: The government is actively supporting the capital region of Jordan, Amman, to count it among the most attractive outsourcing locations in the Middle East and African continent.
About the Study
For the third consecutive year, Global Services and Tholons have identified the top 50 emerging global outsourcing cities. These locations are not Bangalores or Continued on page 34
THE RELATIONSHIP BETWEEN COST BENEFIT & COMPLEXITY OF THE PROCESS
High
Chart 2
H
H
St. Petersburg
H
Complexity
Toronto
HH
H H
Shanghai
Kraków Bucharest
Dublin
H H H H H
Delhi
Low
São Paulo San Antonio Buenos Aires
Low
October 2008
H (NCR)
Glasgow
On-site
H Bangalore
Onshore
Dalian
Cairo
Nearshore
Cost benefit
www.globalservicesmedia.com
H H
Makati Ho Chi Minh
Offshore High
GlobalServices 27
A
Report
An IT Services Outsourcing Country Guide States and Cities that Offer Unique IT Business Opportunities By Daniel Tkach
Mexico City Mexico City (population: 8,890,000; 19.3 million metro area included,) is the capital city of Mexico and the economic heart of the country. Greater Mexico City (the metropolitan area) has a population of 19.2 million. Mexico City has a per capita income of more than 23,000 USD (purchasing power parity adjusted 2006) and ranks as the eighth-richest urban agglomeration in the world. From 1999 to 2007, the city has received 106 billion USD in foreign direct investment– mainly in sectors such as financial services, retail, pharmaceutical, and tourism. Higher Education and Professional Workforce: The National Autonomous University of Mexico (UNAM) is the largest (with 269,000 students) university in the Americas. Other major higher-education institutions are the National Polytechnic Institute, the Metropolitan Autonomous University (UAM), the ITAM, the ITESM, the Universidad Panamericana (UP), and the Universidad La Salle. 13,000 IT professionals graduate every year. Why Invest in Mexico City: Mexico City is a very attractive place for foreign investment due to its high infrastructure and human capital standards, as well as the robustness of its internal market. The city welcomes investments and productive projects in the IT field and provides incentives and grants for relevant projects.
State of Mexico The State of Mexico (population: 14,000,000) surrounds Mexico City, with which it has practically merged. The main cities in the state are Toluca (the capital), Naucalpan and Tlalnepantla. The IT companies of the State of Mexico offer a large variety of services including IT consulting, data centers, infrastructure management, and application development and testing. Industry solutions focus on the automotive, biotechnology and pharmaceutical sectors. BPO services include contact centers, data mining, help desk, market analysis, F&A services and loan application processing. Higher Education and Professional Workforce: The State of Mexico is the home of three of the most prestigious universities in Mexico—the National Autonomous University, the State of Mexico University and a campus of the Monterrey Technology Institute. 5,200 IT professionals graduate every year. Why Invest in the State of Mexico: The State of Mexico has a large number of already established multinational companies. The state population enjoys a high quality of life. There is significant availability of qualified human resources, and the state has an excellent infrastructure. The government of the state actively supports foreign investments in IT, and offers a rich set of incentives and tax exemptions for investors.
Sponsored Report
State of Jalisco The State of Jalisco (population: 6,800,000) strongly supports the growth of IT Mexican companies. It has developed a robust infrastructure for global companies to conduct business in- and- from Jalisco and created advanced technology centers. Jalisco’s main cities are Guadalajara, Chapala and Puerto Vallarta. Guadalajara is known as the Mexican Silicon Valley. Over 70 international companies, such as General Electric, IBM, Intel, Hitachi, Hewlett Packard, Siemens, Flextronics and Solectron have established facilities in Guadalajara. IT companies in Guadalajara offer advanced IT services including application design, development and testing, embedded software for the automotive and aerospace industries, wireless applications, printers, medical devices, and multimedia. Higher Education and Professional Workforce: Guadalajara is a very important center of universities and educational centers with national and worldwide prestige that include the Universidad Panamericana, ITESO, Universidad de Guadalajara, Monterrey Institute of Technology and the Universidad Autónoma de Guadalajara (U.A.G.). 3,200 IT professionals graduate every year. Why Invest in Jalisco: Many leading IT and BPO companies conduct operations in the state because of its advantages such as a convenient geographic location, qualified IT human resources, excellent infrastructure and state investment incentives.
State of Nuevo Leon The State of Nuevo Leon (population: 4,500,000) shares a 9 miles border with the U.S. state of Texas. It features a secure highbandwidth communications network and research and technology parks. The main cities in the state are Monterrey, (the capital), Guadalupe, and Apodaca. Monterrey is well known in the global IT marketplace and many large Mexican and Indian IT service providers have established their delivery centers in the city. Higher Education and Professional Workforce: Monterrey is home to two of the nation’s most prestigious universities, the National Autonomous University of Nuevo Leon and the Instituto Tecnologico de Estudios Superiores de Monterrey (Monterrey Institute of Technology and Higher Education). Other reputed universities include the University of Monterrey (UDEM) and the Universidad Regiomontana. The state has 44 higher education institutions from which 3,000 IT professionals graduate every year. Why Invest in Nuevo Leon: Nuevo Leon borders the US, and investors are attracted by an American-style business culture, the availability of highly educated professionals, an excellent infrastructure and a high quality of life. The state government offers incentives and tax exemptions to investors.
A
Report
“Nearshore” outsourcing to Mexico for U.S. buyers offers the advantages of proximity, cultural affinity, timezone alignment, relatively lower costs, fast and simple visa attainment, ease of software and hardware procurement, and the legal and IP protection provided by the NAFTA treaty. The decision of where to conduct business in Mexico, however, depends on your fi rm’s strategy. Some companies prefer the states with the largest population of IT professionals, such as Mexico City, Jalisco, and Nuevo Leon. Others prefer locations with a fast-growing IT industry, good universities and a friendly local environment such as Baja California, State of Mexico, Puebla, Sinaloa, Sonora and Veracruz.
State of Puebla
State of Sonora
The State of Puebla (population: 5,600,000) is located in the center east of Mexico. Puebla is a strategic state for trade between Europe and the Americas. The main cities in the state are Puebla (the capital), Tehuacan and Cholula. The most dynamic sectors in Puebla are the automotive, textile and apparel, metalworking, furniture, and chemical industries. The state is home to a competitive workforce specialized in industry and services. Higher Education and Professional Workforce: Puebla is a national and international center for higher education that features many universities and technical schools such as the Universidad de las Américas, Universidad Iberoamericana, Benemérita Universidad Autónoma de Puebla, Universidad Popular Autónoma del Estado de Puebla and the Monterrey Institute of Technology and Higher Education. 1500 IT professionals graduate in Puebla every year. Why Invest in the State of Puebla: Puebla is rated as “an excellent destination for foreign direct investment” by Standard & Poor’s and Fitch Ratings. The main foreign companies with operations in Puebla are of German, Brazilian, Canadian, Swiss, French and American origin. The Government of Puebla offers attractive incentives for IT investments.
State of Sinaloa
The State of Sonora (population: 3,100,000) shares an extensive border with the U.S. state of Arizona and a shorter one with New Mexico. The main cities in the state are Hermosillo (the capital), Ciudad Obregón and Nogales. The industry in Sonora has been oriented to automotive, aerospace and electronics and is now growing fast in Information Technology. Sonora has built a Technology Park designed specifically for the IT Industry, and two additional Technology Parks are in the planning stage. Higher Education and Professional Workforce: Sonora features 48 Universities and multiple specialization schools. The main institution of higher education is the University of Sonora (UNISON), There are 17 universities in Sonora, including two campuses of the ITESM (Monterrey Institute of Technology). 1000 IT professionals graduate every year. Why Invest in the State of Sonora: The state’s proximity to the U.S., the availability of talented professionals (usually educated in the USA), the high use of English language and the significant lower operations costs make Sonora a very attractive location for IT investments, and a natural option to serve the U.S. West Coast. The government of Sonora actively supports foreign investments in IT through its “soft-landing” program.
State of Veracruz
The State of Sinaloa (population: 2,700,000) is located in the north west of the Mexican Republic The main cities in the state are Culiacán (the Capital), Mazatlan and Los Mochis. The technology sector of the state of Sinaloa is growing at a yearly rate of 300%. The main focus of the IT industry in Sinaloa is on Contact Centers and nearshoring of application development services. The state has one of the largest IT clusters in Mexico that gathers fifty-five companies of advanced IT maturity level. Higher Education and Professional Workforce: Sinaloa features 48 Universities and multiple specialization schools. 3000 IT professionals graduate every year, and a large percentage of them are English – Spanish bi-lingual. Why Invest in the State of Sinaloa: Sinaloa is an excellent location for IT industry investments for global IT providers that want to establish a nearshore delivery center in Mexico with the low cost environment offered by a tier-2 location. The state is conveniently located very close to the U.S., and its time zone is CST. The state government offers generous incentives for investors in technology.
The State of Veracruz (population: 7,200,000) is located in the east-central part of the Gulf of Mexico The main cities in the state are Xalapa (the capital), and the port cities of Veracruz and Coatzacoalcos. The state’s principal natural resource and dominant industry is oil; it is the main extraction, processing, and transport hub for much of the country’s oil reserves and is a leading producer of agricultural products. The ver@cluster is a regionally highly competitive IT cluster. Higher Education and Professional Workforce: Veracruz has 49 universities that offer degrees in information technology. The main universities are Universidad Veracruzana, Universidad Autónoma de Veracruz and Universidad Mexicana, plantel Veracruz. 1100 IT professionals graduate every year. Why Invest in the State of Veracruz: The government of Veracruz is strongly committed to the growth of the state and provides incentives and tax breaks, creating excellent opportunities for investment. The environment is friendly and the cost of living, conducting business and building infrastructure is very low. Daniel Tkach is the CEO of PartnersMarket Consulting, Inc. Strategic Marketing advisors to MexicoIT. Contact: [email protected]
Learn more about the Mexican states and cities at www.mexico-it.com or call 1-866-639-4248.
cstory_Final.qxp
9/22/2008
21
3:28 PM
Page 30
The Global Services-Tholons Study
Quezon City, The Philippines
Supportive government, world-class infrastructure, vast and affordable talent pool help the city to bag 21st position in the list
Q
uezon City is the most populous city in the country with 2.3 million people; a third of its residents under 15 years. These demographics point toward the city’s readiness to tackle new opportunities in the next three to five years. With the help of 65 colleges and universities, the city produces an enormous number of educated workerforce every year. To leverage the vast talent pool for the growth of the BPO industry, the city’s government is taking several innovative steps including the introduction of a 320-hour competency course for call-center agents for poor on Sept. 15th, 2008. Besides free meal, transportation allowance will also be provided. As of now, the city has lured close to 57,000 business establishments, with BPOs finding the city a cost-effective location. At present the city has over 60 BPOs and about 35 call centers. A BPO agent in the city earns more than $250 per month. Also the labor costs in the city are comparable to other major global outsourcing cities. Even though the monthly rental charges in Quezon City is $2 to $4 per square feet, registering property for any business purposes can take about 39 days in order to complete the eight property registration procedures. Quezon City has good infrastructure, and is well networked with the major highways, thoroughfares and mass transit systems of Metro Manila. Even the longest highway in the metropolis and the country’s widest highway run through the City. Two elevated light rail systems also make commuting, to and from Quezon City easy. GS
Above: Libis by night located at the Southeastern corner of Quezon City Below: Katipunan Avenue, a major road in Quezon City
22
Toronto, Canada One of the good options for the U.S.-based companies to nearshore their testing and contact-center functions
T Above: Toronto city Below: Yonge-Dundas Square
30 GlobalServices
oronto, the city with a population of 2.5 million, is known for the immense R&D activities, skilled talent pool, renowned universities, supportive government initiatives and world-class infrastructure. The information and communication technology sector is the region’s largest private-sector employer in the technology hotbed of Canada, Toronto. The city is home to a mature and diverse IT-services industry. However, labor cost in Toronto is higher than the wages in most of the other global outsourcing destinations. An IT professional in Toronto pockets no less than $2,200, which could go up to $3,000. Even a BPO executive earns between $2,000 and $2,400 per month. The per month rental charges for commercial real estate in the city are $2 to $3 per square feet. In addition, Toronto-based businesses typically can use investment tax credits to offset up to 75 percent of its federal tax for a year, with unused balances carried forward 10 years, according to Toronto’s Economic Development Body. The city has a well-educated and skilled talent pool. University of Toronto, York University and Ryerson University and several other colleges and IT training facilities churn out a large educated workforce suitable for knowledge-based industries. Toronto’s extensive road and rail connections further make it a flourishing destiGS nation in addition to the great international connections. www.globalservicesmedia.com
October 2008
cstory_Final.qxp
9/22/2008
26
3:29 PM
Page 31
The Global Services-Tholons Study
Rio de Janeiro, Brazil
A tempting treat for global outsourcing service providers to set up their shop
R
io de Janeiro is the second largest city in Brazil with its vibrant population of some 6.1 million. Over years, the city has been a tempting treat to many providers such as DBA, Politec, Satyam and Teleperformance to set up operations here. Apart from playing host to the third-party centers, some companies including Citigroup and Oracle have set up their captive centers in the city. The city’s universities churn out approximately 265,000 students and 20,000 researchers every year. There are almost 110 universities and educational institutions in Rio de Janeiro that offer 566 programs for technical education. Therefore, the city provides an alternative source of highly skilled and low-cost technical professionals for IT projects and staff augmentation. Techies can be hired at a lower cost of $420 to $440 per month. Favorable time zone — depending on the season the city is just one or three hours later than New York — cultural proximity and large pool of English- and Spanish-speaking people make it an ideal destination for setting up call-center facilities and BPOs. An entry-level BPO worker can make $360 to $330 per month. With 15 procedures, starting a business in Rio de Janeiro takes 68 days, and the total start-up cost could go up to 10.9 percent of GDP per capita. The per month rental charges in the city are between $4 and $5 per sqft. With 14 procedures, it takes 75 days to register a property and set up a shop in the city. And it takes about three GS percent of the property value to register a property in the region.
Mexico City, Mexico
Above: Rio de Janeiro city Below: Leme Beach
30
The NAFTA status boosts outsourcing in most of the tier-1 and tier-2 Mexican cities such as Mexico City and Monterrey
M Above: Mexico City Cathedral Below: Santa Fe business district
October 2008
exico City, the capital region of Mexico, is the most vital industrial, economic and cultural center in the country. In the top 50 cities’ list, this new entrant has been positioned at the 30th place, and has left many global, well-known counterparts behind — St. Petersburg (Russia) and Bucharest (Romania) to name a few. Even though Mexico City has been known as one of the top outsourcing destinations in Mexico, this is the first time that this city managed to get a place in our top 50 cities’ list. Today many U.S. and European companies outsource their IT-services requirements to Mexico City. Apart from being a delivery location for many of the global IT-services providers — such as Accenture, EDS, Softtek and TCS to name a few — the city also supports large contact centers and BPO markets. Proficiency in English and Spanish languages helps the country to cater to the large Hispanic community in the U.S. More than 70 percent of the Mexico City BPO market is concentrated in the Mexico City axis. At $340 to $360 per month, the salary of entry-level BPO employees in Mexico City is $20 to $40 higher than the BPO agents in Guadalajara and Monterrey while there is no variation in the salaries of entry-level techies in all the three cities — they earn $360 to $380 per month. Unlike Indian outsourcing cities there is no major difGS ference between the salaries of techies and BPO agents in Mexico City. www.globalservicesmedia.com
GlobalServices 31
cstory_Final.qxp
9/22/2008
31
3:29 PM
Page 32
The Global Services-Tholons Study
Jaipur, India
Being geographically closer (5 to 6 hrs drive) to Delhi NCR, Jaipur’s infrastructure is able to attract and retain global providers
W
ith the inauguration of the much-awaited IT Special Economic Zone (SEZ), Mahindra World City, in Aug. ’08, Jaipur has allured numerous IT and BPO companies. Many such companies including Infosys, Wipro and Connexions are already operating or intending to operate out of the SEZ. Infosys’ BPO center at the SEZ is the company’s second facility in the city with a seating capacity of 3,200 employees. Infosys’ first such center in Jaipur was built in 2006 with a seating capacity of 890 employees. Beyond the SEZ, the city has other BPOs like Spanco, and captives like Ericsson to name a few. GECIS (now GE) and Genpact were one of the earliest entrants into the city with the employee base of 1,200 and 1,000 people, respectively. An entry-level BPO agent earns from $140 to $160 per month, while an entry-level techie pockets no less than $200 per month. The city with a population of 6.5 million people (estimated in 2007) offers big cost-saving opportunities to the outsourcing industry. Jaipur’s 410 colleges and 15 universities including 25 engineering colleges and 27 business-management institutes churn out thousands of graduates per annum. Even though the standard of living in the city is not as great as many other Indian cities, the per month rental charges in Jaipur is $1 to $3 per square feet. Also Jaipur’s railway and airport are well connected with all major cities in India. GS
Above: Hawa Mahal Below: Carving at Amer Fort
Singapore City, Singapore
36
Not only does the city have local and skilled talent to pitch on but it also employs thousands of foreign white-collared workers
W
Above: Central Business District Below: C751B train at Eunos MRT Station
32 GlobalServices
ith tremendously increasing countrywide economic developments, there is hardly any difference left between Singapore and its capital region Singapore City. No doubt, it is now referred as the “city-state.” In 2007, the per capita GDP of Singapore was about $37,289, with a 7.7 percent annual growth rate and an annual inflation rate of 2.1 percent. Fourteen bilateral and multilateral trade agreements including USSFTA (the U.S.-Singapore Free Trade Agreement), EFTA (European Free Trade Association: Iceland, Liechtenstein, Norway, Switzerland), mark the city-state as one of the most business-friendly countries in Asia. Singapore, therefore, houses thousands of multinational corporations. The labor costs in Singapore are relatively higher than other Asian countries. However, they are lower than those in the U.S. A BPO agent in Singapore earns (from $1,400 to $2,000) seven times more than what an agent in India gets for the same job. Interestingly, techies earn almost double than BPO employees in Singapore. Even the real-estate costs are very high in the city. The per month rental charges are $10 to $11 per square feet. However, the city-state enjoys the benefit of having the strongest intellectual property protection in the entire region of Asia, according GS to The World Economic Forum. www.globalservicesmedia.com
October 2008
cstory_Final.qxp
9/22/2008
37
3:29 PM
Page 33
The Global Services-Tholons Study
Chengdu, China
An important outsourcing hub in China and home to global providers such as EDS, Wipro and Genpact to name a few
C
hengdu is the economic center of Southwestern China. The city is an important global IT outsourcing destination. Several IT companies such as EDS, IBM, HP, Neusoft, Dextrys (formerly known as DarwinSoft), Augmentum, Wipro, Genpact have their presence in the city. The city with a population of 7.8 million people has a large pool of highly skilled IT professionals. A large number of universities and research institutions in Chengdu churn out over 20,000 students per year. In addition, Chengdu’s labor cost is quite competitive, which is about two thirds the wages in coastal cities, and the employee turnover rate is below 10 percent, according to Invest Chengdu’s statistics. On an average, a mechanical engineer earns about $4,488.65 per year, while a software engineer gets $9,299 per annum. Also, Chengdu is an important R&D center in China. The city houses several SEZs including Chengdu Hign-tech Industrial Development Zone and Chengdu Economic and Technological Development Zone. Chengdu Information Association and Chengdu New and High Technology Industry Area have established an “Implementation Plan for Speeding up the Development of Chengdu Software Outsourcing.” Chengdu has a world-class infrastructure, and is well connected with the other metropolis such as Beijing and Shanghai. Chengdu Shuangliu International Airport is the sixth largest airport in mainland China. The city has one of China’s densest highGS way networks with 10 expressways so far.
Guadalajara, Mexico
Above: Jin RIver & Anshun Bridge Below: Temple in Chengdu
44
The city’s educational system makes it suitable for engineering services outsourcing
G Above: Puerta de Hierro Below: Mormon Temple
October 2008
uadalajara, Mexico’s Silicon Valley and the second largest city with a population of 1.7 million people, has attracted significant levels of foreign investment. The multinational enterprises that Guadalajara hosts have helped to transform the city into an excellent place to do business. The city’s IT industry in the city boomed after the inking of the North America Free Trade Agreement. Since then the foreign direct investments has been growing. However, the industry noticed a shakeout in 2001 to 2003 when most of the MNCs started shifting their shops toward “far” East. Guadalajara is the hotspot for the engineering-services industry because of its capability to churn out engineers from universities such as Universidad de Guadalajara and Universidad Panamericana, to name a few. Many educational institutions and the government are working together to groom up world-class techies. The engineering services in the city were earlier related to just the manufacturing segment but now it has grown to other areas such as design engineering. Guadalajara houses several IT outsourcing firms such as Perot Systems and TCS. The BPO sector is already flourishing in the city with key BPO providers such as Hispanic Services and TeleTech. An entry-level BPO executive can make $320 to $340 per month. In addition, Guadalajara is also a major national and international transportation and shipping hub. The city is also served by Guadalajara International Airport. GS www.globalservicesmedia.com
GlobalServices 33
cstory_Final.qxp
9/22/2008
45
3:29 PM
Page 34
The Global Services-Tholons Study
Mandaluyong City, The Philippines
Besides entering our list for the first time, Mandaluyong has recently bagged The World Bank’s business-friendly city status
I
n a small population of 295,733 people, the overall literacy rate in the City of Mandaluyong is pegged at 99 percent with exactly one percent belonging to the illiterate group, as per the Philippines’ National Statistics Office’s results. There are three major universities — Don Bosco Technical College, The Jose Rizal University, The Rizal Technological University — and 47 colleges in the city. Over 40,000 students graduate every year from these educational institutions. Most of the colleges offer short-term courses on computer and technical education. A techie can earn $320 to $340 per month during his initial professional journey. While Cebu city in the Philippines is the undisputable BPO hub, Mandaluyong City is gearing up to share the load. BPO players such as eTelecare are also expanding in the city. Last year, eTelecare completed a facility in Mandaluyong City — accommodating up to 3,000 employees. An entry-level BPO executive pockets around $280 to $300 per month. In 2007, new businesses in the city grew 21 percent from the year before. Interestingly, it takes only 21 days to register a property in the City of Mandaluyong. The per month rental charges in the city is between $2 and $4 per sqft. Mandaluyong City is considered to be the heart of Metropolitan Manila as it has three routes to link the two cities together. Mandaluyong City’s biggest asset GS is its easy road access – both within the city and to the adjacent cities.
Continued from page 27
Makatis. These are the ones that are not only capable enough, but are also gearing up fast to compete with such global “Silicon Valleys” for providing IT and BPO services. To make the location assessment further easier for the global buyers of outsourcing services, we have also identified established and emerging cities by various functions such as application development and management, business analytics, contact center (multilingual and English), engineering services, finance and accounting, HR, legal services, product development, R&D and testing. In addition, we have also identified the top eight global outsourcing locations. Methodology
To determine delivery and consumption trends for global outsourcing services in specific destinations, Tholons utilized similar surveys and interviews with tier-1 and tier-2 providers and service buyers. The data gathering methodologies were also applied to determine market and labor sizes as well as expansion strategies of tier-1 and tier-2 providers. In addition, governments, industry bodies and related stakeholders were also interviewed to provide both primary data and validation of analysis. 34 GlobalServices
Mandaluyong City skyline
We obtained historical stats from governments, global institutions and agencies, and economic-related data from monetary bodies. Publicly released data from government sources were also considered when using country-specific market data. Publicly available financial records such as quarterly and annual reports, industry bulletins and trade publications were used to verify market assumptions and analysis. A combination of comprehensive quantitative and qualitative analysis was considered in developing the rankings. The proprietary weighting and ranking system was developed and refined by senior Tholons consultants. Further, qualitative analysis was implemented to provide perspective to the quantitative results of the report. Tholons carefully considered numerous variables when providing final rankings, and considered the impact which nonnumerical data plays in the assessment of global outGS sourcing locations. Avinash Vashistha is the CEO of Tholons, a global advisory, investment and research firm. With additional inputs from the Tholons' team — Manuel Ravago, Skanda Jankiram, Paul Santos and Vinu Kartha — and Global Services' team — Keerthi Nair and Namita Goel
www.globalservicesmedia.com
October 2008
ad_1.qxp
9/19/2008
3:57 PM
Page 35
Frost & Sullivan 2nd Annual Smart IT Sourcing 2008 Mastering the Complexities of Global IT Outsourcing and IT Enabled BPO
December 7-10, 2008 www.frost.com/out Marriott Marco Island Resort, Golf Club & Spa, Marco Island, FL
Today’s successful business is about more than outsourcing – it’s about smart sourcing. This unique event from Frost & Sullivan covers the complex nature of global IT outsourcing and IT enabled BPO, so you will walk away with the knowledge to drive real business value to your organization.
Don’t miss this opportunity to:
Customize your agenda Network with an executive-level audience Benchmark against proven success strategies Enjoy nightly cocktail receptions and wine and dines Create true partnerships with your sourcing partners
You will also walk away with best practices and next practices and gain real world experience from a roster of contemporary thought leaders. Twelve interactive sessions enable you to actively engage in candid discussions with your peers and tailor the content to your specific needs.
P l e a s e u s e c o d e O U T G S 2 5 0 w h e n re g i s t e r i n g a t w w w. f ro s t . c o m / o u t Media Partners
Event Sponsors
The gateway to the global sourcing of IT and BPO services
Register now and receive $250 savings off the General Session Registration courtesy of Global Services Magazine.
Don’t miss this incredible event – Contact us today! 1.877.GO FROST (1.877.463.7678) or email: [email protected]
feature-SOA_Final.qxp
9/22/2008
11:08 AM
Page 36
Service-oriented
36 GlobalServices
www.globalservicesmedia.com
October 2008
feature-SOA_Final.qxp
9/22/2008
11:09 AM
Page 37
Tools & Technologies
Architecture Is Service-oriented Architecture (SOA) still a buzzword? Why would a company spend money to sponsor a so-called technical initiative by the IT team instead of financing some other business feature development by the team? Is it true that a lack of SOA in an enterprise with a complex IT ecosystem has a direct impact on the IT costs, and hence the bottom line, in the long run?
By Jayaprakash Nair, Delivery Manager, Aspire Systems
L
ET US TAKE A quick look at a few things commonly observed in the industry today. OBSERVATION 1: Companies make investments in various “best of breed” products for their Line-of-Business (LOB) functionalities. These are typically monolithic systems tightly coupled together using traditional Enterprise Application Integration (EAI) approaches (and proprietary technologies to glue them together), leading to a heterogeneous and brittle IT ecosystem. Any seasoned industry observer will identify this as an omnipresent scenario. OBSERVATION 2: The major software product companies had hitherto left gaps in their offerings, which were filled by smaller Independent Software Vendors (ISVs) with their niche offerings. (See Diagram 1.)
The following problems are likely to occur with this arrangement. Problem 1: In due course of time, the company may want to get the ISV’s product extended to replace part of the functionality of P2 that belongs to another provider, and the functionality that needs to be changed could be anywhere amidst the existing workflow provided by P2. So, there would be a need to build more interfaces between the products to ensure that the flow is seamless. (See Diagram 2.) This leads to an increasingly fragmented IT ecosystem. You can consider this akin to the continuous fragmentation that happens on the hard disk because of deletion of some files/folders and addition of new files/folders which do not fit the size of an existing gap. This increased fragmentation leads to an increase in the cross-references between the difDiagram 1
Gap in the eco-system: P1 P1 P1 P1 P1 P1
P2 P2 P2 P2 P2 P2 P2 P2 P2 P2 P2 P2
Your product fills the gap: P1 P1 P1 P1 P1 P1
* * * * * * * *
Integration point 1
P2 P2 P2 P2 P2 P2 P2 P2 P2 P2 P2 P2
Integration point 2 P1 Product 1
October 2008
www.globalservicesmedia.com
*
ISV’s Product
P2 Product 2
GlobalServices 37
feature-SOA_Final.qxp
9/22/2008
11:09 AM
Page 38
Tools & Technologies
ferent storage blocks on the hard disk, which is exactly what happens in a typical enterprise IT setup, leading to a spaghetti type of integration. Problem 2: The company may decide to replace product P1 with another product (say P3), by another provider. There’s a good likelihood that the company would need to approach the ISV to customize its product, or at least repair the integration point with the new product, in order to maintain the workflow/dataflow within the enterprise. OBSERVATION 3: The company might introduce some changes in its business processes/rules, which would lead to further breakages in the integration. OBSERVATION 4: In many cases, the trading partners of companies having business-to-business integration can change the interface points, thus breaking the integration. As you would be well aware, the above observations are, by no means, hypothetical, and such occurrences are expected to increase, while moving forward. Let’s see what can be done to alleviate some of the hurdles. The Solution — SOA
In the instances mentioned above, the existing IT ecosystem in an enterprise had potential breakage points. From a solution perspective, the firm will have two options:
components/products use the same language to communicate with each other, and it becomes easy to continuously realign or “re-integrate” them. This, in turn, leads to a very “amoebic” enterprise architecture, i.e. an architecture, which can continuously change shape, without any harm to its fundamental constitution. CUSTOMIZATION/ENHANCEMENT: A typical software application solves one or more business problems, and business problems are manifested in business processes. An application can be effective only if it has a direct relevance to the business processes followed by the company, and most of them are likely to change very frequently. There are two problems identified in traditional product implementations: Problem 1: Atomicity. The atomic level of a traditional application is normally a module, which is nothing but a set of closely knitted classes (here we assume that the application is developed in a disciplined object-oriented manner with the right composition of modules). Modules are typically significant in size, highly cohesive and put into production after different levels of rigorous testing. Now if there’s a change in any of the business processes contained within a module, it would mean that the module needs to be broken open, possibly gutted and reworked on. It would require multiple analyze-code-test loops for the module to Diagram 2
P1 P1 P1 P1 P1 P1
* * * *
Integration point 1
P2 P2 P2 P2 P2 P2
Integration point 2
* * * *
Integration point 3 P1 Product 1
l Either continue with the existing IT setup and keep on increasing the ever-so-brittle integration interfaces between the different products/applications, thus increasing the complexity of the integration/implementation of the IT ecosystem. l Or, convert the enterprise architecture into a SOA. From the options, the first one is not really a “solution” and just amounts to maintaining the status quo (or maybe worsening the situation), whereas the second option is a solution that the company can adopt. Service-orientation describes an architecture that uses loosely coupled services to support the requirements of business processes and users.
How SOA Can Reduce Costs
INTEGRATION: A successfully implemented SOA will reduce the coupling between the different components in the system. This is possible because of the standards based (typically XML) interfaces that SOA adopts. This manner of using services for integrating the disparate systems is called Service Oriented Integration (SOI). This approach is totally different from the proprietary interfaces used by traditional EAI. What happens in an SOA scenario is that the different 38 GlobalServices
P2 P2 P2 P2 P2 P2
Integration point 4
*
ISV’s Product
P2 Product 2
be put back in production. And then, there’s always the huge risk of regression errors (and subsequent negative ripple effects) creeping into the module. Problem 2: Non-segregation of variable and fixed business processes. Every business has a set of core business processes, which are relatively fixed in nature, i.e. they hardly change over a period of time. Then there are business processes that change very frequently. Now in a typical traditional application, modules are structured around features, and as such, contain a mix of business processes, which are fixed, and the ones that are not. Thus, every time a change is required in a business process, a module needs to be dismantled and reworked on. Both the above problems can be solved, if the application adapts to an SOA. SOA requires that the code implementation of stable business processes be segregated from those, which change very frequently. Also, it requires that the atomic unit of cohesiveness be the “service” and not the module. This makes the whole application easily customizable, thus reducing customization/enhancement costs. To sum it up, as the complexity of the IT ecosystem in a company increases, (primarily because of heterogeneity) the
www.globalservicesmedia.com
October 2008
feature-SOA_Final.qxp
9/22/2008
11:09 AM
Page 39
Tools & Technologies
revenue savings obtained from SOA also increases, provided SOA is implemented in a disciplined manner with proper governance in place. Also it has been observed that the IT ecosystems are indeed getting more and more complex. Now let’s take a look at the first steps a company can take to implement SOA.
ment. Also, you need to be aware which provider you will hold responsible in case of any issues. In short, you need to find a provider who has the ability to provide you with a “cost-effective” and “pragmatic turn-key” solution without disrupting any of your existing business activities.
Call for Action
Different Approaches
As a first step, you will need to talk to SOA consultants/providers and identify those with the required capabilities. Here are some of the things that you could keep in mind for narrowing down your list of prospective providers: l Check if the provider has any standing in the IT-services space, since that will be crucial for your provider to understand your stated as well as unstated challenges, and work out solutions to alleviate those. l Does the provider have consulting capabilities? Can they identify the cross-section within your enterprise where SOA can be implemented end-to-end with maximum impact? Note that at this stage, your provider should be focusing mainly on business process, and not too much on the technology. l Check if that provider has a solid implementation team, because once the candidate cross-section for (converting to) SOA has been identified, and the architecture is in place, the next step would be to actually implement the solution using services. Here, you need to ensure that the provider has a proven track record in the requisite technologies. l Does the provider have proven capabilities in the appropriate softwaredevelopment methodologies (engineering as well as project management), which are apt for SOA implementation? For instance, using a waterfall model for this would be akin to fitting a round keg in a square hole. SOA and waterfall normally don’t work well together. What you need is a provider who has sufficient expertise in Agile (or at least some other Iterative) methodologies. l Any code that is developed needs to be tested. Now “SOA Testing” is a different beast. So check if your provider has that expertise. l Check if your provider has a quality-management system in place to ensure consistently good quality. l Needless to say, check if your provider will do all these at a low cost. One option is to go for an amalgamation of different providers to meet the above goals, but you then need to be prepared to shell out the extra cost involved in project management, communication management and risk manage-
There are three approaches that companies typically consider, for SOA adoption: TOP-DOWN APPROACH: Here, the company builds an SOA framework suitable for their requirements (in terms of governance), creates services which cater to specific business processes, and then plugs these new services into the framework. The cons with this approach are the same as what has been seen with the waterfall model of software development. l By the time the framework is built, some of the assumptions/policies of the company’s business processes would have changed, and the framework would need to be reworked. l It takes a lot of time to actually see any tangible result in the “SOAfication” of the enterprise. BOTTOM-UP APPROACH: In this approach, the company starts at the leaf level, i.e. builds services, and then tries to stitch them together and arrive at a framework. With this approach, the risk is that, being focused on the trees, it is easy to lose sight of the forest. So, instead of an SOA, one could very well end up with Just a Bunch Of Web Services (JBOWS), without a uniform governance framework, which is so critical for any SOA implementation to be successful. “START IN THE MIDDLE AND SCALE OUT” APPROACH: A complete overhauling of your architecture may not be feasible. But will the evergreen Pareto Rule be applicable to your product? That is, will converting 20 percent of your product into SOA reduce 80 percent of your integration pains and, if yes, will the ROI justify the 20 percent investment? Here, SOA is implemented in a cross-section of the enterprise, i.e. in a complete end-to-end LOB chain. A good cross-section of business-workflow is identified as a candidate, the required governance framework is built only for that section, and the corresponding services are designed, built, tested and deployed. This approach overcomes most of the cons of the above two approaches. Normally, the last option is the best — start small, identify your main bottlenecks, hit at those places with well-govGS erned services, see the results, and then extrapolate.
AS THE COMPLEXITY OF THE IT ECOSYSTEM INCREASES, THE REVENUE SAVINGS OBTAINED FROM SOA ALSO INCREASES, PROVIDED SOA IS IMPLEMENTED IN A DISCIPLINED MANNER WITH PROPER GOVERNANCE IN PLACE
October 2008
www.globalservicesmedia.com
GlobalServices 39
feature-mng disputes_final.qxp
9/22/2008
11:39 AM
Page 40
Managing
DISPUTES Who suffers the most in case of a dispute — customer or service provider? Whose fault is it anyway? Who’s holding the ball at the time of deal termination or disagreements? Is it possible to carry on an outsourcing relationship after a nasty scrap? Here’s a reality check
40 GlobalServices
www.globalservicesmedia.com
October 2008
feature-mng disputes_final.qxp
9/22/2008
11:39 AM
Page 41
Strategies
By Namita Goel
S
TARBUCKS TERMINATES HRO Contract with Convergys; Liverpool Victoria Replaces EDS with Atos Origin; Deutsche Post Kills Huge HP Outsourcing Deal. These are a few headlines about outsourcing deal terminations. The reasons were the same as they were a decade ago — cost overruns, governance failure and delivery failure. In 2005, a research report released by Deloitte Consulting clearly stated that the year 2004 saw a significant rise in distrust in outsourcing relationships and more customers opted for deal terminations — 44 percent chose deal termination over litigation, re-negotiation and other remedies that involved mutual understanding. The trend has improved a bit as both customers and service providers have matured. The recent report released by Deloitte, “Why Settle for Less,” reveals that 70 percent of the respondents — in all 300 global players — reported being satisfied with the outsourcing setup, yet a disturbing 39 percent revealed to have terminated at least one contract and moved to other service providers. Europe too is getting matured in handling outsourcing relationships. While evaluating the U.K. IT-services deals, Pierre Audoin Consultants, the U.K.-based consultancy, revealed that just 13 percent of the U.K.-based companies that updated their outsourcing deals during the first seven months of 2008 terminated the initial deal to move on to a new provider. There have been numerous articles that compare outsourcing relationships with marriage, and to extend the analogy, outsourcing contracts have started resembling the infamous pre-nups. The trend is that service providers and customers now more strongly believe in deciding beforehand about the exit strategies and the payouts, even before signing the deal. Definitely, the cynicism is infectious and what happens in a marriage is making way into business too. October 2008
Disputes to Disagreements
Legally, the term dispute has a strong connotation attached to it. “They are never disputes, they are disagreements. I have had customers wanting to terminate the deal due to change in the business needs and the contract did not provide for any regulations in such a situation. Sometimes the disagreements arise due to mismanagement of change management,” said William Bierce, Partner, Bierce & Kenerson, a law firm. Change management and governance failure are reported to be the top reasons for break up between the provider and customer. Problems relating to delivery failure or cost overruns can still be sorted out through discussions, where as the case of governance and change management that challenges the very essence of the contract takes a hit. “In some cases the initial contract is scrapped and a brand new contract is drafted. While in the other the scope of the contract, SLAs and cost changes are incorporated,” said Stephen Nordahl, Partner, Global Technology Transactions Group, Milbank, Tweed, Hadley & McCloy. “Here at Milbank, we have two sorts of disputes, small-d-disputes and capital-D-disputes. If it is the latter, then we know it’s been on for a while and the two parties failed to reach an agreement, so they seek the help of a third party; whereas in the former case they probably might need to incorporate some changes in the contract due to the changing business needs,” added Nordahl. The study by Deloitte also shows that contract termination is not the first thought that crosses the mind of the customer and provider. “Sixty-one percent of the respondents reported that in case of issues during the first year of the contract, the matters were immediately escalated to senior management, with 15 percent reporting five or more such escalations. Fifty-three percent continued to have to escalate in the second year. Clearly, outsourcing is working financially for most of the respondents, but their relationships
www.globalservicesmedia.com
GlobalServices 41
feature-mng disputes_final.qxp
9/22/2008
11:40 AM
Page 42
Strategies
with their providers have not been without problems, with escalations being a common practice and terminations and cancellations viewed as real possibilities,” states the study. Initiation of Disagreement and Termination
The customer and the service provider could both initiate a disagreement and seek legal recourse, but often it is the customer who usually does so. This trend could change. “In the past, customers had more powers, and were usually the ones to find faults and raise arguments. However, the last few years have seen a change in the trend and a lot of providers have also come up with issues of non-cooperation or lack of sufficient information to deliver the services adequately,” said Bierce of Bierce & Kenerson. It is a general belief that the power of contract termination lies in the hands of the customer. The fact is to some extent true, but lately the trend is that even providers have voiced out their disagreement with the customer. It is more of a reputation issue for the service provider whenever a contract terminates. So the providers prefer re-negotiation to termination or litigation. “I would say it is mutual. Whenever there is a situation of discomfort in a contract, both of them — customer as well as service provider — feel it and sometimes say it together, while most of the times one of them have to initiate it. So it is the matter of timing,” added Nordahl of Milbank. “Being a provider, we have had also raised disagreements at times. But termination is usually not our opted choice. And the situation for termination does not come in to discussion until the matter of disagreement reaches out to the senior management on both the sides. From the service providers point of view, disagreements are normal as they sometimes help in improving the relationship but termination just leaves a bad taste for both the provider and the customer,” said Kirill Degtiarenko, BDC Executive Director, IBA Group, a service provider. Retardation of the Deal
Outsourcing deals on an average have a term of five to seven years and usually the disagreements come during the
OPINIONS ON
“
"Termination-assistance clauses are usually drafted to help the customer stay in control on termination or expiration. The customer will want a choice of replacing the incumbent service provider with another service provider, or taking some or all of the outsourced services in-house. There could be a reconfiguration of the in-scope services, with partial outsourcing and partial insourcing after the termination or expiration. Termination-assistance clauses set forth how the customer or its substitute provider will be able to receive something useful. Such clauses define how the service provider will transfer the ‘platform’ on which the outsourced services are performed. If the platform involves third-party technology, there are licensing issues that need to be resolved. In general, since each technology platform and the outsourced business process is somewhat unique, it's advisable to plan and occasionally review the plan for transferring the platform, not just the data. Without such a clause, there could be anarchy in terms of a complex process that is essential to
first two years of the contract due to work transition. “If the deal can go along these initial years with probably minor disagreements that can be amended, then the deal goes on till the end,” explained Bierce. Nordahl agreeed, “Nothing is certain in a contractual cycle. However, the chances of the deal termination increases with the increase in the degree of unpleasantness in the initial years. Else, the deal rolls peacefully with minor troubled waters here and there.”
THE FEW MAJOR DEALS TERMINATED FROM SEPT. ’07 TO SEPT. ’08 Deal Customer-Provider
Actual deal term vs. Signed deal term* Reason for termination
l Triad-Perot
2 vs. 10
Lack of cost effectiveness and delivery failure
l AA-IBM
2 vs. 5
AA merged with Saga
l Starbucks-Convergys
Not defined
Change in Starbucks business needs
l Liverpool
4 vs. 13
Moves the process in-house
l State
Victoria-EDS
of Texas-Accenture 3 vs. 5
l Deutsche
Post-HP
Service delivery failure
Six months vs. 7
Lack of cost advantage. *IN YEARS; SOURCE: GLOBAL SERVICES
42 GlobalServices
www.globalservicesmedia.com
October 2008
feature-mng disputes_final.qxp
9/22/2008
11:40 AM
Page 43
Strategies
TERMINATION-ASSISTANCE CLAUSES
William Bierce,
Partner, Bierce and Kenerson “These provisions typically cover topics such as, wind-down of services, provision of transition-out services (i.e. termination-assistance services), transfer of IP, transfer of hardware, transfer of third-party agreements, right to hire project staff to name a few. As these exit provisions or termination-assistance provisions are highly negotiated, it is not clear that they "favor" one party versus the other. And also based on my experience, I would say no to the fact that they are more in favor of
The painful time is when the deal gets messed up amidst all these disagreements. The staff and the service delivery bear the brunt of it. Usually it takes six to nine months for the disagreements to settle down with the help of lawyers, but in the worst case scenario, it can also span over a year. Life After Resolution or Termination
It definitely leaves a bad taste in the mouths of both the customer and provider. If there is a resolution, then the continuing relationship between the two parties is a bit strained, at least till both are able to prove themselves that they won’t repeat the actions that lead to displeasure. The terms of the contract become more legally stringent and alternate compensatory options are created in favor of both the parties in case of any similar occurrence in the future. “It can be difficult, even under the best of circumstances where the dispute is settled in a manner both sides deem as fair, for the parties to resume the course of the deal because major issues tend to ‘percolate up’ for a October 2008
providers. The negotiations typically permit the customer to get what it needs to continue on with its business. However, providers usually are tougher on issues related to the disposition of their proprietary IP to the customer and hiring of their employees by the customer.” Stephen Nordahl,
Partner, Milbank, Tweed, Hadley & McCloy “Outsourcing contracts normally include termination for cause and termination for convenience provisions. These clauses normally favor the customer and are intended to protect the customer and its dependence on the provider from the risk of early termination, while preserving termination as an option for the customer, should the deal prove unfavorable. Ironically, even though customers may have the option to terminate for convenience, exercising such option tends to be difficult given the dependence that customers have on service delivery.”
“
business continuity. Indeed, termination-assistance clauses are among the most important provisions since they give comfort for a relatively smooth transition upon termination or expiration. The key to drafting such clauses is to give the customer reasonable control over the processes and assure the provider's cooperation and a plan for the continuity of operations. Service providers will want to negotiate economic issues, including costs, payment terms, scheduling and roles."
Michael S. Mensik
Partner, Baker & McKenzie
while and this can generate frustration and ill-will between the parties. Sometimes, it can be useful to replace those affected by a particularly contentious re-negotiation by new people so that the relationship can start fresh,” said Michael S. Mensik, Partner, Baker & McKenzie. If there is a termination, then the contract goes ahead with the termination-assistance clauses. Life is more predictable in this case as the conditions are pre-decided. However, there is always room for negotiations for the reason that while designing the contract none of the parties could predict the exact circumstances of the termination. But apart from the customary compensation clauses in the contract, the deal termination carries a whole lot of intangible effects on both the parties that lower morale and heighten mistrust. It is a sure hit on the reputation of both, however, the impact is more for the service provider. That’s why some of the deal terminations are either not made public or are followed by explanaGS tions to each other’s case.
www.globalservicesmedia.com
GlobalServices 43
experts lead-China’s challenges_Final.qxp
9/22/2008
11:41 AM
Page 44
xperts E
China’s Challenges to Develop a Global BPO Capability Known as a global engineering-services outsourcing destination, China also has potential to develop a compelling Business Process Outsourcing (BPO) industry. However, there are many obstacles the country needs to combat in order to develop this beyond an industry that is merely serving a sub-region By Phil Fersht
I
n our current economic climate, enterprises are vigorously looking at ways to retain their core talent and processes while containing costs on routine, tactical functions, for example administrative finance, HR, customer management and procurement processes. The industry for Business Process Outsourcing (BPO) — the transfer of management responsibility of these routine business processes over to a thirdparty — has been enjoying steady growth over the last decade and we anticipate this to accelerate with current economic conditions. BPO is a logical direction for many enterprises to take, where enterprises can drive cost-efficiencies and improved process-rigor through service provider offerings that appropriate low-cost offshore talent and standardized processes underpinned by the latest technology tools and platforms. Is China, with its unprecedented base on cheap labor, low-cost product manufacturing, de-regulated banking sector, booming domestic economy and developing infrastructure, poised to challenge India, the Philippines, Central and Eastern Europe and Latin America, 44 GlobalServices
as a powerful delivery center for global BPO services? We believe it will perform well in the medium term delivering knowledge-based services to Chinese speaking businesses — and some Japanese and Korean — but will struggle to break into the global market to deliver services to Western enterprises for the following reasons: l China is in a time-crunch. China is already touting its tier-2 cities, such as Xi’an and Chengdu, as its mainstays of Beijing and Shanghai are already suffering from chronic job attrition (30 percent) and wage inflation. India, and other offshore locales such as the Philippines and Eastern Europe, have enjoyed a stable period of several years to develop their BPO infrastructures before these issues crept in. China is moving into BPO with little breathing space to establish its infrastructure and build critical mass. It is easier for BPO firms to combat attrition and wage inflation once there is critical mass of staff and infrastructure available. l Wages and attrition for knowledge workers in China are already high. Wages are not much lower than in India, which has more experience in www.globalservicesmedia.com
BPO and much better English-language skills. Moreover, we are seeing attrition rates as high as 30 percent in the major cities of Beijing, Guangzhou and Shanghai. l Providers wary of the “India experience” all over again. With all the initial teething problems firms ensured sending out BPO services to India, why would they want to go through all this again with China? Some outsourcing giants such as Infosys and TCS have only established a token foothold in the region — in the hundreds of employees as opposed to the multiple thousands in India, this seems to indicate that these firms are still hedging their bets on China. Only IBM has surpassed 1000 employees in China for BPO services. l Latin America is offering a compelling alternative for delivering BPO services to U.S. businesses. We are already seeing a strong competition for BPO services from the Latin American countries for the following reasons: n Wage rates are comparable n Little need to relocate staff into the U.S. n No need for bridge teams" which spend their time overlapping developOctober 2008
experts lead-China’s challenges_Final.qxp
ment work with both onshore and offshore teams n Staff travel costs are far lower for nearshore n English competency is strong n Staff attrition is lower in LatAm countries than in India or China. The strong competency for Latin American workers to deliver both English and Hispanic voice-based services and their ability to administer routine business services makes the region an attractive location for services providers to develop BPO service delivery centers. For example, enterprises can now source administrative accounting tasks for comparable rates in Mexico, than they can in China or India. l China’s core competency is engineering. China is more of a manufacturing/industrial powerhouse, and we do view it being so adept at performing administrative business services. R&D services are in the Chinese DNA, rather than BPO services, which is the direction we see China taking, for example industrial design work, contract manufacturing, biotech services to name a few. l Movement away from mere labor arbitrage. BPO services are increasingly moving away from the “body shopping” game, and more towards the provision of value-added business services and innovative offerings. Moreover, most of the offshore BPO providers increasingly prefer to price their services by transactions, for example, invoices produced per day, or reports per month, as opposed to cost savings per employee salary. Pricing services by employees provided as opposed to services delivered expose
October 2008
9/22/2008
11:42 AM
Page 45
the service provider to increase its wage and currency appreciation, which is threatening to erode the offshore service models of today’s BPO providers. With China’s prime attraction for BPO services being low-cost workers, moving work over here could be a regressive step for many enterprises, with the current wage appreciation and employee attrition dynamics. Having said that, experienced outsourcing providers delivering China-based BPO services can claim to have learned from past mistakes and seek to rectify these. l China’s English-competency is a major minus for BPO. Whereby Singapore and Hong Kong adopted English as their mother tongue many years ago, China is still a good decade away from being able to boast good English-speaking competency. Beyond the Chinesespeaking languages, and some surrounding Asian languages such as Japanese and Taiwanese, it is difficult to see China becoming more than a local hub for its domestic economy and some of the Asian-speaking countries. To run truly pan Asia-Pacific services, not having a strong English-speaking competency is a major issue with BPO. When running the vast majority of BPO services, there needs to be elements of close interaction between the outsourcer, or offshore worker, and the mother company outsourcing the services. l China’s legal system’s policies and enforcement of data privacy and patent protection is extremely poor. BPO services rely on sensitive employee, customer and financial data being sent to remote locations and adhering to a mul-
www.globalservicesmedia.com
titude of industry regulations, data privacy and compliance standards. l China’s “Great Firewall” could inhibit its knowledge services industry. Just last month, there were 868 arrests made of people providing unhealthy content over the Internet. Google reports that the most searched for words in China are related to “money” and “technology,” which indicates that this unhealthy content probably wasn’t all pornography. People talk a lot about how “China will be changed more by the Internet than the Internet will change China,” but if the Chinese government manages to keep most Western sites from being accessed, and persists with stepping up attempts to block this unhealthy content, will there surely be a limit to the level with which China can change? If the Chinese middle-classes are continually blocked from integrating their online culture with the rest of the world, won’t this impact their ability to assimilate, understand Western business culture and deliver knowledge services for customers outside of the Great Firewall? The constant attempts by the government to keep China sectioned off from the rest of the world over the Web could substantially hold back the country from delivering knowledge-based business services for Western companies. GS Phil is Research Director, Global Services and Outsourcing, for leading industry analyst AMR Research, Inc. He also authors the popular blog “Horses for Sources” which can be accessed at http://www.fersht.typepad.com
GlobalServices 45
experts_Matt smith_Final.qxp
9/22/2008
3:03 PM
Page 46
xperts Sales Strategies to Succeed in a Tough Economy
By Matt Smith, VP and co-founder, 3forward
The basics of selling and account management do not change in a tough economy. Regardless of the level of business economic conditions, the selling teams in service provider companies only need to make some tactical adjustments to reach their revenue goals
T
he U.S. Slowdown: Survive & Thrive reads one headline, while Grim Outlook for IT Spending reads the next. While Outsourcing Takes a Hit says a Wall Street Journal blog, the same day CIO News posts TPI’s report of outsourcing’s best two quarters in 10 years. Although the headlines clearly disagree on the impact a slower economy has on outsourcing sales, there remains little argument that the U.S. economy and many others worldwide continue showing weakness. How is it that, with economic conditions the same for everyone, there are such varying results across the provider industry? It is, at least, partly because successful firms are making better tactical adjustments to their selling and marketing strategies to accommodate for the economic changes. So what did they change and where did they start?
46 GlobalServices
REVISITING SALES AND MARKETING BASICS Regardless of the level of business economic conditions, outsourcing sales success begins with an external audit of customer markets, including needs, trends, competition and product alternatives. At the same time, an internal audit examines organizational capabilities, available resources, financial requirements, experience and offerings. Strategic marketing plans are then constructed, including differentiation approaches and promotion, pricing, and channel decisions. Good times or tough, all these elements work together to determine sales success for the outsourcing provider.
THE IMPACT OF SLOW ECONOMIES It is a reality that slow economies make it harder for IT Outsourcing (ITO) and Business Process Outsourc-
www.globalservicesmedia.com
ing (BPO) firms to achieve the desired sales results. A few of the familiar reasons illustrate why: ● Many sectors spend less on IT services in uncertain times and some stop spending entirely. ● Competitors without plans for economic down-cycles often make desperate pricing decisions or agree to unrealistic contract terms that only make matters worse. ● Outsourcing decisions take longer because more people share in the review process when cash is tight. At any hint of risk, the safe answer seems to be to delay the purchase. Challenges like these require different sales tactics and the following are five of the best options to consider. Depending on the outsourcer’s vertical expertise some may apply more than others, but the concepts can apply to most ITO and BPO markets.
October 2008
experts_Matt smith_Final.qxp
9/22/2008
11:43 AM
Page 47
Intensify focus on existing accounts. Even in healthy economies, IT decision-makers generally find their existing solution providers less risky than unknown providers. FIVE TACTICAL ADJUSTMENTS FOR TOUGH ECONOMIC CONDITIONS Some sectors thrive in bad economic times — like outsourcing. Throughout 2008, study after study from firms such as TPI, Everest, Gartner and others have shown an acceleration of outsourcing activities as companies search for more cost-effective ways to continue delivering IT services and business processes. Segments under heavy cost pressure like banking, manufacturing and retail are particularly receptive to outsourcing solutions that can demonstrate savings. Other segments, which excel in downturns, are also great industries to target — perhaps with a value proposition emphasizing the greater capabilities outsourcing can enable. Fox Business.com recently highlighted Five Sectors That Can Survive a Recession and they include “green” providers, financial services, alternative medicine, on-line advertising and engineering. Companies in these industries should be high on the target list of any outsourcer with solutions that can help them maximize their success.
October 2008
Intensify focus on existing accounts. Even in healthy economies, IT decision makers generally find their existing solution providers less risky than unknown providers. Two proven approaches to increasing outsourcing sales in existing accounts are portfolio expansion — selling solutions that are already in your portfolio but not yet being utilized by the target — and incorporating partnerdelivered solutions for even broader capabilities. The latter can also be a worthy defensive strategy to keep competitors from gaining access. In either case, the sales cycle will be shorter and less costly than trying to win a new customer and the revenue ramp up will also be faster. An excellent example of this strategy is highlighted in Cognizant’s 2007 annual report titled Management’s Discussion and Analysis where they identify account expansion as a key driver to revenue growth in 2007: “Expansion of our service offerings enabled us to cross-sell new services to our customers and meet the rapidly growing demand for complex large-scale outsourcing solutions.” “Increased penetration at existing cus-
www.globalservicesmedia.com
tomers, including strategic customers. Specifically, 96.2% of our 2007 revenues were derived from customers who had been using our services at the end of 2006.” Consider indirect sales channels. For outsourcing companies trying to penetrate the U.S. mid-size and small business market, an indirect sales strategy through the ValueAdded Reseller (VAR) and System Integrators (SI) channel is often the only viable approach because of the overwhelming number of small and medium business prospects. Many VAR’s and SI’s focus on a particular geographic market or vertical, and have extremely high credibility with those customers. Selling through Original Equipment Manufacturers (OEMs), other tech firms and even other outsourcers is another very strong indirect sales market for many niche ITO and BPO outsourcers. These larger companies are a great way to penetrate the top corporations, the challenging U.S. midmarket and even small business. Fine tune your value proposition. Spend time analyzing and refining how you explain the benefits your products and solutions provide cus-
GlobalServices 47
experts_Matt smith_Final.qxp
9/22/2008
tomers. Marketers are taught to ask the question, “So what?” Do you take steps out of a process? Add features? Provide capabilities that did not exist previously? Those are great, but “so what!” A strong value proposition takes these statements at least one more level and makes the outsourcing benefit tangibly evident to the customer. In strong or weak economic times, customers are looking for the same benefits from outsourcing: Increased revenues, reduced costs, improved market share, gain in competitive advantages and delivery of improved service. Outsourcing can definitely deliver these results, but it is each company’s unique value proposition that determines their opportunity to make the sale. Consider outsourcing certain sales activities. Companies, which outsource certain sales or marketing activities do so for the same reasons many other functions are outsourced — cost reduction, acceleration of results, and the benefits of performance-based agreements. Circumstances when sales outsourcing can make sense include: ● Entering new markets, geographies or customer segments ● Creating or exploring indirect sales channels ● Mentoring new sales leaders and business development teams ● Supplementing existing sales, business development or solution teams. Under the right circumstances, outsourcing sales or market development is a very efficient, productive approach to quickly develop new sales
48 GlobalServices
11:43 AM
Page 48
Outsourcing can definitely improve revenues, service delivery and market share, but it is each company’s unique value proposition that determines their opportunity to make the sale. opportunities and may be an option for some outsourcers to explore.
PUTTING IT ALL TOGETHER WITH TWO CASE STUDIES A U.S.-based provider of technology support services has found great success with their indirect sales strategy. In addition to selling directly to large corporate accounts they also market their services through three indirect channels — OEMs, end-to-end IT outsourcers and resellers. These indirect channels allow the provider to reach customer markets that would be too costly to sell to otherwise, including consumer, small business and mid-market. Indirect sales have now grown to represent nearly half of company’s total revenues. In early 2008 a mid-sized ITO anticipated that the slowing U.S. economy would create additional growth opportunities in outsourcing services. Their market research suggested they
www.globalservicesmedia.com
focus on two particular segments, banking and financial services, and energy and utilities. To keep the marketing message simple, they highlighted just two solutions — remote infrastructure management and customer service desk. These two services could be sold as stand-alone solutions and therefore had the potential to close faster than a more complex endto-end program. Lastly, to keep their existing sales organization focused on expanding sales with their existing accounts, they outsourced the market development and qualification process to an outside sales specialist. The program is now generating several qualified prospects each month.
LASTLY, DON'T PANIC — FOLLOW PLAN!
A
If tough economic conditions are forcing your company to consider new selling models, first analyze your existing approaches and reconfirm your underlying strategies. Tactical course corrections as market or economic conditions change are exactly what effective outsourcing sales organizations are always doing. Don’t panic when adjustments are required. Instead, consider the many options available and look to those companies delivering the best results as models for success. It is a great time to “survive and thrive!” GS Matt Smith is the Executive VP and Co-founder of 3forward, a Dallas, Texas-based company specializing in sales, marketing and alliances for outsourcing companies in India and the U.S.
October 2008
ad_strip_1.qxp
7/15/2008
4:08 PM
Page 20
Handshakes, Eyeballs Readers & Viewers Empowering the Knowledge Nation
expert_Optimizers_Final.qxp
9/19/2008
11:50 AM
Page 50
xperts
By Allan Schweyer and Tony Marzulli
Placing Talent at the Center of Integrated Talent Management For effective Talent Management (TM), integrated TM solution platform is required. An “employeecentric” mindset too is necessary; one that makes talent a partner in the lifecycle. But is that followed in organizations?
W
hen employees are at the center of the talent-management lifecycle, they are better able to understand what it takes to be considered “top talent” and to be a part of the leadership succession pool. TM is the end-to-end and integrated process of planning, recruiting, developing, managing and compensating employees throughout the organization. An integrative and talent-centric “mindset” and initiatives led by a senior executive with overall responsibility for talent is critical. Much has been written about the benefits of integrated TM. What has been less discussed and researched is the employee’s role in integrated TM — what can and should employees participate in for their benefit and the benefit of the organization? In this regard, Human Capital Institute, with Workscape, conducted a survey of its membership to identify current market perceptions and emerging needs surrounding the integration of benefits and TM solutions into a single, “employee-centric” solution offered on an integrated platform.
INTEGRATED TM Skilled human capital is the most important element in running a successful business. TM touches a wide range of Human-capital Management (HCM) disciplines such as perfor50 GlobalServices
mance management, workforce planning, skills management, succession planning, recruiting, and resource scheduling. In order to garner the greatest competitive advantage from the organization’s resources, an organization needs to bring these processes into an integrated whole. Six areas stand out as key elements within this framework: l Competency and skills management: These pieces of the workforceplanning puzzle help organizations identify the critical talents essential for each role within the company. l Recruitment: The first step in hiring the right talent is being able to accurately evaluate candidates to match their skills to the requirements of current openings and future business goals. l Learning management: A learning management system helps determine skills gaps in key positions and provides a way to bring workers up to necessary levels. l Performance management: For ongoing auditing and monitoring of talent productivity, this important area compares and connects employee performance results to organizational objectives. l Compensation: Proper rewards, including base and incentive pay and equities, help HR staff and line managers recognize achievements and push employees to strive for higher levels of effectiveness. www.globalservicesmedia.com
l Career and succession planning: This area provides a window into what's possible — the new roles and responsibilities that represent growth and advancement for each worker.
EMPLOYEE-CENTRIC TM Employee involvement, through a formal referral program is, inarguably, the best method of recruiting by every meaningful measure (cost per hire, quality of hire, time to performance and length of retention). Most organizations know this and do it well. Two areas that are less developed in organizations (in terms of employee involvement) are development and succession planning. Where employees are at the center of the talent management lifecycle, they are better able to understand what it takes to be considered “top talent” and to be a part of the leadership succession pool. Career pathing, whether leading to leadership or not, is too often nonexistent in organizations. Our research found that where employees are given more involvement in charting their own paths, including paths to leadership, the system runs more fluidly and less expensively; that way talent is GS likely to stay longer. Allen is President and Executive Director, Human Capital Institute. Tony is Chief Marketing Officer for Workscape. October 2008
Partner:
Remote Infrastructure Management
MICROSITE Articles
News
Experts’ Views
Case Studies
Resources
FEATURED ARTICLES
Contact Us
Register
EXPERTS’ VIEWS
CASE STUDIES FEATURED NEWS
http://rim.globalservicesmedia.com
ABOUT PARTNER
Experience IT. Now!
RNI No.DELENG/2006/17056 Posting Date: 29&30 of advance month. Posted at MBC/1B.
DPR No.DL(S) 01/3284/2007-2009
Related Documents
Global Services Oct 2008
November 2019 11
Global Services Sep2008
October 2019 16
Global Directory Services
November 2019 21
Weathering Downturn - Global Services
May 2020 5
Sutherland Global Services
November 2019 15