Tie Seminar - Slides

Doing Business in India Series Emerging Trends and Critical Issues to Consider When Outsourcing to India Douglas Long, Tata Consultancy Services Siva Ganapathi, Aditya Birla Minacs Gabe Takach, Torys LLP Daniel Logan, Torys LLP Friday, January 23, 2009 © 2009 Torys LLP. All rights reserved.

Canadian Outsourcing Trends Douglas Long – Marketing Director, Canada

March 20, 2009

Canadian approach vs rest of the world • US (and most of Europe’s) outsourcing journey has been application development  IT maintenance  infrastructure and IT-enabled BPO • Canadian experience began with hosted infrastrucutre and progressed through wholesale ITO to app dev and maintenance

March 20, 2009

3

Monolithic vs disaggregated • First-generation contracts tended to be large and long-lived • Now seeing move away from single-sourcing • Greater emphasis on best-in-class providers • Potentially more complex governance issues for multisourced and cosourced outsourcing agreements

March 20, 2009

4

Canadian delivery, offshore or global sourcing • Canada’s homegrown outsourcers and divisions of infrastructure players – Telus, Bell, CGI

• US-based global majors with Canadian presence – IBM, HP (HP/EDS), CSC, KPMG/PwC/Deloitte etc

• Consulting businesses of software vendors – Oracle, SAP, Microsoft, IBM

• Global players headquartered outside US – Tata, Infosys, Wipro; Accenture; BT/Syntegra; Siemens; etc Many implications for global delivery in terms of governance, accountability, data protection/security etc March 20, 2009

5

Increasing maturity in types of services provided • Application development & maintenance – Systems development and integration – Y2k, legacy management, platform migration/re-engineering – Move from T&M to turnkey/fixed price commercial models

• Business Process Outsourcing – – – –

More than voice processing (customer interaction) Rise of “ITES” – IT-enabled services – for platform-based BPO Horizontal BPO: F&A, HR, procurement Vertical-specific: LPO (paralegal), insurance (policy origination, claims processing), transportation (revenue accounting, loyalty scheme administration), banking (commercial credit risk analysis), telecoms & utilties (smart meter management, bill-to-pay cycle)

March 20, 2009

6

Increasing maturity in types of services provided • Infrastructure services remote capabilities – the art of the possible – Break-fix servicing – Remote monitoring – Datacentre provision – Optimisation and virtualisation – Full-service infrastructure management

March 20, 2009

7

Thank you [email protected] 416 673 1168

March 20, 2009

Outsourcing Trends

Breakfast Seminar: Torys LLP TiE Toronto Chapter

January 23, 2009

March 20, 2009

BPO Landscape

March 20, 2009

10

Worldwide BPO Market Place 2008 BPO Market - $188 Billion Supply Credit Chain Services

Payments

2005 - 2008 Growth ($M)

Content Mgmt 70,000

Billing 4%

CRM Services

1% 1% 2%

60,000

CRM

6%

Insurance

50,000

Market Size

Card Services

Finance & Accounting Services

35%

6%

7%

40,000

Supply Management Services

30,000 Payment Services

HR Services 20,000 Card Processing Services

16%

Insurance Services

10,000

HR

Content Management Services

Credit Services

22%

Billing and Clearing Services

0

F&A

0

8

10

12

14

16

18

2005 – 2008 % CAGR

March 20, 2009

11

Worldwide BPO Market Place 2007 BPO Delivery Destination

• India remains a destination of choice for BPO services, especially back-office and KPO services; For sales and service India is no longer is a preferred destination – In 2008, size of Indian BPO Market = $10.9B; estimated to employ 700,000 • Canada as a near-shore destination continues to diminish as its currency has strengthened and higher adoption of offshore locations • Philippines continues to grow as a preferred destination due to better cultural alignment with North America. Today it is the #1 destination for voice based services • Eastern Europe is emerging rapidly especially as an alternative to service Europe • KPO and judgment based work continues to grow rapidly but requires domain expertise. Investment in platforms continue to accelerate. The number of Indian KPO professionals is set to leap from 75,000 in 2006 to 250,000 employees by 2010

Indian BPO Services 2007-08 KPO 8% Procurement Services 1%

Other Horizontal Services 4% VerticalSpecific 18%

HR Management 3%

F&A 22% Customer Support 44%

March 20, 2009

12

Global CRM Outsourcing Market 2008 Global CRM Market Agent Positions 2006-2012

Regional Break-out of Agent Positions

2008 Global CRM Market Split Vertical - wise

March 20, 2009

* Source: Datamonitor

13

Global CRM Outsourcing Market

• The global market for customer care will continue to grow through the coming five years, increasing from approximately 650,000 agent positions (APs) in 2008 to nearly 780,000 by 2012 with a CAGR of 4.7% from 2008-2012 –

Principal growth occurring in APAC and EMEA. APAC and EMEA will collectively constitute 55% of this market by 2012, up from 46% in 2006

–

North American customer care market will diminish (i) proportionately relative to other regions, and (ii) in AP terms - due to growth in North American companies adopting offshoring as well as increasing adoption of self-service solutions which further reduces the need for domestic customer care APs

• Financial services, manufacturing and Telco clients will remain the majority of outsourced contact center users, accounting for ~70% share –

The dominance of these three verticals, in the proportion of APs, will remain till 2012

–

In NA, the retail sector is also expected to increase its share of outsourced APs through this period. Among emerging sectors, public sector and health care are slated for expansion

March 20, 2009

14

KPO Industry Update • • • •

In 2003, the revenues generated from global KPO Industry stood at US$1.2 Billion and has doubled to $3.05 billion in 2007. According to the NASSCOM and Evalueserve, this is expected to grow from $1.2 billion in 2003 to $17 billion by 2010 at a CAGR of around 46% India is expected to capture 70% of this market, translating to a market size of U$12 billion The number of Indian KPO professionals is set to leap from 75,000 in 2006 to 250,000 employees by 2010

Verticals Using KPO Services

Other Potential Destinations: • Canada and Australia have the levels of talent to support a financial services KPO industry • China, South Africa, Singapore, some destinations in Eastern Europe are also emerging • Philippines is emerging as a key centre for Legal Process Outsourcing

* Source: NASSOCM, Evalueserve, Datamonitor and TPI

March 20, 2009

15

Impact of Market Dynamics

March 20, 2009

16

Market Dynamics: Trends Trends in User (Client) organizations • • •

Increase pressure to grow top-line due to credit crunch Liquidity issues in sectors such as BFSI and Auto Pressure of reducing costs resulting in

• • • • •

Re-evaluating what is core and non-core Increase in automation and reduced dependence on human resources Exploring alternate delivery locations Re-assessment of payment terms

Increased M&A activities causing

• Integration challenges • Redundancy even in core/ front-line resources • •

Trends in Service providers

•

Consolidation of providers – larger offshore/global players acquiring smaller/niche providers in order to

• Increase suite of offerings (e.g. TCS - Eserve) • Increase geographic footprint (e.g. Transworks - Minacs deal to have delivery in North America, Europe and Asia) • • •

Move towards people agnostic pricing models: transaction based pricing Gain-sharing models: influencing top-line through outsourcing deals or sharing productivity gains Increase in service offering – new services such as KPO, Legal Process Outsourcing, etc.

Employee / privacy laws being made increasingly stringent Focused on reducing number of suppliers vs. adding new

March 20, 2009

17

Market Dynamics: Implications Short term implications • •

Decrease in transaction volumes impacting margins Potential credit risk and risk of recovery of payments

• Liquidity crunch of client impacting payment •

Reduction on discretionary spends

Medium/long term implications • •

Increase in overall outsourcing by clients especially in the BFSI space Expectation of more integrated offerings from providers

•

Innovative deal structuring, deal sizes and delivery options

• Technology-BPO combination • Higher contract value of deals sold

• New projects likely to be stalled

• Better gain sharing and risk-reward

• Focus on maintaining non-discretionary spends • •

Potential rationalization of vendors Exposure to re-negotiations and premature deal closures

• Alternate delivery options – Offshore • •

Captive spin-off by clients Increase focus on outsourcing of higher value services

• Outsourcing of more core areas • Knowledge process outsourcing

March 20, 2009

18

Contract Challenges

March 20, 2009

19

Traditional Contracting Approach • Customers define all the process requirements and specific performance metrics to a great detail • Retain ability to create new service levels to address uncovered areas or new business requirements • Include complex performance based service credits to protect business performance • Seek account team continuity and impose workforce turnover limitations to retain knowledge base and quality of service • Try to own all IP – customer developed, vendor developer or co-developed. Seek transfer of software ownership rights upon development, rather than delivery or payment – protect software WIP • Include obligations on the supplier to provide and maintain a plan for dealing with the termination of the contract, and the transition from one vendor to another • Seek provisions relating to step-in to allow for the customer, or a third party on behalf of the customer, to take over the services for a period of time or terminate services in case of a disruption to or deterioration of the services • Right to multiple audits to detect and correct supplier performance, supplier financial stability or even maintain favorable terms

March 20, 2009

20

Traditional Contracting Approach • Customers want –

To ensure complete control over operations

–

Transfer all the risk to the supplier

–

Have multiple remedies to resort to in the event of a default

• In short seek total protection! • Suppliers would like to have –

Longer term contracts with high barriers to exit

–

Minimal performance risks

–

No performance improvement obligations

–

Annual inflation linked price increases

The adversarial relationship begins! March 20, 2009

21

Nature of Outsourcing Relationship • Interdependent –

Both need each other to grow and prosper

–

Not a zero sum game - Success is mutual and failure is collective

–

Needs aligned goals

• Scope, scale and nature of service evolve over the relationship –

This cannot be predicted upfront and contracts should have the flexibility to allow this evolution

• Allocate risks and responsibilities to allow both parties to perform, especially when things go wrong

March 20, 2009

22

Thank You

March 20, 2009

23

March 20, 2009

24

Doing Business in India Series Emerging Trends and Critical Issues to Consider When Outsourcing to India Gabe Takach, Torys LLP Daniel Logan, Torys LLP

Friday, January 23, 2009 © 2009 Torys LLP. All rights reserved.

26

Doing Business in India Series Emerging Trends and Critical Issues to Consider When Outsourcing to India Douglas Long, Tata Consultancy Services Siva Ganapathi, Aditya Birla Minacs Gabe Takach, Torys LLP Daniel Logan, Torys LLP Friday, January 23, 2009 © 2009 Torys LLP. All rights reserved.