Key Market Developments in Q3-2011: Market Vista Briefing

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Present key findings from the Q3 2011 Market Vista report and implications for buyers and service providers

Provide perspectives on the state of the global services industry in Poland and implications for stakeholders

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Key Market Developments in Q3-2011: Market Vista Briefing

  1. 1. Key Market Developments in Q3-2011:Market Vista BriefingNovember 8, 2011Live tweeting #MarketVista
  2. 2. Introductions Eric Simonson Managing Partner, Research Everest Group eric.simonson@everestgrp.com Amneet Singh Vice President, Global Sourcing Everest Group amneet.singh@everestgrp.com Salil Dani Research Director, Global Sourcing Everest Group salil.dani@everestgrp.com Proprietary & Confidential. © 2011, Everest Global, Inc. 2
  3. 3. Context settingFocus of this webinar Present key findings from the Q3 2011 Market Vista report and implications for buyers and service providers Provide perspectives on the state of the global services industry in Poland and implications for stakeholders Proprietary & Confidential. © 2011, Everest Global, Inc. 3
  4. 4. Market Vista provides continuously updated facts andanalysis every quarter to enable effective management ofglobal services portfolios General sourcing market Service Provider landscape Detailed analysis of trends by  Updates on service industry vertical and provider market share, geography capabilities, and Report of transaction volume, performance size, and momentum  Service provider Perspective on events with profiles, including data significant industry impact on: (e.g., M&A) – Transactions Implications of regulatory – Location footprint changes – M&A activity Location data and dynamics Processes and models Data on market activity  Process-level trends in key offshore  Details of captives set geographies ups, divestures, and – Political overall trends – Macroeconomic  Fact-based insights on – Promotion incentives adoption of emerging Trends in wage pricing models inflation, attrition, and  Data and perspectives arbitrage on new opportunity areas Proprietary & Confidential. © 2011, Everest Global, Inc. 4
  5. 5. Related ContentRelated Content Market Vista: Q3 2011 Global Locations Compass – China Global Offshore Captive Landscape and Trends: Focus Geography - China Global Location Insights: October 2011 – Perspectives on Global Services Market in Poland Blog: Video: Outsourcing and Offshoring Trends in Pharmaceuticals Report – Key Findings Blog: Do Indian Tier 1 Service Providers Run the Risk of Losing Their Cost Competitiveness? Blog: Indian “Strategic” Outsourcing Deals: Can the elephants dance when the music changes? Proprietary & Confidential. © 2011, Everest Global, Inc. 5
  6. 6. What will you learn from today’s webinar? Audience pollSummary of key messages Questions we will address todayOutsourcing and offshoring  What is the current outlook for global sourcing activity?activity declined in the third  What is the extent of decline?quarter of 2011  Which segments are exhibiting momentum? Weakness?Delivery center set-up activity  How are the center set-ups distributed geographically?remained steady in the third  Which new captives were set-up during the quarter?quarter  What are the trends across Tier 1 and Tier 2 locations?The service provider financial  How did service provider segments perform financially?performance and market activity  Which providers were most active in deals and M&A?in the Market Vista index varied  How has the share of deals signed by Market Vista indexacross different players/segments service providers changed?Poland has become the primary  Is Poland viewed as an offshoring location?European delivery hub due depth  What are the leading cities for global sourcing activity?of multi-lingual skills and cultural  How do operating costs in Tier 1/ 2 locations compare?affinity  What are the distinctive advantages offered by Poland? Proprietary & Confidential. © 2011, Everest Global, Inc. 6
  7. 7. Poll Question: Which statement best reflects yoursentiment about demand for global services? Significant decrease in demand 3% Modest decrease in demand 26% Flat or steady demand 39% Modest increase in demand 26% Significant increase in demand 5%Source: Live polling conducted during the “Market Vista Q3 2011” webinar on November 8, 2011 Proprietary & Confidential. © 2011, Everest Global, Inc. 7
  8. 8. Agenda Key market developments in Q3 2011 Special topic: Global services industry in Poland Proprietary & Confidential. © 2011, Everest Global, Inc. 8
  9. 9. Both outsourcing transactions and captive activity decreasedfrom last quarterIndex of outsourcing transactions1 Index of offshore captive health1Number Number 2 Captive set-ups = New + Expansion Captive divestures = 503 516 472 33 4 20 13 29 20 9 4 1 1 Q3 2010 Q2 2011 Q3 2011 Q3 2010 Q2 2011 Q3 2011 1 Includes only publicly disclosed data 2 Announcements include both new set-ups and expansion of existing captive operationsSource: Everest Group analysis Proprietary & Confidential. © 2011, Everest Global, Inc. 9
  10. 10. The decrease in outsourcing transactions was mostly due tolower traction in the public sector, particularly in the UKOutsourcing transactions by vertical Outsourcing transactions by buyer geography1Number of transactions Number of transactions100% = 503 516 472 100% = 503 516 472 Others3 4% 1% 1% Others1 20% 22% 21% 22% 21% RoW2 20% MDR 17% 15% 17% Rest of Europe 25% 27% Healthcare 8% 28% 11% 11% (RoE) E&U 8% 5% Defense 4% 3% 7% 2% 13% 20% 17% UK Government 15% 17% 14% Technology 2% 2% 7% 3% 4% Telecom 5% North America 34% 32% 34% BFSI 20% 19% 21% Q3 2010 Q2 2011 Q3 2011 Q3 2010 Q2 2011 Q3 2011 1 Includes logistics and wholesale, services, travel and transport, media and entertainment, education, etc. Also, includes any transactions where buyer identity/industry was not disclosed 2 Includes Asia-Pacific, Middle East, Africa, and Latin America 3 Includes transactions where the buyer geography was not publicly disclosedSource: Everest Group analysis Proprietary & Confidential. © 2011, Everest Global, Inc. 10
  11. 11. Outsourcing activity continued to remain steady in financialservices and manufacturing although the distribution variedacross geographies ITO AND BPO TRANSACTIONSFinancial services Manufacturing, distribution, and retailDistribution of transactions by buyer geography1 Distribution of transactions buyer geography1Number Number100% = 99 98 100 100% = 83 76 82 Others3 1% 1% Others3 4% 1% 8% 13% 7% 19% Rest of World2 18% 29%Rest of World2 27% Rest of Europe 34% 29% 46% 22% 38%Rest of Europe 26% 10% UK 18% 18% UK 11% 14% 22% 41% North America 37%North America 27% 30% 26% 21% Q3 2010 Q2 2011 Q3 2011 Q3 2010 Q2 2011 Q3 2011 1 Buyer geography is the buyer location or the signing region associated with the transaction 2 Includes Asia-Pacific, Middle East, Africa, and Latin America 3 Includes transactions where the buyer geography was not publicly disclosedSource: Everest Group analysis Proprietary & Confidential. © 2011, Everest Global, Inc. 11
  12. 12. Service provider developments | Market Vista Index serviceprovidersTraditional global service providers Offshore-centric service providers 1 3 21 Perot was acquired by Dell in Sep 2009 and was rebranded as Dell Services2 EDS was integrated into HP, and the segment is now called HP Enterprise Services (HP ES)3 Hewitt merged with Aon in October 2010 and the combined entity is now called Aon Hewitt Proprietary & Confidential. © 2011, Everest Global, Inc. 12
  13. 13. Service provider developments | OverviewHighlights of Q3 2011 Sequential growth in revenues (Q2 2011 vs. Q1 2011) Sequential growth in operating margins (Q2 2011 vs. Q1 2011) Percentage Basis points 6.2 3.0 4.0 -13.0 3.6 -117.0 Traditional Offshore-centric Overall Traditional Offshore-centric Overall global service service global service service providers providers providers providersTop events in Q3 2011 Top service providers by number ofTop outsourcing transactions by deal value transactions announced Significant M&A deals Department for Work and Pensions (UK)-IBM:  IBM: 23 deals  IBM-Algorithmics: The deal, valued at US$387 US$1.2 billion (seven years)  Accenture: 11 deals million, will expand IBMs business analytics Vodafone Essar-IBM: US$1.0 billion (six  HP ES: 10 deals capabilities in the financial services industry years)  CSC: nine deals U.S.-based manufacturing firm-CSC: US$900  Infosys: nine deals  Capgemini-AIVE: The US$60 million acquisition will million (ten years)  Capgemini: eight deals strengthen its application portfolio as well as its Manulife Financial-IBM: US$659 million (seven  HCL: seven deals Software-as-a-Service (SaaS) positioning in Italy years)  ACS: six deals 1 Analysis includes financials for Mahindra Satyam, which was acquired by Tech Mahindra in April 2009 2 Normalized operating margins exclude ACS, Atos, Capgemini, and Dell Services as information is not availableSource: Company disclosures; websites; press releases; Everest Group analysis Proprietary & Confidential. © 2011, Everest Global, Inc. 13
  14. 14. While overall transaction activity reduced in Q3 compared toQ2, the share of leading service providers increased duringthis periodNumber of outsourcing transactions announcedNumber of deals100% = 516 472 Market Vista Index service providers 108 118 Other service 408 providers 354 Q2 2011 Q3 2011Source: Everest Group analysis Proprietary & Confidential. © 2011, Everest Global, Inc. 14
  15. 15. Asia continued to account for majority of offshore locationactivity in Q3; Tier-1 cities reported marginally more activitythan Tier-2 citiesOffshore location activity across geographies Offshore location activity across Tier-1 and Tier-2Number of service delivery centers set up locations Number of service delivery centers set up Q2 2011 Q3 2011 2010 Quarterly average 24 23 24 21 21 22 19 18 17 17 17 9 7 5 2 Asia Europe and Africa Latin America Tier-1 Tier-2Note 1: Offshore location activity denotes number of delivery centers of captives and third-party service providers established in offshore locationsNote 2: Five delivery centers were set up in Africa during Q3 2011Source: Everest Group analysis Proprietary & Confidential. © 2011, Everest Global, Inc. 15
  16. 16. While India continued to account for largest activity in thecaptive1 market, Europe and Africa also witnessedconsiderable activity Europe: Four captive set-ups  Nestle opened its shared business service center in L’viv (Ukraine) Rest of Asia: Five captive set-ups  Romtelecom opened its new BPO  Acer opened its new R&D facility in center in Bacau (Romania) Chongqing (China)  Nokia Siemens Networks opened an R&D facility in Quezon City (The Philippines)  Mitsui Chemicals opened its new center in Singapore Middle East and Africa: Four captive set-ups  Ericsson opened its first regional support center in Ghana (Africa)  Amazon opened its new customer service center in Cape Town (South Africa)Latin America: One captive set-up National Instruments opened a new shared services center in San India: Six captive set-ups  Microsoft opened a R&D center in Bangalore (India) José (Costa Rica)  Maruti opened a new R&D center in Delhi/NCR (India)  Fiserv opened a new R&D center in Bangalore (India) 1 Indicates announcements related to actual captives set-ups and expansion Note: All references to captives include only offshore captivesSource: Everest Group analysis Proprietary & Confidential. © 2011, Everest Global, Inc. 16
  17. 17. Sourcing risk: Currency appreciation in Brazil, Chile, andMalaysia is impacting arbitrage potential in these locations Currency trends over 2007-11 xx% Net change in currency over 2007-11 ITO SERVICES Local currency/USD indexed to 2007 Appreciating currency: Increases costs in USD +19% Brazil +13% Malaysia +7% Philippines -4% Poland -10% India Depreciating currency: Decreases costs in USD 2007 2008 2009 2010 2011 Annual operating costs per FTE per annum xx% Arbitrage relative to U.S. 2011; Index: India = 100 Tier-1 city (Chicago) 300-320 170-175 175-180 100 115-120 India Philippines Malaysia Poland Brazil (Bangalore) (Metro Manila) (Kuala Lumpur) (Krakow) (Sao Paulo) 80-85% 75-80% 69-72% 67-71% 42-47%Source: Everest Group analysis Proprietary & Confidential. © 2011, Everest Global, Inc. 17
  18. 18. Agenda Key market developments in Q3 2011 Special topic: Global services industry in Poland Proprietary & Confidential. © 2011, Everest Global, Inc. 18
  19. 19. Poll Question: What is your organization’s currentposture on the role of Poland for global services? Do not currently use and no plans to 66% begin using Poland Do not currently use, but plan to 11% begin using Poland Use for service delivery, but not 5% planning to grow Use for service delivery and planning 14% to grow modestly (<20% growth) Use for service delivery and planning 5% to grow significantly (>20% growth)Source: Live polling conducted during the “Market Vista Q3 2011” webinar on November 8, 2011 Proprietary & Confidential. © 2011, Everest Global, Inc. 19
  20. 20. Leading buyers and service providers have multiple deliverycenters in Poland Tier-1 city Tier-2 city NOT EXHAUSTIVE Gdansk Olsztyn Poznan Warsaw Lodz Wroclaw Katowice KrakowSource: Everest Group analysis Proprietary & Confidential. © 2011, Everest Global, Inc. 20
  21. 21. Poland’s key strengths include significant depth in multi-lingual skills and cultural affinity with source geographiesalong with moderate savings in global services deliveryAnnual operating cost per FTE in F&A services2011; US$ (‘000s) 68-70 40-43% 45-50% Poland offers significant depth in multi-lingual skills 40-42 39-41  Good availability of English, German, Russian, 34-36 French, and Spanish  Multiple players already leverage Poland for delivery of multi-lingual voice- and non-voice- BPO processes such as customer care, transaction processing Croydon Croydon Warsaw Warsaw Krakow Krakow Lodz Lodz (London) (Tier-1) (Tier-1) (Tier-2)Please refer to our recent newsletter Perspectives on Global Services Market in Poland for more detailsand insightsSource: Everest Group analysis Proprietary & Confidential. © 2011, Everest Global, Inc. 21
  22. 22. Q&A Attendees will receive an email enabling them to download today’s webinar presentation as well as access a recorded audio version For advice or research on Market Vista, please contact: – Eric Simonson, eric.simonson@everestgrp.com – Amneet Singh, amneet.singh@everestgrp.com – Salil Dani, salil.dani@everestgrp.com For background information on Everest Group, please visit: – www.everestgrp.com – research.everestgrp.com Thank you for attending todayTo ask a question during the Q&A session Click the question mark (Q&A) button located on the floating tool bar in the bottom right of your screen. This will open the Q&A Panel Be sure to keep the default set to “send to All Panelists” Then, type your question in the rectangular field at the bottom of the Q&A box and click the send button to submit Proprietary & Confidential. © 2011, Everest Global, Inc. 22
  23. 23. Check out our blog for the latest perspectives on globalservices Experts in the global services terrain www.sherpasinblueshirts.com Proprietary & Confidential. © 2011, Everest Global, Inc. 23
  24. 24. About Everest GroupEverest Group is an advisor to business leaders on the next generation of globalservices with a worldwide reputation for helping Global 1000 firms dramaticallyimprove their performance by optimizing their back- and middle-office businessservices. With a fact-based approach driving outcomes, Everest Group counselsorganizations with complex challenges related to the use and delivery of globalservices in their pursuits to balance short-term needs with long-term goals. Throughits practical consulting, original research and industry resource services, EverestGroup helps clients maximize value from delivery strategies, talent and sourcingmodels, technologies and management approaches. Established in 1991, EverestGroup serves users of global services, providers of services, country organizationsand private equity firms, in six continents across all industry categories. For moreinformation, please visit www.everestgrp.com and research.everestgrp.com. Proprietary & Confidential. © 2011, Everest Global, Inc. 24
  25. 25. Everest GroupLeading clients from insight to actionEverest Group locations Dallas (Headquarters): info@everestgrp.com +1-214-451-3000 New York: info@everestgrp.com +1-646-805-4000 Toronto: canada@everestgrp.com +1-416-865-2033 London: unitedkingdom@everestgrp.com +44-207-887-1483 Delhi: india@everestgrp.com +91-124-496-1000 www.everestgrp.com | research.everestgrp.com | www.sherpasinblueshirts.com Proprietary & Confidential. © 2011, Everest Global, Inc. 25

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