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Key Market Developments in Q3-2012:Market Vista BriefingNovember 8, 2012Live Tweeting #MarketVista
Introductions                                        Katrina Menzigian                                        Vice Preside...
Context settingFocus of this webinar   Present key global services developments in Q3 2012 and future outlook   Provide ...
Terminology | Global In-house Center (GIC)replacing “captive”Context                                                 What ...
Highlights of today’s webinar                                                                                             ...
To what extent will onshorebusiness continuity become agreater priority for yourorganization?Already comfortable with our ...
Presentation topics     Key market                   Special topic:     developments in Q3           Nearshoring is Alive ...
Both outsourcing transaction volume and GICmarket activity decreased in Q3 2012Index of outsourcing transactions          ...
Multiple industry verticals contributed towards thedecrease in outsourcing transactionsOutsourcing deals announced        ...
Both North America and UK witnessed lowmomentum during the quarterOutsourcing deals announced                             ...
The sluggish demand is impacting service providerrevenue growth but has not impacted pricing                              ...
Contrary to the stated intentions of players diversifying theirportfolios, India and the Philippines continue to be larges...
…and experience growth in areas that align withtheir “sweet spots”Distribution of global services market across functions ...
Increasing trend of leveraging tier-2/3 cities in CEEand Latin AmericaProportion of Tier-2/3 cities in new delivery center...
Are our 2012 predictions for the global servicesmarket holding true?                                                      ...
Presentation topics  Key market                   Special topic:  developments in Q3           Nearshoring is Alive       ...
What is the relevance of nearshorelocations in your service delivery portfolio?                No role at present         ...
Definition of “nearshore”               Located in proximity to source geography in similar timeNear                zone ...
Nearshore locations are an integral component ofthe global services strategy of many companiesSize of global Global compan...
Nearshoring market is large and growing in-linewith the overall global services industryShare of nearshore locations in   ...
However, there are differences across regions   Predominantly used to                                          European ...
How to evaluate relevance of nearshore locationsin portfolio?                                   While unit costs are high...
Presentation topics Key market           Special topic: developments in Q3   Nearshoring is Alive                         ...
Highlights of today’s webinar                                                              Lower incremental demand acros...
Q&ATo ask a question during the Q&A session   Click the question mark (Q&A) button located on right side of your screen. ...
Global In-house Center (GIC) Value DiagnosticSurvey 2012Are "parent" and "GIC" executives alignedin how they are looking t...
Check out our blog for the latest perspectiveson global services                                                        Ex...
Related Content   Market Vista: Q3 2012   Market Vista Industry Trends and Buyer Geography Trends   Global Location Com...
About Everest GroupEverest Group is an advisor to business leaders on the next generation of globalservices with a worldwi...
Everest GroupLeading clients from insight to actionEverest Group locations                                                ...
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Webinar Deck: Market Vista - Key Market Development in Q3 2012

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Outsourcing transaction activity in Q3 2012 remained lower than third quarters of previous years. In contrast, offshore locations in Asia and Latin America continued to report activity across global in-house centers (GICs) and service providers.

Global services managers need to carefully monitor and analyze these market developments that could serve as a critical input toward their plans for 2013.

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Transcript of "Webinar Deck: Market Vista - Key Market Development in Q3 2012"

  1. 1. Key Market Developments in Q3-2012:Market Vista BriefingNovember 8, 2012Live Tweeting #MarketVista
  2. 2. Introductions Katrina Menzigian Vice President katrina.menzigian@everestgrp.com Eric Simonson Managing Partner – Research eric.simonson@everestgrp.com H. Karthik Vice President h.karthik@everestgrp.com Proprietary & Confidential. © 2012, Everest Global, Inc. 2
  3. 3. Context settingFocus of this webinar Present key global services developments in Q3 2012 and future outlook Provide perspectives on nearshore locationsSources for today’s webinar  Summary from a Location Optimization 200+ page report +  Fact-based IT and Business research covering Services research global services Proprietary & Confidential. © 2012, Everest Global, Inc. 3
  4. 4. Terminology | Global In-house Center (GIC)replacing “captive”Context What has changed Historically, the term “captive” has  Everest Group has adopted “Global In-house referred to service delivery operations Center” or “GIC” as the preferred term to in lower cost geographies, which are replace “captive” owned and operated by the same company receiving the services (i.e.,  This will appear in all of our reports and not third-party outsourcing) content beginning in July 2012 Although the term has become widely used, it has a perceived negative tone and is not self-explanatory, causing confusion for those new to the global Growing industry-wide shift services space Both NASSCOM (India) and BPAP (Philippines) are championing the change in terminology Furthermore, many organizations, for which captive is intended to describe, do not use the term themselves Proprietary & Confidential. © 2012, Everest Global, Inc. 4
  5. 5. Highlights of today’s webinar Audience poll Continued decline in new  Current trends and outlook outsourcing and offshoring  Segment performance activity in Q3 2012  Share of leading supply Decline in new center set-ups with geographies traditional supply locations  Trends of tier-1 vs. tier-2/3 cities by continuing to hold market share region  Growth trends and drivers Nearshoring is Alive and Kicking!  Considerations around evaluating relevance in location portfolio Proprietary & Confidential. © 2012, Everest Global, Inc. 5
  6. 6. To what extent will onshorebusiness continuity become agreater priority for yourorganization?Already comfortable with our plans; no change 50% Might become a greater priority 29% Definitely a greater priority 21% Proprietary & Confidential. © 2012, Everest Global, Inc. 6
  7. 7. Presentation topics Key market Special topic: developments in Q3 Nearshoring is Alive Wrap up and Q&A 2012 and Kicking! Outsourcing transactions GICs Service providers Locations Proprietary & Confidential. © 2012, Everest Global, Inc. 7
  8. 8. Both outsourcing transaction volume and GICmarket activity decreased in Q3 2012Index of outsourcing transactions Index of offshore GIC healthNumber Number GIC set-ups and expansions GIC divestures 33 516 Specific centers 472 433 441 with geographic 411 23 complexities 380 20 19 18 15 3 0 1 0 0 0 Q2 Q3 Q4 Q1 Q2 Q3 Q2 Q3 Q4 Q1 Q2 Q3 2011 2011 2011 2012 2012 2012 2011 2011 2011 2012 2012 2012 Proprietary & Confidential. © 2012, Everest Global, Inc. 8
  9. 9. Multiple industry verticals contributed towards thedecrease in outsourcing transactionsOutsourcing deals announced Change in averageNumber of transactions ACV (Q2 2011-Q3 2012) 516 472 433 441 178 411 Others1 380 163 151 157 125 Healthcare 56 155 52 61 41 43 Public sector 108 75 27 94 102 85 83 Manufacturing 76 82 62 66 68 43 BFSI 98 100 83 74 73 72 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 20121 Includes energy & utilities, technology, telecom, travel & hospitality, and miscellaneous Proprietary & Confidential. © 2012, Everest Global, Inc. 9
  10. 10. Both North America and UK witnessed lowmomentum during the quarterOutsourcing deals announced Change in averageNumber of transactions ACV (Q2 2012-Q3 2012) 516 472Rest of World2 119 433 441 411 105 66 380 65 90Rest of Europe 129 90 127 104 137 107 97 UK 103 91 80 88 82 68North America1 165 160 173 150 132 125 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 20121 Excludes Mexico2 Includes Asia-Pacific, Latin America, and Africa Proprietary & Confidential. © 2012, Everest Global, Inc. 10
  11. 11. The sluggish demand is impacting service providerrevenue growth but has not impacted pricing IT ADM EXAMPLERevenue growth of service providers Pricing trendsRevenue growth rate (Year-on-year) Blended FTE price – IT ADMGlobal and Indian IT providers US$/hr/FTE Indian IT providers Onshore (U.S.) Global IT providers Offshore (India) 22.9% 18.4% 69.5 69.6 70.0 69.7 15.7% 11.7% 10.2% 20.0 20.0 20.0 19.8 5.6% -0.3% 3.0% Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Proprietary & Confidential. © 2012, Everest Global, Inc. 11
  12. 12. Contrary to the stated intentions of players diversifying theirportfolios, India and the Philippines continue to be largestsupply geographies for global services…Distribution of global services market by supply geographies2008-12; US$ billion100% = 91 104 120 Growth led by Latin America (~15% market share in 2012) Others1 16.8% 18.5% 18.2% CEE2 5.9% 5.8% 5.5% China 2.8% 2.7% 3.6% Canada 19.7% 16.4% 14.8%Philippines 6.7% 7.3% 7.8% India 48.2% 49.3% 50.1% 2008 2010 2012E1 Include other locations in Asia, Latin America, and Africa2 Central & Eastern Europe Proprietary & Confidential. © 2012, Everest Global, Inc. 12
  13. 13. …and experience growth in areas that align withtheir “sweet spots”Distribution of global services market across functions by supply geographies English voice BPO English non-voice BPO IT Services 2008-12; US$ billion 2008-12; US$ billion 2008-12; US$ billion100% = 14 23 12 19 54 75 23% RoW1 30% 34% 33% 42% 39% 14% 9% 1% 1%Philippines 31% 35% 58% 63% 57% 60% India 39% 31% 2008 2012E 2008 2012E 2008 2012E  India’s share has reduced,  India and the Philippines’ share  Steady increase in India’s share particularly for U.S. operations has steadily increased given given advantages of talent  The Philippines and other locations strengths in F&A and other availability, cost, and domain (e.g., CEE, Latin America) have non-voice areas expertise gained share given language skills  Locations in CEE and Latin  Share of the Philippines has and accent America have large share for remained similar bi-lingual and multi-lingual support1 Rest of World includes other locations in Asia, Latin America, Central and Eastern Europe, and Africa Proprietary & Confidential. © 2012, Everest Global, Inc. 13
  14. 14. Increasing trend of leveraging tier-2/3 cities in CEEand Latin AmericaProportion of Tier-2/3 cities in new delivery center set-ups2011-20121; Percentage 2011 2012 84 53 Service providers have 50 traditionally led the foray into 37 40 37 tier-2/3 cities, but GICs also making selective investments in these cities Asia Pacific Latin America CEE 1 includes analysis from Q1-Q3 (Jan - Sep) 2012Note 1 Tier-1 cities are mature cities for global services delivery, typically characterized by large talent pool and significant market activity. Examples include Bangalore (India), Shanghai (China), Metro Manila (Philippines), Sao Paulo (Brazil), Mexico City (Mexico), and Krakow (Poland)Note 2 Tier-2/3 cities are upcoming cities for global services delivery, typically characterized by relatively smaller talent pool and lesser market activity. Examples include Jaipur (India), Dalian (China), Cebu (Philippines), Curitiba (Brazil), Guadalajara (Mexico), and Lodz (Poland) Proprietary & Confidential. © 2012, Everest Global, Inc. 14
  15. 15. Are our 2012 predictions for the global servicesmarket holding true? Same as prediction Similar but with some variations Different than prediction How has the market faredWhat we predicted at the beginning of 20121 to date? Comments 1 Increased aggressiveness in winning away Renewal activity poised to further renewals from incumbents increase 2 1-2 landmark captive (GIC) divestitures – Selective GIC carve-outs but no but not a trend landmark divesture 3 Continued separation of Tier 1 and Tier 2/3 M&A activity and service provider service providers, making consolidation by consolidation likely to continue acquisition more attractive 4 Exchange rate concerns outweigh inflation Remains a concern in key geographies concerns (e.g., Brazil, Malaysia, the Philippines) 5 Continued increase in location activity in Growing proportionate to market based Central & Eastern Europe (CEE) upon skill-cost value proposition1 Everest Group webinar document: Market Vista Q4-2011 (presented on February 14, 2012) Proprietary & Confidential. © 2012, Everest Global, Inc. 15
  16. 16. Presentation topics Key market Special topic: developments in Q3 Nearshoring is Alive Wrap up and Q&A 2012 and Kicking!  Growth trends and drivers  Relevance in location portfolio Proprietary & Confidential. © 2012, Everest Global, Inc. 16
  17. 17. What is the relevance of nearshorelocations in your service delivery portfolio? No role at present 0% Relevant but less important than offshore locations 64% Relevant and more important than offshore locations 36% Only using nearshore locations 0% Proprietary & Confidential. © 2012, Everest Global, Inc. 17
  18. 18. Definition of “nearshore”  Located in proximity to source geography in similar timeNear zone or separated by a few hoursnearshore  Examples: Canada/Mexico to US, CEE to Western Europe & UK, Costa Rica to US/Canada, Ireland/Scotland to UK, Morocco to France  Similar time zone as source geography, but at a significantFar distancenearshore  Examples: Argentina/Brazil/Chile to US/Canada, Mauritius to France, South Africa to UK Proprietary & Confidential. © 2012, Everest Global, Inc. 18
  19. 19. Nearshore locations are an integral component ofthe global services strategy of many companiesSize of global Global companies with nearshore Average nearshore locations indelivery operations portfolio Percent of respondents Number of countries >2500 FTE 57 2.6 500-2500 FTE 31 1.9 <500 FTE 14 1.2Source: Everest Group’s Market Vista Survey on Offshore Locations: Perceptions and Plans 2012 Proprietary & Confidential. © 2012, Everest Global, Inc. 19
  20. 20. Nearshoring market is large and growing in-linewith the overall global services industryShare of nearshore locations in Nearshore global services market growthglobal services market 2008-12; US$ billion2012; US$ billion 100% = 120 45 40 37Nearshore 36-38% 62-64% Offshore 2008 2010 2012 (E) Proprietary & Confidential. © 2012, Everest Global, Inc. 20
  21. 21. However, there are differences across regions Predominantly used to  European language Number of delivery centers capability established since 2011 serve U.S. across IT and BPO services  Domain and industry- New delivery center set-ups since 2011 Stagnant market activity in specific skills recent years Marginal increase Significant increase 49 5 CEE Canada  Emerging geography  Value proposition with high growth 9 around bi-lingual potential Mexico support 17  Differences across  Also leveraged for locations in functions F&A and IT services Africa and source markets 43 Rest of Latin AmericaNote: Includes global services delivery centers of Forbes 2000 GICs and leading service providers Proprietary & Confidential. © 2012, Everest Global, Inc. 21
  22. 22. How to evaluate relevance of nearshore locationsin portfolio?  While unit costs are higher compared to offshore locations,Take a holistic view (total other costs can be lowercost of ownership) to – Higher productivitybusiness case – Lower governance costs  Nearshore model could provide stronger leverage of remote delivery – Higher level of remote ownership – Greater degree of resource based in lower cost locations  Language skillsNot all nearshore  Scalable (200+ FTEs) high-value/industry-specific skills inlocations may be suitable some locationsfor complex work – Examples: Canada, CEE, and Ireland  Single function vs. multi-function hubUnderstand role of  Domain skills vs. scalabilitynearshore locations and  Talent model and operating environmentoperating model Proprietary & Confidential. © 2012, Everest Global, Inc. 22
  23. 23. Presentation topics Key market Special topic: developments in Q3 Nearshoring is Alive Wrap up and Q&A 2012 and Kicking!  Submit any remaining questions! Proprietary & Confidential. © 2012, Everest Global, Inc. 23
  24. 24. Highlights of today’s webinar  Lower incremental demand across Continued decline in new major verticals and geographies outsourcing and offshoring  Impact on provider top-line growth activity in Q3 2012 but not on pricing  Share of leading supply Decline in new center set-ups with geographies has increased traditional supply locations  Greater use of tier-2/3 cities in CEE continuing to hold market share and Latin America than Asia  Large market with differences across locations Nearshoring is Alive and Kicking!  Likely to play larger role in location strategies Proprietary & Confidential. © 2012, Everest Global, Inc. 24
  25. 25. Q&ATo ask a question during the Q&A session Click the question mark (Q&A) button located on right side of your screen. This opens Q&A Be sure to keep the default set to “send to All Panelists” Type your question in the box at the bottom of the Q&A box and click the send button Attendees will receive an email with instructions for downloading today’s presentation For advice or research on Market Vista, please contact: – Katrina Menzigian, katrina.menzigian@everestgrp.com – Eric Simonson, eric.simonson@everestgrp.com – H. Karthik, h.karthik@everestgrp.comStay connectedWebsites Twitter Blogswww.everestgrp.com @EverestGroup www.sherpasinblueshirts.comresearch.everestgrp.com @Everest_Cloud www.gainingaltitudeinthecloud.com Proprietary & Confidential. © 2012, Everest Global, Inc. 25
  26. 26. Global In-house Center (GIC) Value DiagnosticSurvey 2012Are "parent" and "GIC" executives alignedin how they are looking to drive valuebeyond cost savings?Participate in Everest Group’s GIC ValueDiagnostic Survey 2012 and share yourperspectives. All participants will receive acomplimentary copy of summary findings.Survey Link:surveys.everestgrp.com/s3/gic-survey-3 Start the SurveyAre you interested in a custom benchmark of the survey for your organization?If so, please contact us to request an organization-specific link for your company. Proprietary & Confidential. © 2012, Everest Global, Inc. 26
  27. 27. Check out our blog for the latest perspectiveson global services Experts in the global services terrain www.sherpasinblueshirts.com Proprietary & Confidential. © 2012, Everest Global, Inc. 27
  28. 28. Related Content Market Vista: Q3 2012 Market Vista Industry Trends and Buyer Geography Trends Global Location Compass – Brazil Global Sourcing Trends in the U.S. Mortgage Industry Global Location Insights: September 2012 – Location Risks – Perceptions and Mitigation Measures Blog: Determining Today’s Value of Global In-house Centers (GICs): GIC Value Diagnostic Survey – 2012 Blog: Leverage Points in Global Services for India, China, and Philippines Blog: Why Next Gen CEOs are Actively Promoting “Shadow IT” Proprietary & Confidential. © 2012, Everest Global, Inc. 28
  29. 29. 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 organizations,and private equity firms in six continents across all industry categories. For moreinformation, please visit www.everestgrp.com and research.everestgrp.com. Proprietary & Confidential. © 2012, Everest Global, Inc. 29
  30. 30. 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 +44-207-129-1318 Delhi: india@everestgrp.com +91-124-496-1000 www.everestgrp.com | research.everestgrp.com | www.sherpasinblueshirts.com Proprietary & Confidential. © 2012, Everest Global, Inc. 30
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