Webinar Deck: Market Vista: Global Services Developments in Q1 2013

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On May 23, 2013, Everest Group hosted a Market Vista webinar to discuss the Global Services Developments in Q1 2013, including: outsourcing trends in Q1-2013, GIC trends and developments, change in locations in Eastern Europe between 2012 and 2013, and overview of the 20 leading service providers

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Webinar Deck: Market Vista: Global Services Developments in Q1 2013

  1. 1. Global Services Developments in Q1 2013Market Vista BriefingMay 23, 2013Live Tweeting #MarketVista
  2. 2. Proprietary & Confidential. © 2013, Everest Global, Inc. 2IntroductionsSalil DaniPractice Directorsalil.dani@everestgrp.comEric SimonsonManaging Partner – Researcheric.simonson@everestgrp.comH. KarthikVice Presidenth.karthik@everestgrp.com
  3. 3. Proprietary & Confidential. © 2013, Everest Global, Inc. 3Context settingSources for today’s webinarFocus of this webinar Present key global services developments in Q1-2013 Provide perspectives on location concentration riskIT and BusinessServices researchLocation Optimization Summary from a180+ page report Fact-basedresearch coveringglobal services+
  4. 4. Proprietary & Confidential. © 2013, Everest Global, Inc. 4Terminology | Global In-house Center (GIC)replacing “captive”Context Historically, the term “captive” hasreferred to service delivery operationsin lower cost geographies, which areowned and operated by the samecompany receiving the services (i.e.,not third-party outsourcing) Although the term has become widelyused, it has a perceived negative toneand is not self-explanatory, causingconfusion for those new to the globalservices space Furthermore, many organizations, forwhich captive is intended to describe,do not use the term themselvesWhat has changed Everest Group has adopted “Global In-houseCenter” or “GIC” as the preferred term toreplace “captive” This will appear in all of our reports andcontent beginning in July 2012Growing industry-wide shiftBoth NASSCOM (India) and BPAP (Philippines)are championing the change in terminology
  5. 5. Proprietary & Confidential. © 2013, Everest Global, Inc. 5Highlights of Q1 2013 Share of leading supplygeographies Location trends in EuropeSustained interest in Europeanlocations Drivers and approaches adopted bycompanies Recommended best practices tomeasure and mitigateIncreased focus on locationconcentration risk by marketleaders Outsourcing transactions GIC trends Service provider performanceGlobal services market is showingearly signs of recovery
  6. 6. Proprietary & Confidential. © 2013, Everest Global, Inc. 6Presentation topicsSpecial topic –Concentration riskWrap up and Q&AKey marketdevelopments inQ1-2013 Outsourcing transactions GICs Service providers Locations
  7. 7. Proprietary & Confidential. © 2013, Everest Global, Inc. 7If the proposed U.S. immigration reform is passed intolaw, how much impact do you expect on yourorganization’s global sourcing efforts?28%19%28%11%14%Not familiar with the legislation/no opinionNo expected impactMarginal negative impactSignificant negative impactPositive impactSource: Live polling conducted during the “Market Vista: Global Services Developments in Q1 2013” webinar on May 23, 2013
  8. 8. Proprietary & Confidential. © 2013, Everest Global, Inc. 8Demand for outsourcing services is increasing inQ1 2013Index of outsourcing transactionsNumber441411380401 409Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013Index of offshore GIC healthNumberGIC set-ups and expansionsGIC divestures16181116140 0310Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013
  9. 9. Proprietary & Confidential. © 2013, Everest Global, Inc. 9Uptick in outsourcing demand from North America;Europe continues to remain sluggish150 132 125 129 148225189165198 17766909074 84Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013North America1EuropeRest of World2441380411 401 409Change in average ACV(Q1 2012 to Q1 2013)Outsourcing deals announcedNumber of transactions1 Excludes Mexico2 Includes Asia-Pacific, Latin America, and Africa
  10. 10. Proprietary & Confidential. © 2013, Everest Global, Inc. 1083 73 72 78 8066 684361 6294 1028378 8341 432744 30157125155140 154Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013Activity in Q1 led by several verticals besidesfinancial servicesBFSIManufacturingHealthcareOutsourcing deals announcedNumber of transactionsPublic sectorOthers1Change in average ACV(Q1 2012-Q1 2013)1 Includes Energy & Utilities, Technology, Telecom, Travel & Hospitality, and Miscellaneous441380411 401 409
  11. 11. Proprietary & Confidential. © 2013, Everest Global, Inc. 1112.1%14.1% 14.7% 15.4%22.6% 22.9% 22.2% 22.4%0%5%10%15%20%25%30%Q1 2012 Q2 2012 Q3 2012 Q4 20125.1%1.5% -3.3% 1.1%15.0%11.2%9.7%12.3%-5%0%5%10%15%20%25%30%Q1 2012 Q2 2012 Q3 2012 Q4 2012Service providers are also witnessing improvedfinancialsRevenue growth rate (year-on-year basis) forMarket Vista Index service providersPercentageOffshore-centric service providersTraditional global service providersOperating margin (quarterly) for Market VistaIndex service providersPercentageOffshore-centric service providersTraditional global service providers
  12. 12. Proprietary & Confidential. © 2013, Everest Global, Inc. 12The proposed U.S. visa regulations would have anonerous impact on Indian IT service providersImplicationsSeverely target the onshore portion of theglobal delivery model of Indian serviceproviders for IT servicesOther organizations (e.g., GICs, MNCservice providers, technology firms, BPOservice providers) left either unaffected orpositively impactedNot limit offshoring – creates majoroperating implications and margin/profitability hits for Indian IT serviceproviders123Snapshot of major provisions Eliminate “outplacement” forfirms that are H1-B dependent(greater than 15% of U.S. basedwork force on H1-B visas) Limit access to H1-B visas andincrease fees, plus forceincreased salaries for firms with70/60/50% of U.S. based workforce on H1-B visas Increase the number of H1-Bvisas available each yearMuch could still change – watch closely and visit our blog and websitesfor further updates
  13. 13. Proprietary & Confidential. © 2013, Everest Global, Inc. 13Overall location set-ups decreased in first quarter; importantto watch in coming quarters if maturation and/or saturationeffects are occurringNew offshore delivery center set-upsNumber3647354523Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013Note: Include offshore delivery center set-ups across GICs and service providers in Asia, Africa, CEE, and Latin America
  14. 14. Proprietary & Confidential. © 2013, Everest Global, Inc. 14Despite sluggish demand from Europe, players haveinvested in building delivery capacity in CEE12%20%43%60% 48%43%23%24%10%5% 8% 4%H1 2012 H2 2012 Q1 2013CEE83100% = 80 23AfricaProportion of CEE in new offshore delivery center set-upsPercentage Players investing aheadof demand in CEE,partly to take advantageof deflated marketconditions and alsofavorable governmentincentives Significant leverage oftier-2/3 cities for servicedelivery in CEEAsiaPacificLatinAmerica
  15. 15. Proprietary & Confidential. © 2013, Everest Global, Inc. 15In addition, there is also evidence of companiesbuilding capacity in European onshore locationsNew onshore delivery centers of MarketVista Index service providersPercentage76%67%17%27%7% 6%2011 201285%78%10% 19%5% 3%2011 2012Estimated onshore capacity addition by MarketVista Index service providers‘000 FTEsEuropeNorthAmericaEuropeNorthAmerica Even though large service providers are setting up delivery centers in Western Europe, this is not at theexpense of North American locations On a capacity basis, the share of European onshore locations is much smaller (~20%)Others1 Others127 19 ~4 ~3100% = 100% =
  16. 16. Proprietary & Confidential. © 2013, Everest Global, Inc. 16Presentation topicsWrap up and Q&AKey marketdevelopments in Q12013Special topic –Concentration risk Drivers for increasedattention and experiencesof companies Recommended guidingprinciples and approach
  17. 17. Proprietary & Confidential. © 2013, Everest Global, Inc. 17To what extent isyour organizationaddressing locationconcentration risk?10%18%41%31%Not being discussedOccasional discussion, but no plansImplementing some simple plansImplementing meaningful changesSource: Live polling conducted during the “Market Vista: Global Services Developments in Q1 2013” webinar on May 23, 2013
  18. 18. Proprietary & Confidential. © 2013, Everest Global, Inc. 18Location concentration risk | Focus of today’swebinar Drivers behind the increasing attention to location concentration risk inglobal services Approaches adopted by companies to address location concentrationrisk Recommended best practices to measure and mitigate locationconcentration risk123
  19. 19. Proprietary & Confidential. © 2013, Everest Global, Inc. 19Mature adopters are increasing attention on locationconcentration risk, given the significant adoption andmaturation of global servicesCompany ACompany BCompany CCompany DCompany EIndia offshore scale12013; FTEs in thousands16-1712-1319-2015-161 Includes India-based offshore headcount in GICs and service providers (including co-located and remote models) providing functional support2 Includes share of headcount in judgment-intensive processes in IT and BPO (including knowledge services)Share of judgment-intensive workin India offshore headcount2Percentage30-35%25-30%35-40%20-25% Higher offshore scale andpenetration in leadinggeographies (e.g., India) Increasing leverage ofoffshore locations forcritical processes (e.g.,judgment-intensive work)30-35%25-26INDIA EXAMPLE1
  20. 20. Proprietary & Confidential. © 2013, Everest Global, Inc. 2020-2535-4050-5565-7065-705-1045-50BP (Origination)BP (Servicing)CollectionsFraudKPCustomer CareIT23-2515-1735-3728-3023-2510-12MortgageInvestmentBankingCredit CardCorporateBankingRetail BankingTreasuryServicesLocation concentration is more pronounced in caseof specific lines of business and functionsOverall23-2520-2219-2015-1813-15Bank ABank BBank CBank DBank ELine of BusinessLOBFunctions withinLOBOffshore penetration in India2013; PercentageEXAMPLE: BANK A1
  21. 21. Proprietary & Confidential. © 2013, Everest Global, Inc. 21Leading players have adopted multiple strategies tomanage location concentration riskLeverage different cities withinthe same countrySet-up additional facility in adifferent part of the same cityLeverage alternate sourcingmodels (e.g., service providers)Enable work from home options Each of these strategies canbe effective, but offer uniquetrade-offs to consider andmanage Organizations typically adoptan ad-hoc/reactive approachto designing (e.g., evaluatingoptions) and implementingthese strategiesLeverage multiple countries2
  22. 22. Proprietary & Confidential. © 2013, Everest Global, Inc. 22Recommended guiding principles to measuring andmitigating location concentration riskMeasuring concentration risk Mitigating concentration riskMeasure risk at a process/BUlevel (e.g., accounts payable forretail banking), and not only at afunctional (e.g., finance) andoverall levelAssess risk at a city-level;country-level assessment likelyto be partialMulti-location infrastructure doesnot always mitigate risk; need tocreate flexibility/capability inservice delivery across locationsAll risks need not be mitigatedgiven underlying trade-offsDifferentiate approach by thecriticality of work and nature ofrisksAccount for the criticality ofprocess in risk measurement3a 3b3
  23. 23. Proprietary & Confidential. © 2013, Everest Global, Inc. 23Recommended approach to measure locationconcentration riskExtent of exposurein a locationLocation-specificrisks Scale and penetration Criticality of process Criticality of role played by location for process Sustainability of arbitrage Risks of market saturation Threat from natural hazards Geopolitical and macroeconomic risksCity risk dashboardCountry risk dashboardRisk dashboards thatsupport executive levelview into risk3aBank A
  24. 24. Proprietary & Confidential. © 2013, Everest Global, Inc. 24Recommended approach to mitigate locationconcentration risk | BCP exampleAssess impact of disruptiveelements on operating modelQuantify cost of restoringdeliveryAssess risk mitigationoptions and implementationcost trade-offs Probability of occurrence ofdisruptive events (e.g.,earthquake, flood, riots) Level of disruption of businesscontinuity dimensions(e.g., infrastructure, humanresources) Restoration measures andcosts involved Time to normalcy andrecurrence of costs Likelihood of disruptive eventimpacting business continuitydimensions Structure mitigation options –alternative location portfolios Assess likelihood and degreeof impairment from disruptiveevents on mitigation options Assess total cost of restoringdelivery Trade-offs with cost ofimplementation and ease ofmanagement3b
  25. 25. Proprietary & Confidential. © 2013, Everest Global, Inc. 25Presentation topicsSpecial topic –Concentration riskKey marketdevelopments in Q12013Wrap up and Q&ASubmit any remainingquestions!
  26. 26. Proprietary & Confidential. © 2013, Everest Global, Inc. 26Highlights of the webinar Players building capacity ahead of demand Set-ups in both CEE and onshore EuropeSustained interest in Europeanlocations Increased attention given growth and maturity Higher concentration in LOBs and functions Need to proactively measure and mitigateIncreased focus on locationconcentration risk by marketleaders Incremental demand sustained in North Americaand major verticals over few quarters Improvement in service provider financials Uncertainty from proposed U.S. visa lawsGlobal services market isshowing early signs of recovery
  27. 27. Proprietary & Confidential. © 2013, Everest Global, Inc. 27To 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:– Eric Simonson, eric.simonson@everestgrp.com– H. Karthik, h.karthik@everestgrp.com– Salil Dani, salil.dani@everestgrp.comQ&AWebsiteswww.everestgrp.comresearch.everestgrp.comTwitter@EverestGroup@Everest_CloudBlogswww.sherpasinblueshirts.comwww.gainingaltitudeinthecloud.comStay connected
  28. 28. Proprietary & Confidential. © 2013, Everest Global, Inc. 28Check out our blog for the latest perspectiveson global serviceswww.sherpasinblueshirts.comExperts in the globalservices terrain
  29. 29. Proprietary & Confidential. © 2013, Everest Global, Inc. 29Related Content Market Vista: Q1 2013 Market Vista Industry Trends and Buyer Geography Trends Global In-house Center (GIC) market in Costa Rica and Trends in Offshore GIC market Driving Impact through Collaboration: Collaboration in the GIC-Parent, GIC-Vendor, andGIC-GIC Ecosystem Blog: Critical Impacts on the Global Services Industry Due to Upcoming Immigration Reform| Sherpas in Blue Shirts Blog: Call Centers in the Cloud: Offering Savings and New Operating Models Blog: Can Benchmarks Be Leveraged for Forward-looking Pricing Negotiations? Blog: Is Costa Rica’s Magic Beginning to Fade?
  30. 30. Proprietary & Confidential. © 2013, Everest Global, Inc. 30Everest GroupLeading clients from insight to actionEverest Group locationswww.everestgrp.com | research.everestgrp.com | www.sherpasinblueshirts.comDallas (Headquarters):New York:Toronto:London:Delhi:info@everestgrp.com+1-214-451-3000info@everestgrp.com+1-646-805-4000canada@everestgrp.com+1-416-865-2033unitedkingdom@everestgrp.com+44-207-129-1318india@everestgrp.com+91-124-496-1000

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