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Destinations Compendium 2011


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The one stop resource on global outsourcing destinations. The destinations compendium 2011 brings together the myriad dynamics of outsourcing locations in one place complete with research, data, and …

The one stop resource on global outsourcing destinations. The destinations compendium 2011 brings together the myriad dynamics of outsourcing locations in one place complete with research, data, and expert opinions.

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  • 1. Hangzhou, China A City of Financial Delivery Center Demonstration City of Chinasourcing Hangzhou Hangzhou is defined as the “China Service Outsourcing Demonstration City” in February 2009. Hangzhou is also one of the 21 software industry base cities in mainland China. It has currently formed the several industries including telecommunication, software, integrated circuit, digital TV, animation games and E-commerce.The revenue of software business in Hangzhou was achieved at 47 billion RMB in 2009, the software export revenue reached at 460million USD. There were total 112 enterprises passed CMMCMI, ISO27001 certification. There were 20 IT software enterpriseshave list on public market, two companies ranked at Top 10 of self-brand software products, total 15 enterprises have list at the key software enterprises name list of the national strategic planning. In order to accelerate the development of outsourcing industry, Hangzhou Municipal Government set up the leading team to draw up the development plan, issue the supporting policy to make the rapid development of outsourcing industry in Hangzhou. The total delivered amount of offshore outsourcing business reached at 919mllion US Dollars, risen to 352% compared to the same period of last year (2008).Hangzhou government has put more focus on the financial service outsourcing that is considered as the medium and high end outsourcing industry, Hangzhou now is creating to become the financial delivery center. For more details, please click: International Financial Outsourcing Center Planner & Organizer: Great-Idea Business International Outsourcing Promotion Center
  • 2. 2011 the West Lake, Enlightenment and Discussion Discovery, Transformation, Reaction, Share To Combine the Global Resources and Facilitate theIntegration & Improvement of Global Service CapabilityFor Your Attention International Outsourcing Business Development Summit Date: October 24-26, 2011 Venue: Zhejiang Narada Grand Hotel, China Sponsors: Ministry of Commerce of the People’s Republic of China Ministry of Industry and Information Technology of the People’s Republic of China Ministry of Education of the People’s Republic of China Host City : Hangzhou People’s Government Official Promotion: Hangzhou Municipal Foreign Trade & Economic Cooperation Bureau International Financial Outsourcing Center Contact: Tel-8610 85863613 Fax-8610 59081093
  • 3. Global ServiceS A CYBERMEDIA PuBlICAtIonAn integrated media platform which connects the Pradeep Guptavarious constituents of the global technology and Chairman & Managing Director business processing services industry ecosystem. Cyber Media (India) Ltd. E. Abraham MathewDirectory of ServiceS President Ed nairNewSletter Editor regular digest of key industry happenings. Satish GuptaDiGital MaGaziNe Head of Sales and Marketing monthly digital magazine features researchreports, articles and experts’ views. Available on Smriti Smita VasudevanwebiNarS Services’ web-based seminars aim to Sourabh Chandra Pushpimpart useful information related to outsourcing in the form of presentations and discus- niketa Chauhansions by industry specialists. Gary BindrareSearch Manager International SalesWe deliver indepth analysis and research reports sourcing subjects. Rahul Randhawa Manager International SalesMicroSiteS resource center designed to provide Global Servicesfocused content on special subjects to the out- Cyber Media (India) Ltd.sourcing community. CyberHouse, B- 35, Sector 32 Gurgaon-122001, IndiaeveNtS Tel: +911 24 4822222 Fax: +911 24 2380694From multi-day, high-level, resort conferences to Contact:intimate breakfast discussions we offer a number opportunities that connects the outsourcingcommunity. Disclaimer All rights reserved. No part of this publication may be reproduced by any means without prior written permission from the publisher.cUStoM ProGraMCustomized services rendered through different letterS to the eDitormedia platforms. Send letters to, or to any of our writers. We reserve the right to editoSoUrce booK all letters. Postings submitted to our blogs andA directory of global outsourcing service providers. letters to the editor may be published in digital magazine or Website.
  • 4. YOUR STRATEGICTECHNOLOGYPARTNERBuilding solutions forFinance, Telecom, IT,Automotive and Energysectors 5000+ best in class engineers 4500+ 18 offices in 11 countries Track record of building highly complex solutions Expertise in business and technology domains Focus on innovation and R&D Best-in-class processes CONTACT US: MICHAEL MINKEVICH ROMAN TRAKHTENBERG VP Technology Services Managing Director, Luxoft USA E-mail: E-mail: Tel: +7 (495) 967-8030 x4427 Tel: +1 (212) 964 9900x Mobile: +7 (495) 364-9137 Mobile: +1 (917) 930-205
  • 5. EDItoR’S notE Global City Competitiveness: Summarizing the ED Nair, Editor Dynamics T he services industry has earned the reputation of being a very respectable, environment- friendly, and economically rewarding industry amongst its many other advantages. It is no wonder that this has set off a race of sorts between countries and various cities. For buyers of services, the question ‘which place to go’ has always been crucial. The decision has direct impact on costs saved, capacity/ scale added, risks managed, and ultimately the over- all value maximized by the enterprise. What makes this game interesting is that these parameters are dynamic; sometimes they change within a year, yet in other cases, it takes years for a location to gain a pixel worth of attention on the map. Studies on locations are therefore very interesting and useful because they embody the net result of actions taken to develop a location and results obtained from these actions. This leads to the constant shifting of the order or a re-ordering of the ranks of cities that attract work in global services. Ranking of cities is becoming not only increasingly difficult but also progressively untenable in presenting a holistic view of how cities develop. Not everything can be shrunk into a number, as they say. Hence, we decided to do away with the practice of ranking cities to create the Top 100 Outsourcing Cities list and instead created a list of 100 cities that represent a threshold in service delivery. Our research partner for this year’s study is NeoGroup, the premier sourcing advisory firm that has been tracking globalization in services delivery and competitiveness of service locations for more than a decade. NeoGroup’s annual study on city competitiveness provides the main research input into this year’s Global Services Destinations Compendium. As usual, the Global Services Destinations Compendium is an attempt to bring together the myriad dynamics of outsourcing locations in one place-complete with research, data, and expert opinions. At the most granular level, we look at cities and how they compare with each other. More importantly, we look at how upwardly dynamic cities are compared to previous years. Credit is due to the cities that are featured in this issue for their sustained efforts at developing the outsourcing industry. Welcome to the Global Services Destinations Compendium 2011!
  • 6. True Public Private Partnership Reliable Infrastructure Central LocationCommitted to Investors’ Success Investor Friendly CMMI and SPOT Certi cations Educated Human Resources
  • 7. CoNTENTS 11 THE TOP 100 CITIES 2012 Top 100 Global Services Destinations 12 Key Insights 14 Methodology & Coverage 16 Global Cities Coverage 17 Country Snapshot: APAC 18 EMEA 19 Latin America 20 City Profile: Dalian 21 Bogota 22 Cairo 23 29 REGIONAL DYNAMICSAsia 30Europe 40Middle East & Africa 45Latin America 50North America 59
  • 8. 69 EXPERTSThe Case for Nearshoring: Why and How the New Normalwill shift Sourcing Dynamics 70by Anupam Govil, Partner with Avasant and President of AvasenseGlobal Supply Risk Management: Monitoring and Managing GlobalSourcing & Services outsourcing Risks 76by Atul Vashistha, Chairman & CEo, Neo Group Inc.Latin America: De-risking is Becoming Ever More Criticalby Benigno (Beni) Lopez, Chief Globalization officer, Softtek 86Destination Strategy - What Makes/Breaks It? 90by Deepali Sathe, Project Manager, ValueNotes Sourcing PracticeCompete or Cooperate? Bridging the Near shore- offshore Divide 94by Lalit Dhingra, President, NIIT Technologies Inc.Choosing the Right offshoring Destination 96by LN Balaji, President of ITC InfotechDoes Captive offshoring Still Make Sense? 100by Nigel Hughes, Compass Management ConsultingAfrica Rising – outsourcing Juggernaut set Sails 103by Dr. P.K. Mukherji, President & Managing Partner, AvasantAfrica : A Ripe Terrain for Impact Sourcing 108by Pumela Salela, BPo ConsultantBusiness Transformation and the Expansion into Asia 114by Sudhir Narang, Managing Director, BT IndiaLocation Strategy For Indian Delivery Centers 117by Viral Thakker, Executive Director, Head – Shared Services and outsourcing Advisory KPMGin India and Jehil Thakkar, Executive Director Head – Global Location and Expansion ServicesAdvisory, KPMG in India
  • 9. the top 100 citiesn 2012 Top 100 Global Services Destinations ............. 12n Key Insights ............................................................ 14n Methodology & Coverage ........................................ 16n Global Cities Coverage ............................................ 17Country Snapshot :n APAC ...................................................................... 18n EMEA ..................................................................... 19n Latin America .......................................................... 20 byCity Profile :n Dalian ..................................................................... 21 Neo Group &n Bogota .................................................................... 22 Global Servicesn Cairo ....................................................................... 23
  • 10. 1212 E X P E R T S 2012 Top 100 Global Services Destinations Key Topics covered • Detailed profiles of 100 cities across Asia Pacific, Europe, Middle East, and Africa, and Central and Latin America • Key outsourcing services from each city • Current and future attractiveness of cities • Established, emerging, and nascent locations by outsourcing service functions • Data on annual graduate pool, IT and BPO workforce, industry size, attrition etc for each city • Recommendations on location strategy and evaluation Destinations Compendium 2011
  • 11. The Top 100 Cities 132012 Top 100Global Services DestinationsO rganizations continue to adopt outsourcing as a business strategy and an effective optimization and transformation lever to help them mitigate the current financial and competitive challenges. As a consequence of increased adoption of outsourcing, the global sourcing landscape has been undergoing changes and many global locations are evolving to serve specific needs of organizations that embark on their globalization journey or evolve as mature globalizers. Global sourcing is mainstream. While cost containment will continue to be an important factor in the global sourcing decisions of organizations, other factors such as access to a global talent pool, new market entry, and geographic risk diversifica-tion have become increasingly important. The cities covered in this report are by no means an exhaustive set of potential destinations. New destinations are constantly emerging in the global marketplace. This report attempts to provide its readers a view of the changing landscape across the more established as well as emerging destinations. We hope this report will provide you with insights as you consider and evaluate options as part of your organization’s location strategy. This report analyzes a mix of established as well as emerging and nascent out-sourcing destinations. The report covers over 100 cities across 50 countries. While traditional and preferred outsourcing destinations have been the focus of attention for over a decade, this report provides a perspective of many other locations that possess a strong potential to emerge as successful global sourcing destinations in future. The complete report will be available in November 2011 at www.neogroup.comand Destinations Compendium 2011
  • 12. 14 KEy INSIghTS City, not Country: Location assessment based on country selection is a good starting point, but cannot be the basis for an organization to set up operations. Certain macro fac- tors such as currency and risk perception are the same across the country. However, sev- eral important criteria for location assessment such as quality and availability of labor, taxes and other incentives can vary significantly across cities within the same country. Assessing organizational determinants and mapping them against market determinants, at a city level would be the recommended approach. Country based assessments, often tend to overlook organization specific requirements. The Changing Landscape: Global outsourcing destinations can be categorized as established, emerging, and nascent, based on the maturity of locations. While estab- lished locations have inherent challenges of higher costs and sustainability, they are still the most optimal fit for mature and advanced globalization activities. Tier-II and Tier-III global cities are gaining increased attention where organizations are keen on leveraging an early mover advantage. With the migration of talent becoming a com- mon global phenomenon, such low cost cities are well placed to offer their competitive advantages. Expansion of global Sourcing: Several factors are resulting in the expansion of the global sourcing landscape. IT and BPO service providers are expanding their global delivery capabilities beyond the established hubs such as Bangalore, Manila, Warsaw, Shanghai, etc in order to access new sources of talent, overcome the fight for talent in established locations, preserve their margins by going to lower cost locations as well as have the first mover advantage and be the employer of choice. Margin preservation, a re- look at core competence, gaining an early mover advantage, revenue preservation, mul- ti-lingual requirements to address global markets are few drivers adopted by matured globalizers that continue to expand the global sourcing landscape. This expansion is Destinations Compendium 2011
  • 13. The Top 100 Cities 15taking place not only in cities in newer geographies but also in Tier-II cities in countries such as India, China, Philippines, and Poland. Governments and local administrations are also wooing investors via incentives as well as through the development of business and human resource infrastructure to promote their locations. Finally, as established destinations evolve in terms of service maturity and complexity of services offered, newer cities will emerge to fill in the void and become attractive from a cost and capa-bility perspective for less complex skills. Scale vs. Niche: An important consideration for companies establishing their delivery centers is also to consider their headcount requirements. The choice of a city for set-ting up a large delivery center with headcount in thousands is fundamentally different from a requirement for resource headcount of a few hundred or less. Few countries and specifically, few cities offer a viable opportunity to scale operations. Cities in populous countries such as Brazil, China, India, Poland or the Philippines stand out for such requirements. Even within these countries, scalability issues vary by city. While estab-lished cities such as Sao Paulo, Manila or Warsaw may offer limited scalability for a company in today’s environment, emerging cities in these countries such as Campinas, Cebu, Łód or Pozna may be more viable alternatives. While ‘nascent’ cities with limited activity look attractive, companies should consider the potential supply shocks that may result with rapid, large scale expansion and increased wage and cost pressures. For many matured globalizers that target global markets, multilingual requirements and offshoring advanced and core activities of business functions have become key require-ments to sustain competitive advantage. Such organizations have a unique requirement of combination of scale and niche skills which mostly can be supported by established and matured outsourcing destinations. Leading product development firms and profes-sional services firms are good examples of such matured globalizers. Role of government Support and Incentives: The success of the IT and BPO sectors in employment generation in the economy, increased standards of living, contribution to the region’s exports, GDP growth as well as a diversification to a service oriented economy is abundantly clear. Success stories of countries such as India, China, and Philippines have made governments and local administration in other regions realize the tremendous potential and accompanying benefits. In order to wean potential inves-tors, incentives in the form of corporate and income tax holidays, subsidized or free land grants, lower customs and export duties, fast-track, single window regulatory clearances as well as incentives for training and recruitment are provided. While the nature and basket of incentives offered varies across cities, it is a common theme that runs across the cities that we have covered in this report. Companies that are early or first movers are the biggest beneficiaries of government incentives, as the local administration is keen to develop an initial set of success stories that can be used to effectively market the region to attract further investment in future. The role of government in identifying the ICT sector as a strategic growth area and channelizing planning efforts are critical success factors for a location’s attractiveness. Destinations Compendium 2011
  • 14. 16 MeThodology & coverage Data for this report was collected using a combination of primary and secondary research. Neo Group contacted outsourcing industry associations from various countries, software technology parks, investment agencies, as well as service providers across 50 countries covered in this report. The data gathered was qualitatively analyzed using Neo Advisory’s proprietary location assessment framework. Leveraging our experience on location assessment engagements by working with our clients, the research focuses broadly on eight categories that are critical to be analyzed while choosing a location. Location Factors Key Parameters Macro - Economic FDI, inflation rate, GDP growth rate and contribution to Attractiveness service sectors Financial Attractiveness Real estate rent, support cost, corporate tax rates, labor cost, wages inflation, cost to start business, tax incentives, travel cost Geopolitical Attractiveness Political stability, natural disaster, terrorism, rapes rate, City Murder rate etc Industry Maturity Size of industry, presence of major IT & BPO companies, multilingual capability, key services, industry specific services and focus Human Resource Size of workforce, university graduates output, attrition Attractiveness rate, scalability, sustainability, language proficiency Infrastructure Attractiveness Number of ISPs, personnel computers, Internet users, Fixed Internet subscribers, number of IT parks and SEZs, airline connectivity, road infrastructure, power supply Business Environment Procedures Required to Start a Business, Time Required Attractiveness to Start a Business, Procedures Required to Register a Property, Time Required to Register a Property, Procedures Required to Enforce a Contract, Time Required to Enforce a Contract, Lodging availability, Hotel Room Occupancy Rates, Cultural compatibility for expats, Cost of Living, Risk & safety for expats, Environmental Pollution levels, Ease of travel such as frequency of flight and travel times to U.S, Europe, Australia, Japan etc Risk Overview Security, Political, Government, Legal & regulatory, Macroeconomic, Foreign trade & payments, Financial, Tax policy, Labor market, Infrastructure Destinations Compendium 2011
  • 15. The Top 100 Cities 17The following is the list of cities covered in this report under respective regions: Global Cities Coverage APAC: EMEA: AMERICA: 1. Bacolod City 1. Alexandria 1. Barranquilla 2. Bangalore 2. Amman 2. Brasília 3. Bangkok 3. Belgrade 3. Buenos Aires 4. Beijing 4. Bratislava 4. Calgary 5. Bhubaneswar 5. Brno 5. Cali 6. Chandigarh 6. Bucharest 6. Campinas 7. Chengdu 7. Budapest 7. Cordoba 8. Chennai 8. Cairo 8. Curitiba 9. Coimbatore 9. Cape Town 9. Guadalajara 10. Colombo 10. Casablanca 10. Guatemala City 11. Dalian 11. Dubai 11. Kingston 12. Davao 12. Dublin 12. Lima 13. Delhi NCR 13. Durban 13. Managua 14. Guangzhou 14. Irbid 14. Medellin 15. Hangzhou 15. Jerusalem 15. Mexico City 16. Hanoi 16. Johannesburg 16. Monterrey 17. Ho Chi Minh City 17. Kharkov 17. Montevideo 18. Hyderabad 18. Kiev 18. Queretaro 19. Jaipur 19. Kosice 19. Rio De Janeiro 20. Jakarta 20. Krakow 20. San Jose 21. Jinan 21. Ljubljana 21. San Pedro de Sula 22. Johor CyberPort 22. Lodz 22. San Salvador 23. Kabul 23. Lusaka 23. Santiago 24. Klang Valley 24. Lviv 24. Sao Paulo 25. Kolkata 25. Minsk 25. Toronto 26. Metro Cebu 26. Moscow 26. Valparaíso 27. Metro Manila 27. Nairobi 28. Mumbai 28. Nizhniy Novgorod 29. Nanjing 29. Novosibirsk 30. Pasig City 30. Port Louis 31. Penang Cybercity 31. Poznan 32. Pune 32. Prague 33. Shanghai 33. Riga 34. Shenzhen 34. Sofia 35. Thiruvananthapuram 35. St. Petersburg 36. Xian 36. Tallinn 37. Valletta 38. Vilnius 39. Warsaw Destinations Compendium 2011
  • 16. 18 Country Snapshot : APAc Cities in this region continue to offer the highest cost saving among all the outsourcing destinations covered in this report. The average ITO and BPO salaries in APAC cities are much lower compared to wages in Latin America and EMEA region. The universities and colleges generate a large, qualified labor force that is highly scalable to meet the demands of the industry. The skill sets of the labor pool available in the region are well suited to support BPO and ITO services including knowledge services. One of the barriers is the cultural and time zone difference with the western countries. The United States, Western Europe, United Kingdom, and Japan are the key demand markets. The United States accounts for approximately 70 percent of the total outsourcing revenue of the region while Chinese cities such as Dalian, Beijing, and Shanghai focus on the Japanese market due to the lingual capability and proximity. It is estimated that around 60 percent of the Chinese o u t s o u r c i n g revenue is from the Japanese market. While the region’s focus has been on the U.S. market, the suppliers in the region are gradually diversifying their risk by focusing on other demand markets such as continental Europe and United Kingdom. This has been evident in the changing revenue mix of the region over the last few years. The APAC outsourcing business is dominated mainly by banking, financial services, insurance (BFSI), and telecommunication sectors. It is also forecast that the BPO market size in Asia Pacific will reach 17.47 billion by end of 2015 with a growth rate of 15% in the emerging countries such as India, China, and South Korea. Destinations Compendium 2011
  • 17. The Top 100 Cities 19Country Snapshot : eMeA The EMEA region has seen a surge in outsourcing activity traction in the last few years. This traction is attributed to multiple reasons. Cultural and geographic proximity to European markets, availability of relatively low cost skilled workforce in regions like Eastern Europe, Russia, and North Africa, and most importantly, a sizeable workforce that can meet and support the multi-lingual requirements of global organizations are the key drivers for outsourcing traction in the region. The region has a highly efficient school system that adds thousands of skilled labor every year to its workforce. Focus on advanced science and engineering, specifically in Russia and Eastern Europe has led to the creation of global centers of engineering and technology excellence in this region. They have a huge technical potential because of their level of western world comprehension bolstered by their educational system. Middle East has been a source of attraction for the outsourcing industry in the recent past. North African locations like Casablanca and Cairo offer excellent multi- lingual skills at low cost. North and East Coast Africa have good telecommunications connectivity and thus more traction is seen in these regions within Africa. MENA region is expected to witness a CAGR of 8% during the forecast period of 2009- 2016; even UAE outsourcing market will record a CAGR of 10% during the same period. Destinations Compendium 2011
  • 18. 20 Country Snapshot : Latin America Presence of huge Spanish speaking population in the U.S. and Latin America has led to the growth of Central and Latam region’s outsourcing industry. With sizeable and moderately scalable bi-lingual population along with skill sets to support few European languages, the Central and Latam region has captured a prominent space in the global outsourcing landscape. Positioned in a similar time zone and geographically close to the U.S. market has made Central and Latam region the most favored nearshore destination for the U.S. Central and Latam region is unique in terms of its cultural orientation. Being close to the U.S. and with large historic European settlements, the region is culturally oriented to both the demand markets. Similar time zone is another advantage that cities in Central and Latin America possess in the global outsourcing market. Due to geographic proximity, travel time to Central and Latin American cities from the U.S. is very less when compared to offshore locations. One of the main advantages of Central and Latin America is the ability to offer real-time services. Outsourcing in Latin America is the fastest growing region in the world. The BPO market size in Latin America is forecasted to reach US$ 18 billion by 2012, which contributes to about 4% of the global BPO market. Destinations Compendium 2011
  • 19. The Top 100 Cities 21 City Profile DalianD alian is known as the ‘Model City’ of Chi- Country China na, and a showcase of how China is at- Population 6.2 Million tempting to transform from being just alow cost producer to a high technology, knowledge Annual Graduate Pool 94,500based economy. Located in the North Eastern corner IT Labor Pool Size 95,700of China, its geographical proximity to Japan and cul- BPO Labor Pool Size 38,500tural affinity have resulted in the city cornering mostof the Japanese market for outsourcing. 80 percent of Call Center (Japanese,Dalian’s software exports are destined to Japan. Hav- Korean, Chinese), Embedded Software,ing cornered this market, Dalian in the past few years Key Services Engineering Services, F&Ahas been looking to the West, primarily the U.S. and BPO, IT Services, SystemsEuropean markets to make inroads in the outsourcing Integration, Technicalsector. Helpdesk The city’s combined IT and BPO projected rev- Current Futureenue in 2010 was US 3.9 billion, with exports of US Attractiveness Attractiveness842 million, accounting for one-third of the country’soutsourcing revenue. It is anticipated that both theIT and BPO industry in the city will grow at over 35percent annually for the next three years. Dalian is home to approximately 300 scientificresearch institutions that produce 94,500 graduatesand 25,000 technical graduates annually with an ad-ditional 8,600 students with reasonable Japanese-lan-guage skills. Currently, the city employs approximate-ly 95, 700 in the IT industry. The Dalian Instituteof Foreign Languages provides training in English,Japanese, Korean and other foreign languages to ca-ter to the requirements of the call center industry.Neusoft Institute of Information Technology is oneof China’s largest IT institutes. Despite the presenceof these and other institutes, Dalian faces challengesin access to labor supply due to the rapid growth it iswitnessing. Destinations Compendium 2011
  • 20. 22City Profile Bogota B aogotá, considered a rising star in Latin Amer- Country Colombia ica for services offshoring is the commercial Population 7.8 Million and cultural capital of Colombia. Once per- Annual Graduate Pool 67,000 ceived to be unsafe, the country has, in recent years IT Labor Pool Size 20,000 transformed itself as one of the best locations to do business in Latin America, ranking higher than coun- BPO Labor Pool Size 35,000 tries such as Brazil, Chile, and Mexico. Contact Center (Spanish, Key Services Bogotá has a good educational system that produc- Limited English), IT Services es qualified talent to meet the demands of the grow- ing industry for various business activities related Current Future to offshore services. The city is home to more than Attractiveness Attractiveness 107 higher educational institutions that produce ap- proximately 67,000 graduates every year, of which, 17,000 are technical graduates. At present, the BPO and IT industry in the city has a combined work- force of 50,000, of which approximately 80 percent is employed in servicing the domestic market and 20 percent services the export oriented markets, primar- ily across Latin America and Spain followed by the United States. 80 percent of Colombia’s contact center indus- try is located in Bogotá and generates 60 percent of the overall revenue. Bogotá’s outsourcing revenue in 2010 was about USD 582.162 Million, of which 82 Million is from exports. Bogotá is well suited for setting up contact center operations to service the Spanish speaking markets in the United States, Spain, and Latin America. Destinations Compendium 2011
  • 21. The Top 100 Cities 23 City Profile CairoT he city of Cairo is the educational hub of Country Egypt Egypt as well as for MENA (Middle East and Population 17 Million North Africa) region. The government is ea-ger to attract and support foreign investments to de- Annual Graduate Pool 30,000velop the ICT sector and provides several incentives IT Labor Pool Size 28,400to investors. Incentives include beneficial purchase BPO Labor Pool Size 11,600options for municipally owned land and tax exemp-tions to companies setting up operations. Embedded Software , IT Services, Medical The recent event in Egypt doesn’t stop the growth Transcription, Multilingual Key Services Call Center, Productof outsourcing industry in Cairo. Example: - Teleper- Development, Softwareformance has no intention to reduce its investment in Testingthe country; instead the company increases its man-power from 1,100 in January 2011 to 1,700 in May Current Future2011. Attractiveness Attractiveness Cairo serves not only the Middle East and Afri-can markets but is increasingly becoming a hub forserving the IT and BPO requirements for Europeancountries such as Spain, United Kingdom, etc. A keyenabler is the availability of a multi-lingual skilledworkforce fluent in Arabic, English, Spanish, Ger-man, and French. It is estimated that the IT and BPOsectors employ 40,000 people at present. The government is also developing a BPO Park at Cairo international airport is the second busiest Maadi in the south-east of Cairo, which is going toairport in Africa with air connectivity to various parts be operationally ready 2012.of the world. The government is investing heavily toupgrade the existing telecommunication systems and Application development, testing and technicalpower supply to keep pace with the growing demand. support, product development, contact center ser- vices, and medical transcription are the main services The Smart Village, a public-private investment being outsourced from Cairo.partnership was set up in 2001 to attract investmentand serve as a cluster for IT and business services. Cairo is well positioned to grow as an importantSeveral multinationals have already set up their cap- global sourcing destination for serving the MENA astives and global delivery centers in the Smart Village. well as European and U.S. markets. Destinations Compendium 2011
  • 22. COUNTRY-IN-FOCUS Ensuring Global Visibility A special feature for countries to showcase their uniqueness There are numerous outsourcing destinations that exist as great alternatives to India and China. Inviting Countries to showcase capabilities that accentuate their uniqueness.Examples of Country-in-focus feature Egypt Philippines Jordan JORDAN For more information write to
  • 23. Why Jordan? •  Jordan  also  possesses  with  high  quality  residential  a  modern  and  progressive  developments,  and  a  vast  society.  Jordan  is  known  for  array  of  dining  entertainment  its  economic  and  political  and  leisure  opportunities  for  stability,  and  for  a  multi- residents, workers, visitors and •  True  Public-private  partner- cultural  society,  marking  it  as  touristsship:  A  model  that  has  been  an  attractive  destination  for  •  Irbid  Development  Area: proven  to  be  a  success;  The  foreign  nationals  to  work  and  Located in Jordan’s fertile north Government  and  the  private  reside adjacent  to  the  kingdom’s sector  have  committed  to developing  the  required  infra- •  Two  cities;  Amman  and  leading  scientific  institutions structure,  attractive  incen- Irbid  have  emerged  as  the  and  one  of  the  Middle  East’s tives  and  training  initiatives  to  outsourcing  Cities  due  to  foremost  ICT  and  health  care ensure  a  constant  supply  of  the  strong  infrastructure  and  universities, and stretched over skilled manpower talented workforce: a  3.2  km2  area,  20Km  east  of •  A central location to support  •  Business Park Development  Irbid  city  and  80km  north  of a  regional  hub  and  spoken  Area  in  Amman-Dabouq:  the Jordanian capital Ammandelivery  model;  with  many businesses  looking  to  expand beyond the traditional markets, Jordan  offers  a  unique  market to  tap  to  the  growing  MENA region. At a short flying distance from  the  GCC  countries,  North Africa, Central Asia, and Europe, Jordan  provides  an  easily accessible  location  from  which to support multiple regions•  Jordanian  companies  now have  CMMI  and  SPOT  certifi-cations;  Certificates  that  are the  best  internationally  and are  considered  an  asset  to  any  Located  in  an  outstanding  •  Time Zone: 2-3 hourscompany city  location  on  Amman’s  ahead of Greenwich timing•  A  young,  growing,  and  in Winter and Summer times main  corridor  with  quick educated talent pool providing  respectively. Countries with- access  to  all  city  amenities, a good source of man power Business  Park  Development  in one time zone include•  Investor-friendly  regula- Area  is  destined  to  become  those in Eastern Europe andtions  that  do  not  require  local  a  sustainable  and  enduring  GCC countriesbusiness partners, Jordan does  mixed-use  city  district  that  •  Population: 6.5 Millionnot  have  any  foreign  owner- will provide future growth and  •  For more informationship/repatriations  restrictions  development  for  Amman  and  on Jordans country profileor  localization  policies  thus  Jordan.  It  offers  international    please log on togiving flexibility standard  office  environments Advertorial Destinations Compendium 2011
  • 24. •  European  Free  Trade  Association: Entered into force in  January  2002,  it  aims  at  setting  up  a  fully  operational  free  trade  area over a period of 120 years •  AGADIR:  Entered  into  force  on  July  6  2006,  the  agreement  allows  for  diagonal  accumula- tion of origin amongst its mem- •  Roads:  Jordan  has  a  well  ber countries developed road network allow- •  Joining  the  GCC  council  ing  quick  access  to  all  its  terri-Stable environment, trade membership  is  in  negotiation  torylinkageS & agreementS •  Electric Energy: Reliable and  phase amongst others•  Sound  macroeconomic  competitively  priced,  electric-management,  prudent  fis- general infraStructure ity  in  Jordan  is  generated  by cal  and  monetary  policies  and  •  Three  Airports:  Queen  Alia sustained  structural  reforms  the  Jordanian  Electric  Power  International  Airport  (Amman) including legislative, regulatory,  which  was  recently  expanded  Company (JEPCO). Government and  judicial  reforms  have  posi- to  serve  9  million  passengers.  direction is also geared towards tioned  Jordan  as  an  ideal  base  increasing the use of renewable for export-led growth to region- energy sourcesal and international markets•  The  Kingdom  consistently  education & Workforceranks  among  the  safest  loca- •  Named  as  the  MENA  region’s tions  for  business  in  the  world  top performer in the field of edu-and among Arab nations, in par- cation  reform,  Jordan  has  been ticular•  Jordan  is  committed  to freedom  of  expression  and choice. Measured by the Annual Freedom  House  Survey,  Jordan ranks fourth in the region•  An  array  of  international trade  agreements  for  foreign direct investment and export:•  USA-JUSFTA:  Has  been  in force since 2001. It was the first free  trade  agreement  negoti- pushing towards attaining highest ated  by  the  US  with  an  Arab  King  Hussein  International  international standards of qualitycountry, and the fourth with any  •  Jordan  has  a  literacy  rate  of  Airport  (Aqaba)  and  Amman country in the world  91%•  GAFTA: Establishment of the  Civil Airport at Marka for mostly  domestic  and  nearby  interna- •  70%  of  the  population  age Arab free trade zone by January  tional routes demographic  is  under  the  age 2005  •  Seaport:  The  Gulf  of  Aqaba  of 30, denoting a youthful pop-•  Jordan –EU Association Agree-ment:  Came  into  force  in  2002,  ulation,  ideally  suited  for  ITO  on  the  Red  Sea  is  deep  water the  agreement  aims  at  creating  and BPO jobs harbor which offers facilities for a  free  trade  agreement  by  end  •  Females  comprise  51%  in  general  cargo,  containerized of 2010 under graduate studies cargo and specialized cargo •  26  state  and  private  accred-•  Singapore:  Signed  in  May 2004;  The  agreement  aims  at  •  Railroad: There is a new rail- ited universitiesthe  gradual  elimination  of  cus- way master plan to improve and  •  Over  40  institutions produc-tom  duties  over  a  period  of  10  increase  the  existing  620  km  ing highly skilled techniciansyears long rail network Destinations Compendium 2011
  • 25. •  Today, more than 29,000 for- tious  initiative  led  by  Majesty eign  students  are  enrolled  in  King  Abdullah  was  launched, Jordanian Universities creating  development  zones •  Areas of study with the high- across  the  Kingdom  that  pro-est enrollment include Business  vide  investors  with  a  globally Administration,  Engineering,  competitive  combination  of Computer Sciences, Humanities,  location,  infrastructure,  and Education and Teacher Training,  services  and  labor.  The  DFZC’s and Medical Services vision  supported  by  a  highly •  Jordan’s workforce is regard- qualified  team  that  works  in  •  The  National  ICT  strategy ed as one of the most qualified,  partnership  with  the  develop- serves  2  basic  goals.  First,  it competitive  and  productive  in  ment zones master developers;  identifies  the  ICT  sub-sectors the region charged  with  managing  the  best-suited  for  growth  given •  Jordan’s  labor  rates  are  con- buildings,  development  and  the  environment  in  Jordan. siderably  cheaper  than  those  operation of the zones. To date,  Thus,  the  strategy  challenge  to in other countries in the Middle  six  development  zones  are  which  the  private  sector  in  the East currently  operational,  offering  country  must  respond.  Second, •  Labor  force  specialties  diversified investment opportu- it  defines  actions  the  govern-include:  information  technol- nities that build on each zone’s  ment must take to do its part to ogy, engineering services, travel  competitive advantageand tourism, textile production,  facilitate ICT sector growth •  benefits to foreign inves-natural  resource  extraction,  tors:  •  As  a  result  of  implement-pharmaceuticals and light man- •  Foreign ownership 100% ing  these  strategies,  annual ufacturing •  Foreign employment  ICT  sector  revenues  increased  •  One  Stop  Shop:  One-Stop  by  an  average  of  25%  yea-on-commitment to year    over  the  past  few  years inveStorS’ SucceSS Shop  services  to  streamline  and ease the process of estab- and  generated  income  repre- lishing an operation within the  senting  approximately  14%  Business  Park.  Investors  will  of  the  country’s  GDP,  adding  be  able  to  avail  of  these  fast  over  15,000  jobs  directly  to  track  facilities  for  all  services  the  economy  and  more  than  ranging  from  Registration  to  80,000  jobs  overall  whether  Licensing,  Visas  and  Customs  direct, indirect or induced formalities •  Jordanian  telecoms  have  •  Tax  and  free  related  incen- invested  over  USD  400  million  tives and exemptions  in  recent  years  in  a  number  of •  Jordan  Investment  Board:  •  Exemption  from  sales  tax  technology  solutions  designed A  government  institution  and custom duties to  make  Jordan  more  acces-committed  to  working  with the  private  sector  to  promote  •  As  a  result,  Foreign  Direct  sible  to  the  rest  of  the  world Jordan  for  its  unique  and  busi- Investment  (FDI)  surged  from  •  Opportunities in Jordan’s tel-ness  friendly  environment  and  USD  937  million  in  2004  to  ecom revenue reached USD 3.1 diverse  investment  opportuni- around USD 2.4 billion in 2009 billion, up from USD 673 million ties. The JIB presents state of the  ict in 2001art  services  for  facilitating  reg- •  In  response  to  a  challenge istration  and  licensing  proce- put  forward  by  His  Majesty  in dures for projects, and offers all  1999,  the  efforts  were  direct-possible  simplified  procedures  ed  at  devising  a  comprehen-for investment sive  framework  for  Jordan’s  ICT •  Development  and  Free  sector,  which  resulted  in  many Zones  Commission:  An  ambi- strategies Destinations Compendium 2011
  • 26. Shared ServiceS center:outSourcing: •  Alongside  lower  costs,  western  •  With  its  strategic  location  as  a Jordan  specialties  in  outsourcing    style legal system, strong IPR laws and  gateway  into  the  MENA  region,  its lies in: a business friendly climate, Jordan has  good  international  connectivity,  lower  been  positioned  as  an  important  IT  costs,  and  world  class  infrastructure, buSineSS ProceSS outsourcing destination  Jordan can be the ideal destination for outSourcing (bPo): •  Many  multinationals  as  well  as  shared services centers •  BPO  requires  expertise  in  key  local firms have capitalized ion Jordan’s  •  As  a  BPO  hub  for  MENA  region, business  functions  like  finance  and  rich  source  of  talent  and  aptitude  for  Jordan  can  be  the  decisive  choice  for accounting,  human  resources,  claims  sophisticated  IT  skills  by  establishing  establishing regional headquarters and processing,  and  customer  relationship  outsourcing operations shared services infrastructure manager •  Current capabilities in Jordan range •  With  its  higher  literacy  rate,  lower  from outsourced software development  •  A  supportive  government  and cost,  and  highly  trainable  ICT  savvy  best  in  class  incentives  offer  an  ideal  and  testing  to  remote  infrastructure  launch pad for multinationals that can workforce,  Jordan  is  ideally  suited  to  management  to  providing  technical provide such services  leverage Jordan’s strong workforce and  assistance on sophisticate products  cost to their advantage to further their •  Jordan’s  familarity  with  the  •  Leading  tech  companies  such  as  global diversification strategyAmerican,  British,  Asian,  as  well  Cisco,  Microsoft,  Oracle,  HP,  Google as  Middle  East  business  practices  and  others  have  established  centers  contact centerS: positions it well to serve all continents  of excellence in Jordan to tap into the  •  Jordan  has  a  natural  affinity •  Global service providers have been  country’s ICT advantage to  become  a  strong  contact  center active  in  Jordan  and  are  using  it  as  a  outsourcing  hub  owing  to  a  highly  knoWledge ProceSSbase  to  serve  its  regional  as  well  as  service  oriented  economy,  a global clients  outSourcing (kPo):  competitive  cost  structure,  a  young •  Sectors  with  good  potential  for  •  Knowledge  based  services  require  workforce and familiarity with both the outsourcing  business  processes  to  qualified  labor  force  with  specific  Western and Regional cultures Jordan  include  banking,  insurance,  expertise,  advance  knowledge,  analytical interpretation, and technical  •  With  a  relatively  neutral  English healthcare,  telecom,  hospitality  and  and  Arabic  accents,  Jordan  is  fast technology skills  emerging  as  the  most  viable  contact  •  Jordan  with  its  vast  skilled  labor  center destination in the region information technology pool will provide quick time to market outSourcing (ito): solutions  for  any  organization  and  •  Several  outsourcing  providers •  Jordan  enjoys  a  high  level  of  ICT  guarantees  a  continuous  flow  of  operate out of Jordan, offering services penetration  rate  and  a  large  number  support  that  will  ensure  continuous  to  the  US,  UK  and  the  Middle  East of ICT graduates with a strong industry  success  for  all  current  and  future  ranging  from  customer  support,  pre focused skills  business  sales  and  loyalty  management  to •  In fact Jordan has been a source of IT  •  Some  of  the  key  KPO  services  that  technical and helpdesk support talent for major local and multinational  can  be  delivered  from  Jordan  include  •  Besides  Amman  a  new  contact companies  in  the  Middle  East  and  is  financial  analytics,  technical  research,  center  hub  is  emerging  in  Irbid  to widely  recognized  as  possessing  the  Middle East specific market and business  service  growing  demand  for  cost strongest ICT workforce in the region  research functions to name the least effective and talented agentsJordan believeS itS outSourcing StrengthS lie in:•  financial services: Jordan’s banking and financial industry system is among the strongest and most developed among all  Middle  East  emerging  markets.  Internationally  recognized  firms  have  emerged  in  Jordan  to  provide  specialized  F&A services for regional and global companies•  engineering services: Jordan produces high caliber engineering talent by virtue of its highly recognized and prestigious educational system•  healthcare and pharmaceuticals: The Jordanian government is committed to promoting the life-sciences industry as one of the new growth areas in the country•  information and communications technology: Jordan’s vibrant ICT sector is the result of a fully liberalized market and a thriving private sector. The ICT industry has increasingly become the engine of growth for Jordan’s economy•  energy and renewable energy: Jordan is ripe to emerge as a Clean Technology hub within the MENA region. Strong solar  irradiance,  robust  electric  infrastructure,  abundant  engineering  talent,  and  moderate  labor  costs  are  particularly conducive to growth in the solarcontact:•  For more information and statistics :  Int@j: Tel: +962 6 5152322,,•  For more information and statistics on Jordans country profile, please log on to• For more information and statistics on Jordans outsourcing profile please log on to Destinations Compendium 2011
  • 27. regional dynamicsn AsiA 30 n EuropE 40 n MiddlE EAst & AfricA 45 n lAtin AMEricA 50 n north AMEricA 59
  • 28. 30 Asia - Balancing the Weight of the Western World Sourabh Chandra Pushp T he dynamics between various Asian outsourcing locations could best be characterized as the war multinational companies now look to BPO far more as a means to reduce costs for business operations. The outlook for BPO destinations. Apart from India, for Asia/Pacifics BPO market remains which has major scale in both IT and positive, with growth in 2011 expected BPO, the rest of Asia is more of a BPO to be 17.9 percent in terms of U.S. story. Dollars. ” The outlook for Asia/Pacifics BPO The presence of multiple city options market remains positive, with growth with significantly different character- in 2011 expected to be 17.9 percent istics drives complexity in location in terms of U.S. Dollars. According to selection decisions in Asia. There is a the latest Gartner research, the world- significant diversity in the evaluation wide BPO market is forecast to grow of the top Asian players. India, with by 6.3 per cent globally and 17.9 per its early-mover advantage, is able to cent in the Asia-Pacific during the year 2011. The study titled, Market Overview: BPO Service Providers in Country Marketplaces in Asia-Pacific and Japan,2010-2011, states that the BPO industry will grow to $1.69 billion by 2012 and $2.47 billion by 2014. H Karthik, research vice-president at Everest Research, said: "Emerging mar- kets are faring far better and, generally, Destinations Compendium 2011
  • 29. 31“ The potential demand for Chinese services is very strong due to three important factors besides simple “ Even companies in developing countries are looking to outsource BPO work. There is also a lot of de- “ Virtualisation, consolidation, and managed services that focus on ROI in the short term will drive opportu- labor arbitrage: risk diversification mand for re-engineering processes nities in the market. Emerging Asian across multiple low-cost locations, with efficiency becoming the norm. enterprises across multiple industries China’s potential labor pool, and the The emergence of newer verticals will continue to accelerate services attractiveness of China as a huge de- will also be growth drivers. spending in their efforts to challenge mand source for global products and existing global MNCs. services. — Aparup Sengupta — Som Mittal — Roopa Kudva CEO & MD, Aegis. President, NASSCOM MD and CEO, CRISILprovide manpower for all type of off- Sakshi Garg, Senior Research Analyst, shoring activities. The Philippines long Everest Group, adds, “India has retained established tradition of providing lead- its’ position as the leading global shor-ing call-center support continues to be ing destination with a 55 per cent share strong. China provides competitively of global ITO and BPO market in 2010. priced high-end analytics and engineer- Early-mover advantage in the outsourc-ing, while Malaysia attracts IT services ing industry and critical mass has made offshoring. India the most attractive global location Companies in Japan and South Korea for companies looking at outsourcing.” are looking at China to offshore their She further adds, “ There are a number IT/BPO processes-while operations in of considerations in terms of identifying Singapore are considering their neigh- a particular country as a favorable out-boring Malaysia as an attractive alter- sourcing destination, besides, the very native. Australian companies are mov- obvious cost related advantages, some ing their IT/BPO processes within the of the other considerations include: region to Indian and Philippines. availability of skilled manpower, Destinations Compendium 2011
  • 30. 32 competitiveness of suppliers/service IT Spend IS GrowInG AcroSS The providers, language proficiency, govern- reGIon ment support, educational system and The market in Asia for IT purchases infrastructure.” is growing considerably. Research firm, In another report on BPO trends Forrester expects growth to accelerate in the Asia-Pacific region, excluding over the next few years. According to Japan, research house IDC forecasts Forrester, the Asia Pacific economies the market to rise to US$15 billion by may not have the fastest growth in 2011, recording a compound annual nominal GDP in 2011, but overall, IT growth rate (CAGR) of 16 percent. In purchases in Asia will grow by 8% in support to this, research firm Ovum, 2011 and 9% in 2012 with Japan’s slow- predicts- Asia-Pacifics BPO market er growth dragging the regional growth will reach revenues of US$17.47 bil- rate down. In terms of the fastest-grow- lion in 2015, a CAGR of 9.3 per cent ing countries in the top 15 IT markets from the US$11.18 billion it hit in (in local currencies), Brazil and China 2010, predicts Ovum. will have the fastest growth at 15% and Destinations Compendium 2011
  • 31. 3312%, respectively. India scores next at destination. While the cost advantage around 9%. Asian economies occupy is unparalleled, India has the world’s four of the top five fastest-growing econ- largest pool of employable talent, serv-omies in relation to IT spend. ice delivery infrastructure across multi- ple geographically dispersed locations chIneSe drAGon vS. IndIAn Bpo within the country, and a supportive India has retained its position as the policy regime.leading global shoring destination with China, Indias immediate neighbor a 55 per cent share of global ITO and and major competitor in the region, views Indian provider growth as a major threat diplomatically. Contrary to its earlier positioning as a competitor to India, China is now hailed as being sup- plementary to India. China rules the manufacturing outsourcing space and is undoubtedly leagues ahead of any other nation but, when the conversa-BPO market in 2010. India with its first- tion turns to service outsourcing India mover advantage and deep skill base certainly is reckoned the leader. In fact, remains the unquestioned leader in the the Indian growth rate in the sourcing Asian-regional dynamics. The fact that space is expected to surpass China by India has a vast workforce and talent 2015 significantly. pool that is eager to walk the extra mile, There is significant buzz in the mar-has made them a powerful outsourcing ket that China has the potential to also “ On the supply side, China faces many seri- ous challenges such as Intellectual Property (IP) and data security concerns and the em- ployability of the workforce, which threaten fundamental growth. The Chinese govern- ment and suppliers are implementing new measures, however, to address these con- cerns. — Liu Jiren, Chairman and CEO, Neusoft Group Destinations Compendium 2011
  • 32. 34 become a leading sourcing destination BPO services. According to him, a gen- for services. Although the BPO industry eration of English-speaking Chinese in China is yet to attain the maturity will surface in four years from now, witnessed in India, there is more than as they have really toiled hard during enough reason to believe the Chinese the last one decade to progress on this. dragon is inching towards that desired Although Aegis does not have a pres- level of maturity and it surely poses a ence in China till now, the company is significant threat to the Indian suprem- currently considering setting up centers acy. 2009-10 data reflects a growth of in that country. 21% in the Chinese outsourcing indus- India has been a pioneer in provid- try with a value of $23.6 billion. While ing outsourcing solutions and a range India still remains the most preferred of outsourcing services to countries outsourcing destination for companies across the globe. Outsourcing to India in the West, the scenario is different can help achieve all the above stated in the Asia-Pacific region. Most com- benefits. The kind of trust and faith panies in these regions prefer to send that companies enjoy with Indian pro- their work to China primarily due to viders is a gradual process; to break low employee costs. Hence, there is this faith is the real challenge for no doubt that China is fast emerg- China. Following are some of the prom- ing as a major outsourcing destination inent reasons why companies choose worldwide. to outsource to India and may be what Aegis-CEO, Aparup Sengupta is of the China needs to concentrate on in addi- view that China will overcome India as tion to creating a favorable market an appealing destination for non-voice environment. “ Forecasts indicate that most economies will experience a decline in GDP growth next year, with countries in Western Europe and North America growing at the slowest rates and the Asia-Pacific region continuing to outperform all others. Despite the global setback, howev- er, spending on IT software and services next year is set to increase over levels recorded in 2010. — Blanca Trevino, CEO, Softtek Destinations Compendium 2011
  • 33. 35IndIA AdvAnTAGe conTInueS The phIlIppIneS• Cost-Effective Services: The number The Philippines has become one of one reason global organizations out- the most preferred offshore destina- source to India is their cost-effective tion for call center outsourcing, spe- services. Outsourcing to India can cializing in customer support services. help you save more than half of your Like Indians, Filipinos also have a high operating costs. Having a large techni- level of English proficiency and strong cally skilled labor pool has enabled customer orientation. The Philippines India to provide cost-effective serv- have not been fueled only by traditional ices without compromising on qual- ity. Outsourcing to India can help you save on your operating costs while increasing your productivity, qual- ity and efficiency. Replacing Indian dominance in the IT services space seems to be unthinkable.• high-Quality Services: Outsourcing to India is not just a cost saving play, its transformed into an all round sat- isfying experience that saves money low-value-added call centers, but by and makes the process more robust higher-end outsourcing. Even though and standardized. Quality and process call centers still dominate the sector, excellence initiatives like Six Sigma, the Philippines has started capitalizing Lean, and others have been embed- on its non-voice processes. ded in the offerings by all promi- nent Indian providers. India has TAkInG AdvAnTAGe of The proved it is technically superior when phIlIppIneS compared to other offshore countries Many cities in the Philippines includ- providing outsourcing solutions. The ing Manila and Cebu have the infrastruc- Chinese propose to move in the same ture, the talent, and the government direction, but its a path the Indians support needed to maintain successful have pioneered. call centers. In addition, the caliber of • Other advantages: Vast talent pool, people and the level of language profi- scale, language, process maturity, ciency in these parts of the Philippines government stability, good and qual- are equal if not superior to most of the ity excellence certification. current offshore locations. Destinations Compendium 2011
  • 34. 36 The Philippines are a prime loca- According to Marife Zamora, Managing tion for BPO services because the work Director -Asia Pacific, Convergys, “As can be spread around smaller cities in the BPO market evolves, expect 90% of various provinces around the country future Philippines-BPO opportunity to which are extremely inexpensive in derive from non-voice BPO functions. terms of both human capital and infra- BPO revenue in the Philippines has structure. Both Manila and Cebu are top grown to over $8 billion, almost 50% tier cities for BPO and software devel- over the last four years, with projections opment, but it is still the early stage of showing them overtaking India as the the industry. BPO leader sometime within the next The offshore outsourcing industry in 18 months.” the Philippines is now estimated to be growing at about 30% and will reach whAT MAkeS The phIlIppIneS The $25 billion in 2012. Initially the focus preferred Bpo deSTInATIon? was on call centers and low value added First, there is great language advan- BPO, however growth over the last few tage. A huge chunk of the Philippine years has centered on higher value population is literate in English. The activities such as web design, software education system, public and private, development, animation, legal services, uses the English language as a medium medical transcription etc.. While voice- of instruction. Filipinos, even when based services constitute a bulk of the untrained, have a good grasp of the lan- BPO market currently, non-voice and guage. Moreover, more Filipinos can be back-office processes contribute 90% to easily trained to speak with an American the future market opportunity. accent or any accent the client prefers. “ Success in voice-based BPO services has made the Philippines the second larg- est low-cost BPO destination after India. Clients are now saying that there are cer- tain kinds of processes they want done out of the Philippines and some that they want back in India. — Keshav R. Murugesh, CEO, WNS Destinations Compendium 2011
  • 35. 37Most Filipinos can commu-nicate well, written or oral, in the English language, and can be trained to do better. The Philippines also has a vast human resource talent pool that can be tapped for various services. Aside from the widely growing number of qualified call center agents, a lot of Filipinos are already skilled and trained or trainable to provide medi-cal transcription services, legal services, SEO and web development services, soft-ware development, virtual assistance, and other such services. range of its closest competitors in the There is still a widely untapped pool of BPO industry. Aside from the capital talents in the Philippines which can be Metro Manila, many other cities in the utilized via outsourcing. country such as Davao City, Baguio, Another important edge of the and Cebu offer a vast pool of talent, and Philippines in terms of outsourcing is affordable office space.the country and its people’s familiar- Finally, the government is very much ity and affinity for American (US) laws supportive is providing infrastruc-and culture. The Filipinos, most having ture and money to developing human relatives or friends based in the US, and resources through education and train-being exposed to US mass media for a ing. There is also focus on improving long time, are very much well-versed in telecommunications infrastructure in US laws, situations, environment, and order to encourage businesses to invest culture. in the country’s BPO industry. The Philippines, comparatively speak- Success in voice-based BPO services ing, offers affordable human resources has made the Philippines the second larg-and office space. Furthermore, the cost est low-cost BPO destination after India. of operations in the Philippines is very A number of companies are already much affordable and well within the leveraging the Philippines for a wide Destinations Compendium 2011
  • 36. 38 array of non-voice functions though the scale of operations is low. Moreover, the Philippine govern- ment has been encour- aging the growth of the BPO industry by offering fiscal and non-fiscal incentives to attract more for- eign investment. While India has long been the preferred location for Information Technology Outsourcing (ITO), the Philippines rich pool of low-cost, English-speaking, accounting and business support talent has made it the preferred destination for BPO and will soon be the worldwide leader in BPO. GS India Market Estimates According to data released by NASSCOM, Indian-IT/BPO sector is estimated to aggregate revenues of USD 88.1 billion in FY2011, with the IT software and serv- ices sector (excluding hardware) accounting for USD 76.1 billion of revenues. As a proportion of national GDP, the sector revenues have grown from 1.2 per cent in FY1998 to an estimated 6.4 per cent in FY 2011. Within exports, IT Services segment was the fastest growing segment, growing by 22.7 per cent over FY2010, and aggregating export revenues of USD 33.5 bil- lion, accounting for 57 per cent of total exports. Speaking at NASSCOM-BPO Summit 2011, Som Mittal , President-NASSCOM, said “domestic BPO segment grew by 14 per cent to reach USD 14.1 billion in FY2011. The year also witnessed the next phase of BPO sector evolution - BPO 3.0 - characterised by greater breadth and depth of services.” According to CRISILs Roopa Kudva, “Indian software product segment is estimated to grow by 14 per cent to reach 157 billion, fueled by replacement of in-house software applications. Government sector is a key catalyst for increased IT adoption- through sectors reforms that encourage IT acceptance, National eGovernance Programmes (NeGP) , and the Unique Identification Development Authority of India (UIDAI). IT services is expected to grow by about 3.5 per cent in 2011 and 4.5 per cent in 2012.” Destinations Compendium 2011
  • 38. 40 Europe: Niche Capabilities Driving Demand Smita Vasudevan Europe certainly can’t compete with offshore destinations like and India and Philippines on the cost front, but when it comes to innovation and high-end technology solutions, it is very often seen as the best bet. E ven in the post recession phase, much in terms of cost but in the innova- when cost saving is a major pri- tion and quality of services that is brought ority for enterprises in deciding to the table. where to outsource, Europe has retained its position in the global outsourcing mar- neArShorInG opporTunITy ket with some distinct advantages. Eastern Over the last few years, there has been Europe has emerged as a strong competi- a visible shortage of skills in the Western tor to low cost destinations like India and Europe, while Eastern Europe has wit- Philippines, with its ability to offer niche nessed a significant growth in its tal- capabilities and when it comes to high- ent pool even through the recession. For end, sophisticated application develop- instance, according to service provider, ment and IT projects, Europe is still seen Luxoft, Romania has seen a 12 per cent as the best bet. The advantage here is not growth in the experienced IT professionals Destinations Compendium 2011
  • 39. 41employed at companies offering IT out- particular for technology services exper-sourcing services. This justifies why serv- tise. Reason: The region’s talent pool hasices and facilities are increasingly moving never been stronger.”towards the East. Moreover European Multilingual Skillsenterprises are prefering to keep work Multiple language capabilities differ-closer to home rather than sending it toentiate the European market from mostfar off destinations. The cultural compat- other destinations. There is probably noibility and similar time zones make near- other such destination that can supportshoring to Eastern Europe a convenient six to seven languages at one place. Thisoption. The region is thus very often seen has enabled the growth of BPO opera-as a favored nearshore option for most tions and has attracted numerous serviceWestern European countries and the US. providers to the region. Stringent Data Protection LawsMAjor STrenGThS ThAT defIne Marriot says “privacy legislation andeurope alignment with legal system give highTalent Pool confidence in most parts of EU.” Europe has a vast talent pool, engi- Cultural Affinityneering expertise, and high standard of Eastern Europe offers a culture fit toeducation. Dmitry Loschinin, President enterprises in the nearby countries andand CEO, says “Confidence is quickly the US, with advantages, such as languagerebuilding and more and more compa- compatibility, less travel time, similarnies are turning to Eastern Europe in time zones and other cultural similarities. NearshoriNg TreNd driviNg The europeaN MarkeT “Each year we analyze 78 countries and we take top 30 of them to do a deep- dive analysis. This year, 13 countries were from the EMEA. So there are lots of opportunities in Europe for services to move within the region. Much of the work is being nearshored from UK or US, says, Ian Marriot, Research Vice President, Gartner. “From an operational perspective, Eastern European countries maintain modest time zone differences to the U.S. and other Western European countries, making it easier to work on projects during traditional business hours. Additionally, Eastern European technology providers must abide by strict data protection policies as directed by the Data Protection Act, greatly reducing potential complications from a compliance perspective” says Dmitry Loschinin, President and CEO, Luxoft. Destinations Compendium 2011
  • 40. 42 europeaN ecoNoMy Countries are in a recovery phase. Private demand is expected to continue to strengthen in the core euro area and the Nordic countries, while remaining weak in Greece, Ireland, Portugal and Spain. The Greek and Portuguese economies are projected to be in recession this year. Growth in emerging Europe is expected to be stronger, at 4.3 percent in 2011 and 2012, after 4.2 percent in 2010. The recovery is set to broaden as domestic demand takes over as the main pillar of growth and all countries post positive growth for the first time since the 2008–09 crisis. Large differences in cyclical positions, capital inflows, current account balances, and inflationary pressures remain. Source: IMF report titled Regional Economic Outlook: Europe—Strengthening the Recovery (2011) Source: IMF report Regional Economic Outlook: Europe—Strengthening the Recovery (2011) key TrendS for 2011 ITo or Bpo-whIch IS hoTTer? • Nearshoring interest is high in Europe- • According to Forrester report Market demand coming mainly from Western Overview: European IT Infrastructure Europe. Outsourcing (2011), cloud-based serv- • It is the preferred place for high end IT ices are dominating the infrastructure solutions and niche capabilities. outsourcing market. As concerns over • Global service providers are expand- security issues prevail, private dedi- ing operations in emerging locations cated clouds and hybrid solutions are like Serbia. being offered by service providers. • Indian service providers particularly Forrester expects that resistance will are looking at ramping up Europe change as more business professionals business and building delivery capa- push for the flexible capabilities that bilities in Europe itself. cloud enables. • IT talent pool in the Eastern Europe • Western Europe and UK are gradually, is expanding significantly and is suf- yet confidently gaining the dominant ficient to satisfy demand. Therefore, share in the global ITO market, catch- factors such as attrition, wage increas- ing up with the United States. The es are not yet matters of major concern. Forrester report states that Ukraine is • Cloud computing is on the uptake and the lowest cost nearshore ITO destina- being a developed market, skills in tion. The IT Sourcing Europe Survey this area are available. discovered these countries as the most attractive locations for the outsourced Destinations Compendium 2011
  • 41. 43 key couNTries raTed oN a 5-poiNT scaleSource: Forrester report, European IT Outsourcing Intelligence Report 2010 nearshore IT development- Ukraine, market for establishing a nearshore pres- Poland, Romania, Hungary, Belarus ence. Mphasis, which has set up opera- and the Russian Federation. tions in Poland this year, is one of them.• The BPO space is seeing lot of momen- Gopinathan Padmanabhan, Head Global tum in both voice and non-voice oper- delivery Unit, Mphasis, commented ations. Driven by multilingual capa- about the move in one of its recent press bilities, call center activities are on releases, “Poland offers ability to service the rise. Other BPO processes like clients in most continental European lan- F&A are also seeing lot of activity. guages and is well connected with other Hungary, Romania, Slovenia are the Western European business centers. The major markets for voice operations, availability of talent, language skills and while Poland is the most desired loca- an established business infrastructure in tion in the non-voice space. Poland made it a natural choice for us.” Easter Europe will hold its position asopporTunITIeS the most attractive location for sophis- Emerging locations in Europe are cap- ticated IT solutions.“In the next coupleturing lot of attention from service pro- of years demand is likely to increaseviders in different parts of the world. with countries coming out of debt cri-Good infrastructure, abundant labor, lan- sis. Eastern Europe will continue to seeguage capabilities and huge unexplored demand for high order IT skills andresources make these locations attractive niche capabilities, though the overallinvestment options. Sitel has expanded scale of operations would be lower thanits European operations by opening a that in India and Philippines” says, Salilnew call center location in Serbia. Indian Dani, Research Director, Global Sourcing,service providers are also targeting the Everest Group. Destinations Compendium 2011
  • 42. 44 chAllenGeS India and Philippines. “The provid- • DDifferent locations within Europe ers tend to be of a smaller scale, and have specific characteristics, advan- can put together large teams slower tages and limitations. So, service pro- than competitors from other locations. viders will have to employ a combina- However, for traditional R&D projects tion of strategies to expand within the thats not a problem, as big teams are region. rarely needed” says, General Manager, • There exist difficulties in scaling up. Andrei Pronin, Auriga. The operations in many of the top • Currency fluctuations and uncertainty locations are much lower in scale in the economic outlook is posing compared to that of destinations like another challenge. GS Key Country Profiles uKraine • Most attractive destination for nearshore software development. • Low IT salaries, Strong R&D, high tech education, innovation and abundance of IT resources. • Ukraine can offer Western European enterprises a cost saving of 40-60 per cent on their inhouse IT spending. Poland • Demonstrates maturity of BPO markets. • The place for Business analytics, HRO, multilingual contact center operations and F&A. • Krakow, Poland’s second largest city, is in the Tholons’ List of Top 50 Global Emerging Outsourcing Cities. Hungary • Attractive location for outsourced nearshore IT development. • Mature BPO market with strong focus on HRO. • The countrys capital, Budapest, specializes in software development and test- ing and is 7th of 25 safest cities for offshore/nearshore outsourcing. russia • ITO market value higher than other three countries. • Russia is in Gartner’s List of Top 30 Outsourcing locations. • Specialized skills in engineering design and R&D services. Source: Forrester report, European IT Outsourcing Intelligence Report 2010 Destinations Compendium 2011
  • 43. 45Middle East & Africa:Offering Advantages BeyondLow CostMiddle East and Africa is relatively new to the global sourcingindustry, but it has gradually made a place for itself. The regionshows great potential for future growth and offers attractiveopportunities to explore.Smita VasudevanW ith a fast growing local market and huge untapped potential, the Middle East presents an attrac- increasingly eying the MEA region as a target spot and investments are coming in from all corners.tive opportunity as an outsourcing MEA Countries like Egypt, UAE and hub as well as a nearshore destina- Jordan have come out as powerful com-tion. Foreign language skills, relatively petitors on the global outsourcing scene. cheap workforce, strong education sys- AT Kearny Index has been ranking tem, high internet penetration are some Egypt amongst the top 50 outsourcing of the major factors that have added countries, for some consecutive years to its attractiveness. The region has now. This year Egypt ranks 4th and UAE witnessed significant changes over the comes 15th. Jordon is another region years and has been successful in estab- that is rapidly gaining popularity. Its lishing a solid infrastructure and busi- city Amman is expected to emerge as ness environment. Service providers are a major outsourcing hub. All these are Destinations Compendium 2011
  • 44. 46 Drivers Restraints Prospects for the MENA Region 1.Increased Gov- Uncertain Political Envi- MENA 2009 2010 2011 ernment Focus ronment Real GDP growth 2.8 3.6 4.5 2.More Investments Data Security & Integrity Exports (change %) -9.5 2.6 5.2 by MNCs Concerns Imports (change %) 1.2 4.9 6.6 3.Vast Pool of Talent Relative Newcomer to Source: Wikipedia the industry Year 2011: Comparison over 2010 4.Infrastructure De- Competition from Low- velopments cost Countries Economic outlook is challenging. Source: Frost & Sullivan Until late 2010, the MENA region was on track for recovery. Growth had accelerated from 2.1 percent in clear indications that the Middle East 2009 to 3.9 percent in 2010. But market has emerged. social unrest and surging commodity prices changed the outlook in 2011, econoMIc ouTlook improving prospects for oil export- MEA had survived the previous reces- ers and diminishing them for oil importers. sion relatively unscathed than most other parts of the world. The year 2010 The Middle East markets lost $112.39 B in capitalization during saw the region heading to an impres- first eight months of 2011 due to sive recovery. But the economic outlook uncertain global economic outlook, for 2011 is quite challenging. There is US and Europe debt crises. uncertainty as a result of sociopolitical Source: IMF unrest, and oil importing countries are going to have a tough time due to the rising fuel and commodity prices. The way. The country has a well estab- estimated growth for these countries lished education system and has been this year is only around 2 percent, while able to generate awareness about its the oil exporting countries are expected outsourcing sector with the help of a to grow at a faster rate by around 5 solid promotion strategy and focused percent. agencies. The UAE offers a great busi- ness environment, crime protection and proGreSS SnApShoT strong multilingual capabilities as a countries like Egypt, Jordan, UAE and result of its geographical placement. South Africa have been doing excep- South Africa has been gaining more tionally well in the recent years and popularity in the BPO space, both voice captured significant attention. Egypt has and non-voice processes. The countrys been able to do many things the right huge English speaking population is Destinations Compendium 2011
  • 45. 47what gives it an edge. Numerous BPO expected to hold only a minute share service providers have set up operations of this with an estimated share of $2.6 here in the recent past. B. But experts believe that the market Frost & Sullivan report, Middle East holds huge potential for future growth Outsourcing Value Proposition (2011), and some of its major locations are states that the global outsourcing indus- expected to grow at a much faster rate try is estimated to reach a whopping $ than leading destinations like India and 500 B by 2016, and the MENA region is Philippines. ThE DESTINATION LANDSCAPEOffshore Destinations in Middle East and AfricaKey countries Key functions Key functions  Primarily French  Primarily German language Size of language voice Tunisia Turkey BPO offshore  IT support 8 25  IT support industry Key source market Key source market (FTEs ‘000)  France  Germany  Continental Europe  Continental Europe 30 Egypt Key functions Key functions  IT support  Primarily French 15  Multi-lingual BPO language voice Key source market  IT support  France Key source market  Continental Europe  France  Continental Europe Key functions Kenya  English language voice 1 support  Finance and accounting Key source market  UK Key functions Mauritius Key functions  Primarily English  Primarily French voice 10 language voice support support  Banking and financial  Telecom and BFSI BPO South services back-office Key source market Africa Key source market 10  UK  UK  Continental EuropeSource: Everest report,Group analysis Source: Everest Overview of Offshore Destinations in Middle East and Africa (2011) Proprietary & Confidential. © 2011, Everest Global, Inc. 2 Destinations Compendium 2011
  • 46. 48 COMPARISON Of TOP MEA DESTINATIONS WITh INDIA AND PhILIPPINES Diverse Destinations                         •Legend: •Poo •Good r 11 Source: Frost & Sullivan report Middle East Outsourcing Value Proposition (2011) MAjor ServIceS And clIenTS • Prominent services rendered here include CRM Services/call centers, IT serv- ices, Finance & Accounting, HRO and procurement. • Other specialist services include legal services, transcription, data analytics, R&D, business intelligence and animation. • France, Central Europe forms the major markets for these services. opporTunITIeS wIThIn Middle East and Africa is relatively new to the outsourcing industry. But experts believe that the market holds value elements and unexplored resources, that if used well can help it grab a major chunk of the global outsourcing pie. Destinations Compendium 2011
  • 47. 49 ExPErt ViEwS Masood Ahmed, Director, Middle East and Central Asia Department, International Monetary Fund states in a research paper titled Regional Economic Outlook: Middle East and Central Asia, “The solution for Middle East lies in creating more employment by allowing small businesses to develop and offering young graduates the right kind of skill sets that will prepare them to take up private sector jobs.” The Middle east is a land of diversities and there is the need to identify and develop specific niche areas of expertize within specific regions. Lindsey McDonald, Consultant, Frost & Sullivan believes that there need to be more awareness about the outsourcing sector in the region and the value proposition should go beyond the traditional cost saving objective. She adds, “Countries like UAE and Jordan need to ensure that they show the value of stability and their services are not cheap but cost effective and there is high level of service quality.” Egypt and South Africa have been able to do this to some extent and the rest of the emerging countries will have to follow suit. Brian Humphries, senior vice president, Growth Markets Organization, HP, states in its press release about the companys recent expansion in Africa, “The move will support the development of a strong information technology industry, which will underpin sustainable economic growth, helping to create employment, stability and life-changing opportunities across the continent.”key STrenGThS & opporTunITIeSfor MeA low costs. This includes relative-• The region with its English language ly cheaper workforce, foreign lan- profiency, multingual skills, similar guage skills and favorable business time zones and regional proximity, environment. offers a good nearshoring opportunity • Considerable support by the national for Europe. and regional governments to develop • MEA is an attractive spot for enterpris- and strengthen the outsourcing sec- es that wish to diversify their offshore tor. More focused agencies are com- operations to places other than India. ing up and promotional strategies • The region is diverse and offers are being planned to explore the full distinct advantages that go beyond potential of this region. Destinations Compendium 2011
  • 48. 50 chAllenGeS • Sociopolitical unrest in some parts and uncertain economic outlook have dampened growth to some extent. • As MEA is diverse, developments have been fragmented and limited mainly to specific countries and regions. For instance, if Egypt has done well with its promotion strategy and creating awareness, other countries still lag behind in this area GS fuTure TrendS • Regions like Tunisia and Morocco will be exhibiting strong outsourcing elements • Countries, such as Iraq, Iran and Oman going to provide more outsourcing services • French speaking North African countries will be seeing lot of development • Increased demand for emerging markets within Africa recoMMendATIonS • Develop skills that are suitable for private sector jobs • Create niche areas of expertize • Strong focus on quality of service • Ensure that services are not just cheap but cost effective • Create more awareness about the outsourcing sector in different regions within MEA Source: Frost & Sullivan Destinations Compendium 2011
  • 49. 51Latin AmericaIts Not All About ProximitySmriti Sharma Recent times have witnessed this Areas like HRO, FAO and procurement region draw ace players of the outsourc- outsourcing have still not started to ing world - American Express, General make best use of the available resources.Motors, Intel, Genpact, Sitel, Wipro, Don Berryman, general manager of Citibank and more. Business process Americas at Sitel articulated, “In the outsourcing (BPO), shared service cent- past few years, Sitel has experienced ers (SSC), call centers, offshore delivery great growth in Brazil, Nicaragua and centers have grown significantly in the Panama. Additionally, Sitel has cul-region. For example, Wipro currently tivated aggressive development with delivers finance and accounting serv- our English-speaking agents in Bogota, ices to the largest beverage company Colombia. We have seen the Brazilian in Latin America from a service center domestic market growing rapidly, and in Curitiba, Brazil. For years, TCS had business opportunities are expanding had significant presence in Uruguay. by 20-25% a year. In fact, Sitel opened Similarly, many of the global leaders a state-of-the-art facility located in the have presence in countries like Chile city of Sao Paulo in January 2011, dou-and Colombia. bling our capacity in Brazil, and bring- Still, many potential areas beyond ing Sitel’s total employee count in Latin call centers and IT have been untapped. America to over 11,000.” Destinations Compendium 2011
  • 50. 52 “ “The biggest advantage for our clients is convenient travel time and time zone alignment. It takes a full day to travel to the Philippines or India, and clients are forced to work a night shift to align with the North American workday. So, call cen- ters and business functions requiring work to be completed during US business hours lend themselves to a working loca- tion in this general time zone.” — Don Berryman, general manager of Americas at Sitel “ “If we take an overall assessment where you just mix what you have in terms of talent, what you have in terms of cost, infrastructure, countries been stable. If you take all that and mix it, then Ill say Co- lombia and Brazil are best options. Brazil is the best option because it is where the biggest market is and most developed, next to Mex- ico in the region. And Colombia is the one as it is the cheapest one and most business friendly and it is here where all the big players are actually going because there is huge potential there.” — Juan Diaz, consulting manager, Wipro Consulting Services, author of report (by Wipro Consulting Services) titled Latin America- A New World Option for Offshoring The cAllInG cArd of lATIn that comparison, Latin America is more AMerIcA: stable. If you look at long term in that Juan Diaz, consulting manager, Wipro case, it is going to be probably same Consulting Services, author of the recent cost for some years and these are the report (by Wipro Consulting Services) kind of things companies are looking titled Latin America- A New World at. So, probably if you have the same Option for Offshoring said, “When cli- cost, if you have the same talent and it ents look at Latin America they look takes you the same to go from Europe for Spanish language skills, geographi- to India or from Europe to go to Latin cal proximity, and also cost effective- America, then Latin America is also a ness. For example, if you look at India good option.” which is the most developed sector in This location provides good language outsourcing or shared services, there skills. Especially, in terms of Spanish is a lot of wage inflation going on, and and Portuguese it becomes a potent inflation is on the rise every year. In force as you think about the Spanish Destinations Compendium 2011
  • 51. 53population in the US. There is probably opportunities in Latin America. This is no other region in the world that offers irrespective of outsourcing.” the combination of language skills at The same time zone with US and scale plus cost savings. Canada is also an added advantage. Offshoring Opportunities Amid Berryman expressed, “The biggest Economic Turbulence, The A.T. Kearney advantage for our clients is conven-Global Services Locations Index 2011 ient travel time and time zone align-highlights,“ With a growing Spanish- ment. It takes a full day to travel to the speaking population in the United Philippines or India, and clients are States and English proficiency forced to work a night shift to align continuing to grow in with the North American Latin America, cus- workday. So, call centers tomer services activi- and business functions ties will naturally requiring work to be com-increase. This region presents pleted during US business hours a kaleidoscope of skill set.” lend themselves H. Karthik, vice to a working presi- location in dent, this general time zone.” Everest Group, stated, “In addi- chAllenGeStion, to Latin America being a region to The Economic Intelligence Unit states, serve the US, it also offers a fairly signif- “The concern with a lack of creativity icant domestic or regional opportunity is particularly acute in Asia and Latin especially in large countries like Brazil America, indicating a feeling that work-and Argentina where the domestic mar- ers in these regions, in particular, are ket is also fairly large. Our estimate conditioned to think in straight lines, suggests that between 60-70 percent of and are less able to adapt to changing the work in the region is focused on the circumstances.” region itself and 30-40 percent is focused Speaking of how Genpacts client feels on offshore, primarily the US. So, the about their chosen locations -Juarez, domestic market is a large opportu- Mexico and Guatemala, Mary Korthuis, nity. Domestic business opportunities: vice president and operations lead, If you are to look at large global com- Mexico and Guatemala, Genpact said, panies, they also see domestic business “Drug cartel-related violence and related Destinations Compendium 2011
  • 52. 54 media stories has caused concern with some customers and their own security organizations have limited/eliminated their travel to Juarez. Other customers are fine and continue to travel in and out with no concern. Besides the city issues, customers are pleased with the near shore location; easy access for mail pick up/drop off; facility literally with- in a “stone’s throw” from the US; easy hiring of English speaking resources who go back and forth across the border themselves so they are integrated into US culture. Technology is all in the US, so for all intensive purposes – on-shore functionality at near-shore prices.” Potential entrants to Latin America Berryman enunciated, “Sitel is always should consider the following: on the lookout for oversaturation in • Rather than a company-by country a market where we are competing for approach, companies should adopt a resources with our competitors or local regional, networked approach. They providers. However, an interesting need to capture the right skill in the development is surfacing where our right cities. clients desire to enter markets that we • Differentiated advantages should see as slightly oversaturated. This may encapsulate cultural similarities and be happening because of regional pro- the physical proximity part. These motion directly to our clients or even advantages should be promoted the loss of expertise within the contact aggressively on how they can trans- center industry. The key is creating a late into real business value. great work environment and offering Berryman added, “You must remem- incentives like continuing education ber this is not a domestic US location. to become the most desirable place to There are many cultural and sociologi- work in these areas. But, at the same cal similarities but they still don’t have time, you need to consider other mar- the infrastructure of the typical U.S. kets so you don’t saturate an area. We location. So customers will not have work with our clients to provide an hon- the same experience they would with a est assessment of the situation.” US call center. Expectations have to be Destinations Compendium 2011
  • 53. 55aligned to the uniqueness of the environ- they are the ones who know which are ment, similar to when we developed our the countries that bring the best benefit presence in the Philippines or India.” depending on what you want to do.” He added, “Agents and front line supervisors are the foundation of our counTry ScorecArdbusiness and Sitel always builds our The A.T. Kearney Global Services operations from the ground up. We Locations Index states, “Brazil excels have an outstanding real estate group in IT and is a strong platform location at Sitel, and they do a great job of ana- for software devel-lyzing these locations and markets. In opers and sys-some cases, we are looking at the qual- tem integrators. ity of people, quality of education and Mexico is becom-the support in the call center. Other ing a more promi-times, Sitel looks at the role of govern- nent BPO location, ment to see if they are active in terms as it supports US of subsidies, credits or opportunities with both English for job training in preparation for posi- and Spanish. tions in a new call center. Sitel believes Meanwhile Chile it’s not just the quantity and quality of has emerged as a the people; it’s also the participation of niche destination the government on a local and national for R&D and ana-level that can elevate a destination’s lytics, while Costa Rica and Argentina capabilities.” continue to grow their offshore services Focus on the services that are best pro- presence despite facing some decline in vided in this region and also carve out cost-competitiveness.”new niches that may do well. Compete The report, A New World Option for vigorously in the local market and the Offshoring, states Wipro has developed global service delivery playing fields a ranking methodology to help organi-to mitigate risk and enhance economic zations decide which of these countries benefit. would offer the greatest benefits based Diaz stated, “I would recommend a on their needs and priorities. The rank-company that is looking at setting up ing method is based on three primary their operations is that they need to business criteria, each composed of a have local support. As they are the ones group of key factors namely cost effec-who are operating in this location, they tiveness, talent and resource availability are the ones who know the region and and business catalyst. Destinations Compendium 2011
  • 54. 56 here is the combined score (5= Best Ranking) 1. Colombia: Ranking: 3.34 Negative publicity about guerrilla, drug cartels and high crime rates has slowed investments by corporations. However, during Alvaro Uribe’s presi- dential period, security and crime rates have improved significantly. Today, countries like Brazil and Mexico are ranked as even more dangerous and risky locations. With a good combination of low cost, talent pool and government support, Colombia is becoming among the best options in Latin America, espe- cially in Call Centers. The number of local and foreign BPO suppliers operating in Colombia and the significant growth the sector has had in the last couple of years, show the country is gaining the confidence of foreign companies. 2. Brazil: Ranking: 3.08 Largest call centers industry in the region. Very strong telecom network (150 million mobile phones in operation and 50% of households linked to broad- band by the end of 2011. 3. Chile: Ranking 2.98 Chile is ranked as one of the best Spanish-speaking delivery locations. It’s pushing to grow in the sector by covering operations as an offshoring location for companies in Spain. 4. Argentina: Ranking: 2.91 Inflation in 2009 was 13% and it is predicted that Argentina will suffer high- er inflation increases in 2010, which adds an additional risk when offshoring to this location. It is key that these projections are assumed in the business model to ensure benefits realization in the long term. 5. Mexico: Ranking: 2.70 Biggest call center industry in the region after Brazil. Proximity to US attracts US customers. GS Destinations Compendium 2011
  • 55. 57 ReCommendationS foR buyeRS Location strategies must place a high priority in identifying market saturation as Latin America is not one location, but several unique countries. Buyers need to keep in mind that there are significant differences across the region in terms of cost and labor pool. For example, between Brazil and Argentina, Brazil is almost 40 – 50 percent more expensive than Argentina. There is cost dissimilarity across the region, this is something companies need to keep in mind while zeroing upon locations. Also, there are significant variations in the scale of talent pool in skills and language capabilities across the region. For example, countries like Argentina and Brazil support large scale, but countries like Colombia, Costa Rica can only support small scale centers. Also, in terms of scale there are contrasts, Brazil has fairly evolved in terms of IT skills such as SAP but countries like Costa Rica is more favorable for contact center work in Spanish and English. Differences in language skills - Brazil is more suited for Portuguese work; Argentina, Chile, Mexico are more on the Spanish side. Broadly, all locations offer some advan- tages, there are differences across the region both across countries and cities in the countries, which companies need to keep in knowledge. Karthik said, “Most countries in this region have issues of fluctuating curren- cy. For example, in recent months, Brazilian and Chilean currency are becoming less competitive, while Argentinean currency is becoming more competitive.” Diaz added, “Buyers need to have a clear overview of where they want to get to and what each of those countries offers to them. It comes to what they want to do in the country; if you want to do just plain call centers, then just go for a cheap location and if you want to go further and into operations across all the US and other places and company processes like procurement, then you need to be very careful where you set up those operations. They need to talk to the local people. Companies are already operating here and they have done their homework.” Destinations Compendium 2011
  • 56. 58 ReCommendationS foR SeRviCeS PRovideRS Services providers should approach this as an integral component of their global strategy. In other words, think about what complementary roles that Latin America or the cities/countries in Latin America can play to their network of existing cent- ers. For example: Are you thinking of Latin America as a location to do very niche work focused on the US market, or are you thinking about Latin America as a location to get certain skills? Karthik stated, “Overall, the strategy on how Latin America fits in the global play needs to be very clear and there are lots of differences across the cities and countries so people need to be very clear on how they need to use Latin America. If you are thinking of it on both the grounds of domestic opportunity and offshore opportunity, then some of the larger coun- tries are more favorable to locate in. Also, in terms of strategies, acquisition can be a powerful mode of entry.” Don Berryman, general manager of Americas at Sitel states questions service providers should be cautious and ask before approaching the Latin American market: • What kind of business am I planning to put in Latin America? • What kind of agents am I looking for? • Is there support in terms of workers, education level, service or sales experi- ence and English speaking skills? • How will this location benefit my overall global location strategy? Failing to answer these questions is a common mistake that outsourcing providers have made in new markets. Added Don, “Also, there are countries in Central and South America that might not make good call center locations because they don’t have the workforce in place, so service providers need to carefully assess what kind of business they want to put in there, what kind of work experience the local people have, and can the business model sustain a long period of time to be a viable investment.” Talking about the major challenges Genpact is facing, Korthuis shared, “The main challenge is the drug cartel-related violence and the related media stories. That said, this violence has not disrupted our operations there at all and we ensure that our employees are safe at all times.” Destinations Compendium 2011
  • 57. 59North America The Closer the Better, but the World is flatSmriti Sharma The economy of United States indi- the US, Aegis – one of the largest Indian cated some signs of growth in the third employer in US - recently announced and fourth quarters of 2010. However, that they intend to create more than the second quarter of 2011 again pre- 4,000 jobs in the US over the next sented a mixed picture. two years, and this message resonates United States is the largest and most strongly with their US based clients. established market for both IT services and BPO and will remain so in the fore- huGe GrowTh proSpecTSseeable future. In 2010, US accounted Onshoring in North America offers for 63 percent of global IT offshore the advantages of proximity, cultural outsource spending, down somewhat affinity, time-zone alignment, relatively from pre-crisis levels of approximately lower cost, fast & simple visa attain-67 percent. The main obstacle that US ment, ease of software and hardware needs to combat is anti-outsourcing procurement, and the legal and IP pro-sentiments. tection provided by NAFTA treaty. Though US President Barack Obama Esteban Herrera, chief operating offic-gave his word to stop American jobs er, HfS Research articulated, “North from being outsourced to India, Indian America has not historically been a companies got active in ramping up low cost location. But the weak dol-their American workforce. For example, lar, the recession, and the maturity and Infosys plans to hire 1,500 workers in reliability of its telecommunications Destinations Compendium 2011
  • 58. 60 “ Knowledge of the US healthcare system and the business environment contributed to the decision to choose this des- tination. It provides opportunities for outsourcing with a skilled labor force and in-depth technical expertise. Each lo- cation has its own advantages. While India offers high qual- ity skilled work force, the US provides the opportunity and the capacity.” — Tony Mira CEO, Ajuba Solutions India Pvt. Ltd. “ Canada is a very important destination for us because unlike the US, Canada has been relatively untouched by the recession. Tal- ent tanks are very solid here, economy is booming because of its mining wealth, it is rich in natural resources, it has also done a bet- ter job of managing its economy than US has done. A lot of CRM companies have insourced captive centers in Canada. So, the op- portunity lies for us in managing these captives. I am not saying we will go and ask for offshoring, instead we will say from captive give it to us, outsource it to us we will do it from Canada.” — Partha De Sarkar, global chief executive officer, hGS infrastructure have made it cost effective to comprehend what are the dynamics to locate major centers in relatively low- affecting his business. cost places like the Dakotas, Tennessee, Aegis Limited has a strong philoso- Idaho, etc. In addition, struggling state phy - We want to be where our clients economies like Michigan have led want us to be. Highlighting this phi- local governments to offer hard-to-beat losophy, Sandip Sen, president, CLM, incentives.” Aegis Limited elucidated, “If we come For most of the service providers, this across a good client that wants us to be market generates the largest percent- in any geography and if the business is age of revenue. Thus, when more than viable, we will consider it. We like to 50 percent of revenue is produced by adapt quickly to the needs and require- a geography, it is essential to have a ments of each client and grow with them presence in that geography. Also, you by co-creating value and leveraging our need to be closer to the client location strategic partnership with them.” Destinations Compendium 2011
  • 59. 61 word of thE wiSE * The Global Talent Index Report: The Outlook of 2015, written by The Economic Intelligence Unit reported, “The US is the stellar Global Talent Index performer, rank- ing first in 2011 and 2015. The US lead is almost one full point (on a 1-10 scale) in both years over the next best performers. The country’s foremost strengths are the excellence of its universities, the high over- all quality of its existing workforce and a meritocratic environment that is relatively unencumbered by restrictive labor regulation.” Snapshots from the report a) 73 percent of respondents are confident that their business will be able to attract and retain the talent it needs over the next two years. b) 27 percent of respondents are not satisfied with the quality of new hires over the two years. The report also stated, “Canada – bursts into eighth position in 2015, rising by six places, the largest jump in the index. This improvement is propelled by the demographic growth rate of its working population, together with a prospective surge in employment and a marked improvement in technical skills, both result- ing largely from the boom in the country’s oil industry.” * The AT Kearney Global Services Location Index, 2011 states US leads in people skills and availability. * Gartner estimates that North Americas BPO market will grow 3.8 percent in 2011. * Another forecast made by Technavio analyst states that the Data Center Outsourcing market in North America will grow at a CAGR of 12 percent over the period 2010–2014. The report enumerates, “One of the key factors contributing to this market growth is the increasing need to reduce data center capital and operational costs. The Data Center Outsourcing market in North America has also been witnessing increasing adoption of private cloud-based data center outsourcing. However, the growing number of end- users concerns for data center security could pose a challenge to the growth of this market.” HP, IBM, CSC and Dell are key vendors dominating this market space. * Canadian outsourcing industry continues to grow in 2011 after an overall positive year in 2010. BPO registered a year-on-year (YOY) growth of 2.25 percent whereas hosting services grew by 8.75 percent. The CORE (Centre for Outsourcing Research & Education) Monitor Governance report, a joint research effort with industry experts, IDC Canada and CORE in the last quarter of 2010 had estimated a year end growth of 3.8 percent as compared to 2.1 percent in 2009. 2011 is expected to be a good year for outsourcing in Canada with estimated increase of 4-5 percent predicts IDC and Merit Outsourcing Advisors expect. Destinations Compendium 2011
  • 60. 62 A weak dollar and lower labor costs relatively untouched by the recession. are conjoining to increase the attrac- Talent tanks are very solid here, econ- tiveness of low cost North American omy is booming because of its mining locations for global sourcing. Leading wealth, it is rich in natural resources, it offshore service providers have been has also done a better job of managing bolstering their onshore presence. For its economy than US has done. A lot of example, HGS, a provider of outsourc- CRM companies have insourced captive ing solutions has acquired 100 percent centers in Canada. So, the opportunity of the common stock of Canada- based lies for us in managing these captives. Customer Relationship Management I am not saying we will go and ask for company– On-Line Support Inc. (OLS)- offshoring, instead we will say from at an enterprise value of C$74.85M in captive give it to us, outsource it to us an all cash deal. Ajuba Solutions India we will do it from Canada.” Pvt. Ltd. is constantly hiring people Speaking about why buyers and serv- and opening additional locations. Also, ice providers opt for this market, H. as the industry is moving towards con- Karthik, Vice President, Everest Group solidation the company is looking to elucidated, “There are certain processes acquire new businesses in the region. whose nature necessitates onshore or Partha De Sarkar, global chief execu- delivery based out of North America. It tive officer, HGS, shared, “Canada is is also the language skills and cultural a very important destination for us affinities that come in. For example, if because unlike the US, Canada has been you are doing mortgage foreclosure than Destinations Compendium 2011
  • 61. 63 going to be 30M more people having insurance accessing hospitals and doc- tors. This will put an enormous amount of pressure on the system to avail out- sourcing services from companies such as MiraMed who have the expertise in the sector. The healthcare system will look towards companies who will be able to process the claims efficiently from people who have insurance.” “Knowledge of the US healthcare system and the business environment contributed to the decision to choose this destination. It provides opportu- nities for outsourcing with a skilled labor force and in-depth technical all the interactions required with the expertise. Each location has its own customers to arrive at the foreclosure of advantages. While India offers high the deal are done out of North America. quality skilled work force, the US pro-It may need four or five interactions per vides the opportunity and the capac-day to arrive at a foreclosure. This is ity,” Mira added. very difficult to do from offshore geogra-phy. Even from a time-zone perspective eMerGInG TrendSthere are certain process that requires 1. IDCs survey result shows that a time-zone delivery. Also, it makes while 70 percent expect no change, sense from a political perspective to a net 6 percent of Canadian compa-keep some of your workforce in North nies plan on spending more money on America.” outsourcing. The study pointed, “The Healthcare is a huge sector in US with average length of a Canadian outsourc-the presence of a large number of people ing contract has come down from 7 who understand the healthcare system years in 2001 to a less than 5 years in that is unique across each of the 50 2010. This is especially true for the states in the country. Tony Mira CEO, new deals that tend to be averaging 4.1 Ajuba Solutions India Pvt. Ltd. articu- years focused on 1 to 2 towers. Even the lated, “In the next couple of years with larger contracts(C$100M or greater) that the new healthcare regulation, there are tend to have longer durations are getting Destinations Compendium 2011
  • 62. 64 ChallEngES: from thE horSES mouth hinduja global soluTions From a situation where we had 100 percent revenue from US, we have reached a situation where our 60 percent revenue is gen- erated from here. We have secured our revenue from other mar- kets as well. Partha De Sarkar, global chief executive officer, HGS, addressed, “This region is not very cost competitive, so unless we have the right price points or cost points the margin tends to be very low. It is a very fractured market with too many players, so your abil- ity to charge a premium on your pricing is also very low unless you have a true differentiator. That is the reason why we have to be very careful on what we are investing, how much we are investing, where we are investing and what is the return on capital employed. From a market perspective, because of the uncer- tainties in the last three years one needs to diversify the revenue dependence in US, which is what we have done by making acquisitions in UK and Canada.” ajuba soluTions Tony Mira CEO, Ajuba Solutions India Pvt. Ltd. stated a) Healthcare regulation has led to changes in the healthcare processes in the country. Companies are not sure how the new regulations are going to evolve and operate and hence they will have to adapt to the new trends in the healthcare sector. b) With more and more EMR and automation happening not only is a lot of sophistication required from the outsourcing com- panies, hospitals and doctors, it also requires a huge amount of investment. c) Automation and sophistication of the healthcare sector will make it difficult for companies to survive as it will require enormous amount of technical expertise. d) There is also a high cost for entry to the sector compared to earlier situations anThelio healThcare soluTions Vish Sivaswamy, head, global practices, Anthelio Healthcare Solutions enumerated a) Understanding the complex technologies, processes and regu- lations of the healthcare industry. b) Educate and convince the healthcare provider community about offshoring. c) Re-Engineering the processes that are currently prevalent for standardization. This will help process repeatability for scale. d) Expanding the larger talent pool in India for the specific Industry - induct- ing clinicians into technology is new and challenging. e) Making sure of the security of data and information when accessed by large number of offshore resources and the risks of breaches. Destinations Compendium 2011
  • 63. 65shorter. A greater proportion (18 out of rECommEndationS for BuyErS22) of the large deals have been renego- Esteban Herrera, chief operating offic-tiations, renewals and extensions. The er, HfS Research recommends, “Most average Total Contract Value or TCV has buyers setting up shop in North America decreased from $100M in 2001 to under will be native to North America—the $40M for 2011.” economics don’t support outsourcing in 2. Anandan Jayaraman, chief prod- the reverse direction (yet) – so they will uct and marketing officer, Connectiva be very familiar with the environment, noted, “North America has witnessed a regulations, culture and labor dynam-change in terms of the extend to which ics. The key is to remember that nearer services are being outsourced. For is not always better. There is no bigger example, earlier they would outsource or more qualified labor pool for appli-maybe a part of their operations -such cation development and maintenance as analytics- and they would do most than in India, period. While buyers may of the work themselves. However, now have to endure some cultural and opera-they are more open to outsourcing large tional challenges, if they need scalable functions. Also, pricing is changing to ADM talent, there’s nowhere else to go. pay for performance.” Contact centers, on the other hand, have 3. Karthik predicts that there will proven to be quite cost effective in North be modest growth in this region from America. A lot of BPO can benefit from a service delivery perspective. Overall proximity and cultural understanding growth in North America will not over- as well. We always recommend buyers shadow growth in offshore market, but it make a dispassionate, non-patriotic busi-is going be modest growth in some areas ness decision: Where can I best find and like contact centers, industry specific secure the talent I need at the most com-work that requires an onshore presence. petitive price?” 4. There is certain amount of protec-tionist pressure to keep jobs in America. reGIon SpecIAlIzATIonS 5. “Some of the Indian firms have also Voice-based processes, some niche been victims of trying to do to many industry specific process that require things too far and have suffered in qual- regulatory approvals, constant interac-ity. Some of these jobs have given India tion with the customers - For example, bad name,” opined Partha De Sarkar. mortgage, aerospace & defense, energy, 6. Some smaller destinations such as insurance, healthcare- CRL will con-Costa Rica, El Salvador, Jamaica are tinue to grow, Contact Center, SOX emerging. accounting. Destinations Compendium 2011
  • 64. 66 “Anything that can be home-sourced employers and will hire mainly from the and takes advantage of superior tel- community. For example, El Salvador – ecom and other infrastructure is a likely the reason why this region is popular is growth area. Some new areas of scope that it is close to the Mexican border, that require proximity and/or are viewed thus offering Spanish language support. as very high risk to deliver from a dis- Mira spoke about Ajuba Solutions tance can gain traction over the next few chosen locations in North America: months and years. The conditions for Research and Development outsourcing Michigan are very favorable right now,” shared • Affected by the economy and the Herrera. automotive industry counTry ScorecArd In a bid to cut costs, many of the • Quality of workforce - motivated centers are being located in the remote and committed areas. In these rural locations, call cent- • High unemployment rate through- ers would typically be single largest out the state Destinations Compendium 2011
  • 65. Charlotte provide services catering to this • High level of expertise specifi- sector cally in the areas of finance and • Aegis onshore and nearshore loca- healthcare tions in the US, Costa Rica and • Growing destination with the pres- Argentina offer benefits such as ence of a large number of compa- an enhanced end user experience, nies - migrating their headquarters complementary time zones, good to the city infrastructure and a strong cultural • It is also an attractive destination affinity. More than 60 percent of for very large US companies their revenue comes from the cli-United States ents based in America. They are • The country provides tremendous witnessing an incresed demand for opportunities for entrepreneurs client engagements to be performed and businessmen to expand, grow onshore and nearshore, along with and create new businesses traditional focus on reduced costs.• Healthcare is a big part of the US • Their centers in the Americas pro- economy and infrastructure. The vide a range of services encompass- sector is also rapidly changing ing the entire customer lifecycle – and growing. This provides oppor- acquisition, retention, customer tunities for entrepreneurs who care, upselling, back-office opera- understand the sector and want to tions, and collections. GS
  • 66. stIntrodu cing The Worlds Foremo Expert On Outsourcing Vox Artis, a Latin phrase that literally means voice of the expert, is a resource of cutting-edge insights by experts in global sourcing of bussines and technology, the resource is intended to be a knowledge repository and is oriented to help practitioners make actionable decisions. The voice of experts is delivered on various subjects and in multiple formats such as e-book, PDF, microsite, webinars, web- casts, expert round tables and more. An initiative by For queries, write to us at
  • 67. experts speakn The Case for Nearshoring: Why and How n Choosing the Right Offshoring Destina- the New Normal will shift Sourcing Dynam- tion 96 ics 70 by LN Balaji, President of ITC Infotechby Anupam Govil, Partner with Avasant and Presi- n Does Captive Offshoring Still Makedent of Avasense Sense? 100 by Nigel Hughes, Compass Management Consultingn Global Supply Risk Management: Monitoring n Africa Rising – Outsourcing Juggernaut set and Managing Global Sourcing & Services Sails 103 Outsourcing Risks 76 by Dr. P.K. Mukherji, President & Managing Partner,by Atul Vashistha, Chairman & CEO, Neo Group AvasantInc. n Africa : A Ripe Terrain for Impact Sourc-n Latin America: De-risking is Becoming Ever ing 108 More Critical 86 by Pumela Salela, BPO Consultantby Benigno (Beni) Lopez, Chief Globalization Officer, n Business Transformation and the ExpansionSofttek into Asia 114n Destination Strategy - What Makes/Breaks by Sudhir Narang, Managing Director, BT India n Location Strategy For Indian Delivery Cen- It? 90 ters 117by Deepali Sathe, Project Manager, ValueNotes by Viral Thakker, Executive Director, Head – SharedSourcing Practice Services and Outsourcing Advisory KPMG in Indian Compete or Cooperate? Bridging the Near and Jehil Thakkar, Executive Director Head – Global shore- Offshore Divide 94 Location and Expansion Services Advisory, KPMG inby Lalit Dhingra, President, NIIT Technologies Inc. India
  • 68. 70 E X P E R T S The Case for Nearshoring: Why and How the New Normal will shift Sourcing Dynamics O ver the last decade, organi- zations have realized that outsourcing delivers more than cost savings –it enables agile and competitive businesses that can take on new market challenges. Many have used outsourcing effectively and cre- ated significant long term value for them- selves. But as Dr Howard Rubin, who coined the term Technology Economy, famously states –“the only thing about the Anupam govil future is that it’s not what it used to be”. Partner with Avasant and Times have changed and with the econo- President of Avasense my still plodding along on half throttle, it is clear that the fluctuating business and market conditions will become the new normal. Businesses that survive will lever- age outsourcing to provide the operational flexibility that constantly changing mar- ket conditions demand. Businesses that thrive will be the ones that master the Technology Economy by spending wise- ly in solutions that further multiply the impact of outsourcing. The supplier landscape has also under- gone significant shifts, with the rise of new Destinations Compendium 2011
  • 69. E X P E R T S 71 how different sourcing destinations are develop- ing. For instance, recent- ly Philippines overtook India as the largest pro- vider nation of voice based services. Despite being a later entrant in the call center market, Philippines has grown faster in the last 5 years due to superior quality ofdestinations, rapid vendor consolidation, service and competitive costs. While Indiaevolution of cloud based services and pro- faced labor tightening and rising salaries,liferation of more transformative sourc- the Philippines strengthened its positioning models. As executives grapple with a due to an inherent affinity towards voicemyriad of priorities and a complex web of based services and more stable workforce.options, finding the sourcing equilibrium But another important factor played a keyis becoming increasingly important. In role – companies began diversifying theirthis piece we take a look at how changed sourcing portfolio, allocating their out-Sourcing Dynamics will impact the case sourcing assets between different geogra-for Nearshoring. phies to match the right skills to the right location. Philippines offered a great optionBAlAncInG The porTfolIo: AddInG to clients seeking locations that could offerneArShore To The SourcInG MIx the scale of India at similar costs. Services Globalization has been in a In recent years many new Nearshoreconstant state of evolution, resulting in options have emerged that are now fol-ever changing opportunities and chal- lowing the maturity curve of India andlenges for organizations. The elements of the Philippines. These nearshore geogra-a sourcing strategy created few years ago phies offer not just cost savings and qual-may continue to be valid but the order ity of service but also address some of theof importance of each element may no gaps of mature offshore locations such aslonger be as pertinent. Companies have to language availability, time zone proxim-recalibrate their sourcing strategy to adapt ity and cultural affinity. Nearshore loca-to these operating conditions and market tions like Colombia, Dominican Republic,changes. This is having a major impact on Jamaica, Costa Rica and further south such Destinations Compendium 2011
  • 70. 72 E X P E R T S as Chile, Argentina and Uruguay present well. With the rapid rise of IT and BPO viable alternatives for a balanced sourc- service delivery capacity in Latin America, ing portfolio. Mature services buyers are Nearshoring has become a very viable expanding their presence in this region to option, blending the advantage of prox- diversify their resource base and reduce imity with the maturity of more estab- outsourcing risks. lished locations. Accenture for instance has set up delivery locations both in Brazil conSolIdATIon And expAnSIon of and Argentina. Indian outsourcing giant The neArShore lAndScApe Tata now has presence in 14 countries All aspects of global sourcing have wit- in Latin America, with centers in Brazil, nessed rapid transformation in a span Uruguay, Mexico and Chile to serve its of few years. From newer engagement clients with local and global IT resources. models to advanced technologies to more There were 14 M&A transactions involv- innovative service providers – recent ing Latin American targets in 2010, a sub- developments have changed the game stantial increase compared to just three significantly. The transformation has hap- Latin American acquisitions in all of 2009. pened at both the macro as well as micro Private equity firms are also investing environment level. Some geographies aggressively in the region now, with Apax have saturated while newer locations have Partners last year agreeing to pay about $1 emerged. Service providers have been on billion for Tivit, a Brazilian IT outsourcing a consolidation spree (Igate acquiring company. Many U.S. players, including Patni; Xerox acquiring ACS; Dell acquir- HP, Accenture and Unisys, are increas- ing Perot Systems, Atos Origin acquiring ing their presence in Brazil in particular, Siemens IT Services, Cap Gemini acquir- a growing center for BPO and IT services. ing CPM Braxis etc.) resulting in new sup- These players are not only bringing their plier market dynamics. Service providers specialized practices and service delivery from established locations are moving into maturity to this region, but also acting as the nearshore market not just to expand a reservoir of talent for other companies to their portfolio but to cater to a rising offer more value-added services to their demand of Spanish/Bi-lingual services as global clients. well as time-zone sensitive services such as Agile computing. Countries such as IncreASInG AdopTIon of cloud Argentina and Uruguay also have a strong BASed BuSIneSS ServIceS affinity with Europe. They are serving Organizations are starting to give cloud Europe not just in Spanish but in Italian, computing the respect it deserves. Though German, French and other languages as we do not expect that cloud will replace Destinations Compendium 2011
  • 71. E X P E R T S 73traditional IT anytime soon, we strong-ly believe that organizations will startdeploying cloud as an integral componentof their service delivery mix. However, thepromise of cloud based business services islike a double edged sword. It can be a rayof sunshine for cash-strapped businesseswishing to scale their infrastructure whilereducing capex. Yet, if not done right or forthe wrong reasons, this can literally cloudan IT organization’s future. Sourcing ITservices on a subscription basis requiresreliable communication and security infra-structure. As organizations evaluate cloudbased solutions, factors such as customer centers across the Caribbean, Centralusability, security, uptime, response time and Latin America to serve regional and(latency) and scalability will become the North American markets. Cloud comput-main determinants for decision making. ing in many ways will change not onlyWhile most cloud service providers pitch the IT operating model, but also signifi-their utopian vision of plug-n-play and cantly impact the service delivery market.homogeneity, each organization will have Mature providers are already reposition-to look at cloud based solutions contextu- ing their services and embedding compo-ally and develop an adoption roadmap to nents of Cloud services within their deliv-suit their technology DNA and business ery matrix. Its not a surprise that mostobjectives. Nearshoring will play a key of these firms are also expanding theirrole in the growth of Cloud based Business nearshore footprint to offset their farshoreservices (or Business Process as a Service). “disadvantage”.The demand for real time support, lowlatency and higher security will favor offShore fATIGue, neArShorenearshore locations. Locating data cent- fAScInATIoners that house the application and data Most Sourcing executives who haveservers in farshore locations would not spent significant amount of time andsatisfy the QoS and Service Level require- effort on managing offshore vendors andments of Cloud users. Many Telecom and sourcing programs will admit to offshoreInfrastructure providers are already set- fatigue. While the benefits of Offshoringting up large Data and Cloud computing outweigh the costs of higher management Destinations Compendium 2011
  • 72. 74 E X P E R T S bandwidth required, there is an increas- middle class and this provides another ing fascination towards finding a compa- impetus to outsource to the region. Our rable nearshore alternative. Not only is final section describes this new vector that there erosion of offshore savings due to is going to make Nearshoring even more high travel and communication costs, but compelling. mature offshore locations are also witness- ing rising wages and attrition, resulting in The rISe of The MulTIlATInAS – lower cost differential between Offshore why ITS noT juST ABouT coSTS and Nearshore providers. The business AnyMore case for outsourcing closer to shore has According to a recent study released by never been stronger. Between the emer- Inter-American Development Bank (IDB), gence of new nearshore service providers the amount of foreign direct investment and expansion of global players, there within Latin America and the growth is now a much wider array of options. of middle class has created a new breed Buyers visiting major nearshore destina- of aggressive multinational companies tions such as Colombia, Costa Rica and endemic to the region. These are being Chile have not only been pleasantly sur- classified as the “Multilatinas”. These prised by the capabilities available, but companies have borrowed a page from also enthralled by the natural beauty of the Multinational companies (MNCs) and these countries. When 24 hour plane jour- leveraged the cultural and historical famil- neys can be substituted by a half a day iarity within the region to create scalable round of golf, nearshore starts looking a business models. A combination of eco- lot more attractive as a complete package. nomic reform, advances in technology, The proximity of a Nearshore location also improved education, comparatively low has the benefit of making vendor manage- costs and increased management sophis- ment and governance easier. It is simpler tication is driving these new generation of to manage providers in similar time zones, companies. Though Latin Americas total reducing governance costs and resulting population is just 43 percent of Chinas in better managed engagements. While (560 million, compared with 1.33 billion), process rigor and service delivery meth- the regions combined Gross Domestic ods with many nearshore providers may Product (GDP) equals Chinas (about $4.2 not yet be at the same level as mature off- trillion in 2008). As the American and shore providers, that is offset by the ability European economies struggle to get out to manage contracts in a real time mode. of recessionary pressures, the burgeon- Businesses are also expanding into Latin ing buying power of Latin America is a American markets to capture its growing counterbalance to the drop in demand in Destinations Compendium 2011
  • 73. E X P E R T S 75Western markets. American and global electronically the same-day, while in thecompanies are expanding into the region US it takes one week on average and thein larger numbers and along with that country also has the world’s largest ATMthey are also outsourcing to the region. network. This domain expertise is beingMultilatinas are embracing outsourcing leveraged by many global banks that out-aggressively and in many cases structur- source their IT to strategic ventures to capture theseopportunities as well. According to the concluSIonCOO of TCS, which has probably the larg- A perfect confluence of factors rangingest footprint in the region, the primary rea- from economic uncertainty to emergenceson for their growing Latin American pres- of alternative sourcing models and matur-ence is that many of these Multilatinas are ing of new destinations is ushering in aexpanding their global presence, resulting new era of global sourcing. As companiesin an increase in IT spend. While the IT re-prioritize and re-align their operatingphenomenon in India that created the $60 structures based on this new business real-Billion outsourcing industry in the coun- ity, the importance of having a balancedtry was largely driven by export markets, sourcing portfolio becomes increasinglyin Latin America its the reverse. Most large important. With the changing dynamics inLatin American outsourcing firms have the sourcing landscape and increasingstarted with local and regional markets maturity, the nearshore market willand only started diversifying globally in become attractive not just for businessesthe last decade. Hence the outsourcing cul- seeking to outsource, but also for serviceture in these providers has had to adjust to providers from established destinationsthe demands of Western (North American seeking to diversify. Nearshoring may notand European) markets. However Latin be a complete replacement for offshoringAmerican providers bring some unique but will become an integral part of theattributes and expertise that their offshore sourcing mix. The business model that car-brethren perhaps cannot mimic. Brazil ried many companies into the new millen-possesses considerable expertise in the nium is obsolete and the only way to navi-financial services industry and its banking gate the coming decades would be bysector is known for the sophistication of staying lean, flexible and willing to goits transactional efficiency. The vast major- where youve never gone before. One ofity of bank checks in Brazil are cleared those places may just be Nearshore. GS Destinations Compendium 2011
  • 74. 76 E X P E R T S Global Supply Risk Management: Monitoring and Managing Global Sourcing & Services Outsourcing Risks InTroducTIon: STATe of The ouTSourcInG world Today, outsourcing has become a main- stay of corporations. It is mainstream, it is global and it is rapidly changing. This dynamic has a huge impact on the competi- tiveness of global corporations. Yet, global sourcing is not what it was even a few years ago. Its complexity has risen manifold. It embraces multiple locations and multiple processes as companies seek, presumably, to optimize the gains from outsourcing and Atul Vashistha offshoring. This rise in use of outsourcing Chairman & CEO, Neo Group Inc. has been dramatic, exponentially raising the potential for outsourcing corporations and for nations seeking to provide the services. But it also has raised risks and brought on newer, and varied, risks, many of which are not fully assessed by risk managers. According to Gartner, the top 30 outsourc- ing destinations are emerging markets that bring varied and often high risks. Over the past year, in particular, many of these risks have been brought to light by global events. Take the geo-political situation in Egypt that led to an unprec- edented nine-day Internet shutdown; or Destinations Compendium 2011
  • 75. E X P E R T S 77the recent hurricane and floods in the USA than one. At the turn of this century, fewerthat caused disruptions in operations from corporations outsourced, corporations out-the south to the north-east. These two situ- sourced fewer services and fewer coun-ations, in sharply contrasting locations – tries or markets provided these, an emerging outsourcing hub and the Consequently, risks were limited, and tend-other one of the world’s most industrialized ed to focus mostly on supplier quality andnations – represent, probably, the worst service-level issues. So much so, an out-nightmares of operations and outsourcing sourcing manager could conceivably runmanagers. But they are, by no means, the his entire program on a few Excel sheets,only possible doomsday scenarios. There without losing too much sleep. Today, anyare many other time bombs ticking away all manager who attempts anything like thatthe time, arising from the unique characteris not fulfilling their fiduciary responsibilityof each country and city, endemic risks from and placing their programs at great turmoil such as the one in Greece Today, offshoring is a business impera-and Portugal, policy-driven dynamics and tive. In fact, corporations are constantlyeven supplier-specific vulnerabilities. evaluating different parts of their business Still, the higher risks are no reason for that can be sliced and diced to be performedcompanies to turn the clock back on out- elsewhere, expectedly at lower cost whilesourcing or give up on further gains. The strengthening their competitive positionneed of the hour, instead, is a proactive, in the marketplace. Consequently, compa-and effective, risk-monitoring mechanism nies have begun to farm out complex, andand strategy. This paper evaluates ways even critical, processes to multiple locationsto monitor, predict and manage Global across the world because of the growingSourcing & Outsourcing risks. In this paper, maturity of the outsourcing world, and thewe assess the causes and the consequences emerging capabilities and capacities.of these risks, before presenting a model To imagine this complexity, think of arisk-management system that can monitor corporation’s outsourcing operation as athe risks, predict possible future occurrences giant jigsaw puzzle whose pieces are beingof these risks and pro-actively manage them, ordered from different parts of the world, toensuring buyers and suppliers can sustain, be finally assembled, perhaps, at its head-and even further, the gains from outsourc- quarters. Each piece of the puzzle is impor-ing and offshoring. tant, and has to be ordered to precise specifi- cations; and all the pieces then need to comeThe new rISkS back in good time, and to exact standards, A decade ago, global sourcing was rela- for managers to put the puzzle together.tively limited. This was true in more ways In this situation, what would happen if Destinations Compendium 2011
  • 76. 78 E X P E R T S one piece is lost because of a typhoon in and the scale at which it is being performed. Manila? Or another is delayed by a flood When companies first started outsourcing, in Mumbai? Or another is caught up by most of the work was discrete and project expiring tax incentives in Brazil? Or sud- based. Now, a significant majority of the denly one piece costs far more to produce work is management of ongoing projects on account of wage inflation in Bogota or and processes. In the past, any disruption policy U-turn in Russia? And, worse, what in supplier operations delayed a project, happens when multiple things go wrong? while today, it can bring production lines to Would one be able to address these better if a stand still, delay billing or collection, thus they had a fair warning? Knew how peers revenues and even delay financial filings. were responding! A decade ago, there were far fewer coun- Such is the complexity of global sourcing tries to which corporations farmed out today. At any given time, hundreds of thou- any work. Most tasks and processes were sands of global corporations have numerous performed in-house. This was on account such jigsaw puzzles flung over 50+ countries of several reasons. Technology, which across the world. Even if only a few go awry, magically enables offshoring, limited the there is a huge cost to pay. Companies just tasks that could be outsourced; and fewer cannot afford to let anything go wrong. Yet nations had the necessary skill sets and many outsourcing managers do not fully capacities to deliver. Today, both factors assess the risks involved, or prepare for the have dramatically changed and capital- worst, though the numbers of those using ism’s animal forces are discovering scores risk management tools are rising. Last year’s of nations ready to provide a variety of Excellence in Risk Management Survey outsourced services. found that the number of firms utilizing Among other things, the rapid march enterprise risk management programs had of globalization over the past two decades tripled from 2009! spread knowledge. This helped create newer markets with an impressive array of skills The unITy And dIverSITy of rISkS and resources, not to mention an immense Even given the complexity of modern hunger for economic growth. Over the past corporations, and their sourcing processes, decade, at least, outsourcing has been one it must seem puzzling to comprehend why of the biggest drivers of growth in emerg- outsourcing risks have grown dramatically. ing economies. Even giant nations such as The simple answer is: geography and scale. China and India lean heavily on outsourc- It is the unity that binds all outsourcing risks, ing to create jobs and to drive domestic while the diversity of the risks comes from growth. Consequently, almost all the so- the unique vulnerabilities of each location called emerging nations fancy themselves as Destinations Compendium 2011
  • 77. E X P E R T S 79an emerging hub or spoke, for outsourced • Industry inflation: Wage inflation inservices. India, Brazil and Czech Republic Latin America is a large emerging out- • City- or region-specific risks: Hyderabadsourcing hub whose proximity to devel- on account of agitation for separate state-oped North American markets has proved hood for Telenganaa boon. Eastern European countries, espe- • Financial risks: China for its currencycially after the financial re-alignment fol- risks; Greece for its bankrupt economy;lowing the 2008 financial crisis, have the Europe overall because of the euro’stwin advantage of lower costs and affinity vulnerability; and Bangalore for inflationto developed European markets. Egypt, the and quality of lifegateway to Africa, had risen promisingly, • Legal/policy risks: Almost all emergingand would remain an attractive market, if markets and some developed ones, too,its internal strife is swiftly resolved. These on account of opposition to immigration‘me-too’ nations, coupled with global corpo- and outsourcingrations’ insatiable appetite for outsourcing, • Vendor risks: India’s fraud-hit Satyamhave succeeded beyond the most optimistic Computers is the most egregious exam-estimates. As a consequence, outsourcing ple of how a vendor’s collapse can ruinhas a global footprint that is far and wide, the best plans. But almost every ven-with over 50 countries providing some kind dor has a level of risk that needs to beof services. This geographic sprawl along assessedwith scale is responsible for the higher risks. Geographic risks, of course, don’t mean A pArAdIGM for rISk-MonITorInGonly natural disasters. They mean much Time was when outsourcers needed tomore – geopolitics, regional politics, regional consider mostly service-level risks. Can thefinancial policy, local (city- or region-specif- vendor deliver? Can the vendor deliver onic) culture and politics and several others. It time? Is their quality adequate?might be useful to categorize the risks, along The good news is that these risks arewith the most relevant examples, as follows: now readily assessed with the Capability• Natural disasters: Japan tsunami- Maturity Model and the like. The bad news, earthquake as we saw above, is that there are far graver• Seasonal (and predictable) natural risks involved that eventually impact ongo- disasters: Monsoon floods in Mumbai, ing service delivery, even if a provider has typhoon season in Manila the highest CMM rating. How is one to• Terror attacks: Unpredictable but sev- evaluate these ongoing risks? Could some- eral countries could be vulnerable, with body, or a theoretical model, have seen the India and Pakistan near the top India software tax export regime expiring? Destinations Compendium 2011
  • 78. 80 E X P E R T S Or provided a few days notice of weather? to these regions should have been not only Could somebody have predicted the cur- aware of the risks but also pro-actively rency inflation or wage inflation? monitored those closely to pick up early None of these specific events could have warning signals, and even set up appropri- been predicted with any accuracy. However, ate redundancies. each of these could have been anticipated. The fact is: the worst of risks can be fully Let’s see why. assessed well ahead of time, avoiding serv- Egypt has been a dictatorship for decades, ice disruptions, financial losses and poten- and the Egyptian Movement for Change, tially brand dilution. Using qualitative the fountainhead of protest against the inputs, expert assessments and quantita- Hosni Mubarak regime, was started in 2003. tive methods, we propose a comprehensive Besides, Egypt’s geographical location –situ- risk-monitoring model focusing on serv- ated in a region of harsh, Islamic dictator- ices outsourcing. The goal of the model ships with Israel as neighbor – brought more is to help managers pro-actively respond than average risks. Meanwhile, India’s ris- to risks that could interrupt operations or ing economy, its challenging poverty levels, increase the cost of ongoing operations. coupled with populist actions and need for To start with, we propose that risks be, increased government revenues, indicated broadly, categorized as that there would be a move to extract more • Country Risks revenues from the thriving services exports • City Risks sector. It is conceivable, therefore, that com- • Supplier Risks panies that sourced products and services Risk categories at these levels include Country Risk Macro- Economic Financial Business Infrastructure Geo- Political Legal Scalability Quality of Life City Risk Macro-Economic Financial Business Infrastructure Geo-Political Legal Scalability Quality of Life Supplier Risk Financial Clients People Alliances Service Capability Governance Infrastructure Thought Leadership Figure 1: a compre- hensive risk model at a Negligible Risk Low Risk Modetate Risk High Risk Extreme Risk glance Destinations Compendium 2011
  • 79. E X P E R T S 81 Country Model: We then identified risk City Model: Similarly, for each city, it issegments and risk parameters that impact possible to create a comparable risk model,on operations risk. We have been able using parameters that uniquely contributeto build a model using 25 risk segments to the strengths and weaknesses of the cit-and 250+ risk parameters in eight catego- ies. Some criteria are:ries (macro-economic, financial, business, • City budget deficitinfrastructure, geopolitics, legal, scalability • Rental ratesand quality of life). Some of the parameters • Space availabilityare: • Local taxes • Inflation • Lodging costs • Currency • Industry size • Attrition • Fiscal deficit • Pool of graduates • GDP growth • Existing and planned SEZs • Forex reserves • Educational institutes • Tele-density • Attrition rates • Stock market performance • Wage inflation Figure 2: a deep dive into sample risk categories For countries Geopolitical Risk Risk Category Social/Security Risk Natural Disaster Risk Political Risk Risk Segment Crime Rate Earthquake/Tremor Political Stability Rape Rate Volcano Eruption Average Government Tenure Kidnapping & Ransom Tsunami/Hurricanes/Typho Risk Parameter Events on No. of Political Party Terrorism Floods Corruption Level: State/City Social Unrest/Striks Drought Country Level Data Points & Trends Counry Risk monitored across n Inflation rate n Salary Growth rate n 8 Risk Categoris n Rental rates n Existing and upcoming SEZs n 32 Risk Segments n Space surlplus/defcit n ITO and BPO Salary Levels n 250 + Risk Parameters n Lodging costs n Fresher n Outsourcing industry size n Manager n Attrition, Graduate pool n Lead Destinations Compendium 2011
  • 80. 82 E X P E R T S Supplier Model: Finally, we created We then created a Web-based propri- a model to assess supplier risk, again etary analytical engine that can continu- using 250+ parameters across eight cate- ously collect data and constantly monitor gories (financials, clients, people, alliances, risks at the three levels (Country, City and services capability, corporate governance, Supplier) - individually and collectively - infrastructure, thought leadership). Some and deliver a holistic report to managers. important parameters are as follows: This model’s analytical engine dynami- • Operating model capability cally evaluates 500+ criteria and delivers • Onsite-offshore composition a rating that can be compared across 50+ • Human resources countries, 100+ cities and 500+ suppliers, • Quality certifications helping critical risk monitoring. The model • Infrastructure also has a built-in predictive engine that • Profitability and key financial ratios picks up early warning signals, enabling • Client composition prompt action to avert potential service disruptions and much more. Figure 3: a risk management process Data is continuously collected across the various risks are then identified and cat- various parameters at the Country, City egorized using a robust Risk Assessment and Supplier levels and analyzed using a model. Then, the built-in Predictive Engine proprietary Analytical Engine, which can that predicts risk trends, picks up early continuously collect data and constant- warning signals, enabling prompt action ly monitor risks at the three levels. The to avert potential service disruptions and Destinations Compendium 2011
  • 81. E X P E R T S 83much more. Finally holistic risk reports are helped pick up early warning signals onavailable in real-time to Global outsourc- a policy decision in India - termination ofing and risk managers through the web. the Software Technology Parks of IndiaThis model thereby dynamically evaluates (STPI) scheme, which offered tax breaks.500+ criteria and delivers ratings that can Based on our recommendations, one ofbe compared across 50+ countries, 100+ our clients, a leading semiconductor com-cities and 500+ suppliers, helping critical pany proactively renegotiated, ahead ofdecision-making. the policy announcement, a deal with a Over the past two years, we have used partner to locate in a SEZ, helping it real-this model in the real world to encour- ize an annual savings of approximatelyaging results. In one case, this model eleven percent. Samples analysis and reports are below: Figure 4: sample analYsis Destinations Compendium 2011
  • 82. 84 E X P E R T S Here are a few other examples of how eventually realizing an eleven plus the model’s real-time alerts on a variety of percent tax benefit amounting to parameters performed: over $3 Million a year in savings. • In Q2 2010, this model picked up signs of likely escalating attrition concluSIon levels in the subsequent two quarters Firms leveraging global services and in Shanghai. Following this alert, our offshore outsourcing need a risk manage- client began a “proactive” employee ment system to ensure stability of opera- retention strategy with suppliers, tions and avoid significant disruptions. mitigating potential quality of serv- While a lot of data is available publicly, it ice issues arising from higher attri- needs to be aggregated and analyzed on a tion levels. regular basis to yield pro-active and rapid • In Pune, India, the analytical engine risk mitigation. seized on a growing number of vio- It is also important for the risk manage- lent attacks against women, follow- ment system to not just be focused on ing which companies were encour- supplier related risk but be focused on aged to beef up security for women “Supply Risks”. Supply risk management employees working night shifts. is a much broader concept that includes • In another case, when a global sup- location-based risk in addition to sup- plier’s quarterly results indicated plier based risk. So, the levels that need declining profitability, the model to be included in a supply risk manage- helped outsourcing managers pro- ment program include Country, City and actively engage with the supplier on Supplier. its cost-cutting measures and lower Supply risk monitoring is not an activ- their impact on its own assigned ity to be just undertaken during sourc- team and operations. ing or at periodic intervals. Risks do not • In India, we were closely follow- wait for monthly or quarterly governance ing the government actions on the meetings. A program like this, needs to be “STPI” law and predicted it not ongoing and real-time. being extended. Prior to this happen- Companies are encouraged to setup ing, an alert to a client focused them their own programs or look to programs on renewing a contract but moving like the Neo Group’s - Global Supply Risk operations to the SEZ zone and thus MonitorSM (GSRMSM). GS Destinations Compendium 2011
  • 83. stIntrodu cing The Worlds Foremo Expert On Outsourcing Vox Artis, a Latin phrase that literally means voice of the expert, is a resource of cutting-edge insights by experts in global sourcing of bussines and technology, the resource is intended to be a knowledge repository and is oriented to help practitioners make actionable decisions. The voice of experts is delivered on various subjects and in multiple formats such as e-book, PDF, microsite, webinars, web- casts, expert round tables and more. An initiative by For queries, write to us at
  • 84. 86 E X P E R T S Latin America: De-risking is Becoming Ever More Critical T he current market scenario of Latin America is growth – all over! More specifically, Brazil continues to have a very dynamic market because of all of the vis- ibility the country is attracting. • Although recent potential challenges Benigno (Beni) Lopez related to the foreign exchange rate in Brazil will probably bring some level of volatility, Chief Globalization Officer, Softtek in general, the environment is very optimis- tic. The same applies to Mexico. Despite the challenges we see in the media related to security issues, we still see a lot of interest in both foreign direct investment as well as Mexican domestic demand. The only ques- tion mark I have in terms of Latin American growth right now is Argentina. Argentina is somewhat challenged due to risk of high inflation. However, due to the fact that it is an election year and candidates will not want the peso devalued, we don’t expect too much turmoil. • As for the rest of Latin America as a destination for global services, our position remains the same in terms of the 4 main countries from where we deliver. These countries continue to be: Mexico, where we Destinations Compendium 2011
  • 85. E X P E R T S 87are headquartered, Costa Rica, where we poInTerS BuyerS need To keep Inare focused in R&D for high tech compa- knowledGenies, Argentina, which, ultimately continues You cannot treat Latin America as oneto be promising given the aforementioned singular region but rather as complemen-caveat of inflation, and Brazil. Brazil features tary and diverse entities. Buyers must trya huge in-country domestic demand, and a to match their strategic goals to each coun-great talent pool to draw from –but without try’s strengths in the region. We still seemuch surplus. Our global delivery cent- some companies that view Latin Americaer in Brazil is growing, as is the as one region, but companiesdemand from many domes- are increasingly committedtic companies as well as to more due diligencefor many MNCs, aug- on the specific con-menting their strat- texts of each coun-egy with a Brazilian try. Buyers mustcomponent. Brazil, develop local con-moreover, works tacts and coordi-seamlessly with nate with them toour delivery centers get the most up-in the US and Mexico to-date and factual– and the on-ground information aboutexpertise we have there each country’s realitiesis necessary to address as is possible. The valuelocal needs related to taxes and of these local contacts cannot beregulations. underestimated. If buyers do not have local• The calling card of Latin America is contacts, they might try reaching out tostill risk diversification. Although we’ve global suppliers for advice, on a nationalbeen preaching the same message for 15 context they may not know well.years, there is still a big market segment • With respect to Mexico specifically – buy-that is just now embarking on this strategy. ers need to do more due diligence beyondDe-risking is becoming ever more critical, as what the media portrays. They need torisk becomes a key factors driving company understand that coverage of violence is alsovalue. As buyers begin to do their home- a reflection of a media’s business looking for a risk mitigation alterna- As such, one must really separate mythstive, what they’re finding in some cases – to from realities. Additionally, just like Latintheir pleasant surprise – is a very dynamic, America is not one entity, Mexico is com-strong talent pool in Latin America. prised of many different cities and regions, Destinations Compendium 2011
  • 86. 88 E X P E R T S same quantity as in countries like Mexico or Brazil. • Finally, it’s a good point to remember that generally, in the Latin American context, elec- tion years mean that govern- ment officials face uncertainty in terms of the long term viabil- ity of some programs. Thus, new programs may need to wait until elected leaders draft and execute their own agen- das. It’s likely that during elec- tion years, one cannot expect much decided support from governments. • Make sure you do consider the locals. Most offshore-cen- tric providers are focusing on domestic markets across Latin America, and not that much on global delivery from the region. Those that are beginning to offer all with their own political, economic, cul- services from Latin America to the U.S., still tural and business landscape. Thus, one have a learning curve to master because they cannot treat Mexico as a single city or region are not used to operating in an environment either. Each region has different strengths where cost is not the primary lever, as it is in and weaknesses, and you must find some- India. As I already commented, each country one trusted to shed light on any grey areas has different regulations, governments, char- in question. acteristics, laws, culture, and putting all the • In terms of Costa Rica, it’s really a scale pieces together means that local understand- issue. Buyers must make sure to plan what ing is key to getting the most out of each they want to achieve in Costa Rica in such country or city’s potential. Finally, the coun- a way that they are not planning for a huge try strategy must consider the issue of scale, presence. This is because the demographics and influence the decision making progress in Costa Rica are simply not present in the early on. It possible to make adjustments to Destinations Compendium 2011
  • 87. E X P E R T S 89strategy, but it’s very expensive to relocate IMporTAnT dIfferenTIATorS ThATa center, so starting with an understanding help delIver BuSIneSS vAlue Inof scale and how to achieve it is a key factor ThIS reGIonwhere experienced vendors and advisors With regards to Nearshore, the mostcan provide hands on validation on setting important asset is experience. In additionoperations in the region. to experience, it helps to have a well- defined business strategy that focuses onServIce provIderS ApproAch To local knowledge and knowledge of yourThe MArkeT client’s major markets and operating cul- The best approach is to remember the ture. For instance, not only is it importanttried and true saying, “You must walk to know the ins and outs of the economic,before you run.” Providers need to under- political, cultural, technological and busi-stand that each country in Latin America ness landscape in Mexico, but it is equal-deserves and demands its own strategy. If a ly as important to have the same knowl-provider is thinking of setting up a delivery edge in the U.S. for a U.S.-based client,center for the U.S., it needs to think of lan- and so forth. In this sense, the mostguage offerings, complexity and scalability. important attributes to help deliver busi-For example, in Brazil, tax implications have ness value in the region are: experience,a large-scale effect on cost that one must local knowledge and buyer marketkeep in mind and account for. understanding. GS Destinations Compendium 2011
  • 88. 90 E X P E R T S Destination Strategy - What Makes/Breaks It? t he news about most of the offshor- ing deals that have gone kaput have probably not even seen the light of day. Sceptics in the buyer organisation would have voiced their “I told you so” opinion, and vendors would have put this down as another lesson learnt. Every unshared experience is only likely to give way to similar instances of failed deals between the buyers and vendors, eventually contributing to the notion of the difficulty of outsourcing. A failed out- Deepali Sathe sourcing transaction is the result of many issues and a number of them have their roots in an Project Manager, ill-informed decision on destination. This article ValueNotes Sourcing Practice puts into perspective the importance of an edu- cated location strategy. The uSuAl SuSpecTS of A Broken deAl Some of the usual suspects blamed for the failure of an offshoring deal include – Change ‘mis-management’ - It is impera- tive that a company prepares its employ- ees for the changes that are expected once the decision to offshore has been taken. The importance of clarity in communica- tion, cultural sensitivity, understanding Destinations Compendium 2011
  • 89. E X P E R T S 91certain inherent nuanc-es cannot be stressedenough when makingthe transition. Communication dis-parity - Something assimple as saying “yes”,when employees of anAsian service providermean “maybe/maybenot” has been a sourceof great consternationfor companies in theUS and UK. While service providers are problems, differences in companies’ phi-doing their bit to overcome this issue, losophy, among others.efforts from buyers are equally vital. While each of the earlier reasons cited Ambiguous deliverables - Lack of clar- by Everdream is valid, the inherent sourceity on deliverables is the single largest of problem seems to be lack of insightsreason for deals to fall through. This has into the destination strategy. Why didits roots in lack of communication, pre- accent issues and poor telecom connec-conceived assumptions and lack of pre- tions have to be ‘revelations’ post the deal?deal preparedness. Considering this was a voice-based serv- When Everdream, based in the United ice, where end users would need technicalStates, outsourced its help desk to Costa support - language capabilities with neu-Rica, it did not take long for customers to tral accent and good telecom infrastruc-start complaining. The service provider ture appear to be the natural filters. Evenwas selected post a process that invited a basic destination analysis would havebids, and opted for the one that appeared brought out these issues.most balanced - in terms of costs sav-ings and risk management. The company BehInd The SceneS – The reAl ISSuestates that initial efforts and training went Companies typically decide to outsourcethrough smoothly. However, within a few to achieve certain benefits such as costweeks of going live, customer satisfac- arbitrage, talent pool, and risk manage-tion plummeted. In hindsight, the reasons ment, among others. Destination strat-cited were accent issues, poor telecom egy is one of the many governing factorsinfrastructure, non-resolution of customer that eventually contribute to the overall Destinations Compendium 2011
  • 90. 92 E X P E R T S of resources that a desti- nation is likely to have. For instance in legal process outsourcing (LPO), efforts by Indira Gandhi National Open University (IGNOU) in New Delhi to launch a course in LPO has been received with enthusiasm. Rome is not the only city that was not built in a day. Developing infra- success of a deal. Companies must focus structure that can become an asset to on these dynamics rather than the out- business, takes years to build. Excellent come to ensure success. telecommunications in Gurgaon may not necessarily mean good telecom facilities The ABIlITy To ScAle up IS The in every part of India. Not every city in reSulT of SuSTAIned efforTS - China will be as well equipped as Dalian For a company that is looking to offshore or Shanghai. Monopoly of a telecom com- as a long term strategy, the ability to scale pany in Costa Rica during early years of up is an important decision making input. outsourcing in the country did prove to be People resources and infrastructure, the a source of some concern. two primary components of any growth Over the years many countries have plan, are available only after years of sus- tried to emulate the National Association tained efforts. For instance, it is not just of Software and Services Companies the number of engineers that graduate (NASSCOM) and its successes. Slasscom each year; it is the employability that is in Sri Lanka and BPAP in the Philippines more likely to impact scalability issues. are some examples. Associations contrib- The availability of top-quality institutes in ute a lot to the industry and its ability to the country will reveal accurate statistics scale up by providing a common platform of the available talent. Keeping the future to discuss and resolve all issues. Other in mind, the sentiments of the educa- aspects related to talent will also reveal tion sector towards corporate participa- the sustainability of the location. General tion can offer some insights into the kind comfort level with other languages, the Destinations Compendium 2011
  • 91. E X P E R T S 93training and development culture, the ability to deal with them are all importantstandard of education compared inter- inputs to risk management. The prevailingnationally, etc. can lead to some valuable economic growth can indicate the strengthinsights regarding future possibilities. For of policies that the government has under-infrastructure, some of the areas that com- taken in the past. Many countries havepanies can look at are - regulations related established regulations that are designedto telecom and real estate, recent and to encourage the outsourcing industry,long term real estate lease trends, overall such as setting up of SEZs.connectivity with respect to roads and Some of the related economic param-airports, presence of global companies eters that need to be considered are: sta-in these industries, etc. These param- bility of currency, standard wage norms,eters will provide insights to the current disaster management among others.state and future trends of the outsourcing Similarly presence of other companiesindustry growth. using outsourcing service providers from a destination can provide valuable insightsGood GovernAnce needed for into salary structures, and information onBuSIneSS GrowTh - challenges and benefits.Business growth depends on governmentpolicies that are looking for value addition need for A cuSToMIzed SoluTIonas in KPO from offshoring need to also Just like other outsourcing solutions thattake into account certain issues that may are customized to enhance benefits, desti-crop up with changes in policies. While nation evaluation has to be in accordancemost governments will not discourage the with company needs. Though cost cuttingoutsourcing industry in particular, compa- continues to be the major driver for out-nies must take cognizance of the policies sourcing, the deals that are cancelled areand their impact. hardly due to lack of cost advantage. An understanding of the existing politi- Companies have to invest in backgroundcal system will provide insights to busi- checks to understand a location and itsness continuity. While the ruling political offerings. This will help them align theirparties are an obvious choice for due dili- expectations leading to better prepared-gence, opposition (or its lack thereof) and ness and lower chances of failure. If desti-regional political conditions also need to be nation strategy feeds into selection of ven-given a serious consideration. The recent dors, who anyway are ultimately respon-unrest in Egypt would have caused many sible for delivery and maintaining cus-companies serious concern. Internal law tomer satisfaction, the rate of success ofand order situation, threats, the country’s outsourcing deals will improve. GS Destinations Compendium 2011
  • 92. 94 E X P E R T S Compete or Cooperate? Bridging the Near shore- Offshore Divide O utsourcing service pro- viders began establishing near shore delivery cent- ers – located primarily in Canada and Mexico, and increasingly in Latin American countries including Brazil, Argentina and Chile – several Lalit Dhingra years ago for a myriad of reasons. And the drivers were mutually exclusive or President, NIIT Technologies Inc. mutually inclusive, depending on a vari- ety of factors: • Although India was, and still is, a key offshore destination for IT services, wages for IT workers were increasing year-on-year • Client company staff clearly preferred working with service provider staff located in similar time zones, rather than conduct- ing 2 a.m. local time review calls with a team located in India • Beyond simple preference for standard working hour contact on routine matters, clients were increasingly demanding the ability to reach similar time zone staff for escalation of critical issues and when deci- sions needed to be made, fearing both loss of speed and context if key contacts were located only in India Destinations Compendium 2011
  • 93. E X P E R T S 95• Some IT services companies began a surprise to some India-based provid-realizing the value of moving to a low ers. For example, IT workers in Mexicocost, near shore destination for disaster took two-hour lunches during which theyrecovery, multi-lingual support, etc. drank and danced was something quite• IT enterprises were increasingly mov- unfamiliar to those from India visitinging internal IT requirements to existing their near shore colleagues.near shore facilities, relocating employees These challenges meant that maturein lower cost zones and creating a barrier India-based providers investing in near-for outsourcing shore capabilities had to find a solution• Western and near shore IT services to this multi-pronged cultural divide,companies, facing tough competition from and quickly integrate and channelize thetheir Indian counterparts, were replicat- acquired resources to deliver services. Asing India’s IT services delivery model and a result, the global services industry wit-already had the same time zone value nessed a cross-pollination of resourcesproposition from India and near shore countries to With these factors and increased compe- shorten the learning curve. This in turntition eroding business, Indian IT services resulted in good professional middle man-companies began establishing their own agement growth in many near shore andnear shore, same time-zone presences by offshore companies.buying other IT companies’ existing near The result of this compulsory compet-shore centers, or forming partnerships ing in a flat world is that clients will havewith smaller, niche-focused providers a greater breadth of options for creatingwith complementary service offerings. a sustainable IT sourcing blueprint and a However, the near shore promise was solid business continuity planning/dis-far from a panacea. Some IT buyers unex- aster recovery plan. And vendors willpectedly realized they needed to audit increasingly be forced to adopt and pro-process delivery and data security levels vide delivery models that buyers prefer inmuch more closely when doing business order to support their core business case.with domestic near-shore IT providers, I believe that by 2015, the IT servicesas these firms were lower on the matu- vendors that want to remain in businessrity curve than their offshore peers. Some will all have near shore as a deliveryIndian IT service providers encountered option or a core delivery offering. By then,a skewed curve in smaller countries in near shore operations will no longer be awhich there were, at least near-term, a differentiator, and the focus will increas-limited supply of skilled resources. The ingly shift to innovation, automation andcultural differences were also a bit of non-linear service offerings. GS Destinations Compendium 2011
  • 94. 96 E X P E R T S Choosing the Right Offshoring Destination T oday, businesses are using off- shoring extensively as a strat- egy to compete and expand in the global market. This is an economical way to meet market challeng- es such as rapid globalization, increasing competition and technological sophisti- LN Balaji cation as offshoring offers businesses a significant edge by reducing production President of ITC Infotech and operation costs. When choosing an offshoring destination, there are several factors apart from cost ben- efits that must be considered. These include: • Skill base and Educational institutions - Each country can be differentiated on the basis of the number of graduates it produces. For example, Indian graduates are desired for their competitive skills in software pro- gramming, whereas Filipino graduates are known for their proficiency in English lan- guage. Thus, when looking for an outsourc- ing location, companies must evaluate their decision based on the skill sets they require for their operations. • Data privacy and protection - Various countries follow different regulations Destinations Compendium 2011
  • 95. E X P E R T S 97when it comes to data privacy and protec- • Currency Rate- Another important factortion. For example, recent concerns about to be considered while selecting an excel-misappropriation of Intellectual Property lent destination for offshoring is its currencyand trade secrets in outsourcing to China, rate. The huge variation in currency rates ofhave compelled companies to re-consider different countries is the main reason whya number of legal and practical issues. some countries can afford to offer their serv-When off shoring, organizations should ices at very low rates. Companies shouldnot forget to weigh the reliability of IT consider the currency volatility of differentinfrastructure provided by offshore ven- markets as well as the currency value anddors to ensure the security and privacy of fluctuation over a period of years.shared data. It is also recommended that • Other factors - The success of investmentsthe network security policies followed by made in a country also depends on the per-offshore vendors be evaluated beforehand sonal safety promised by the country chosenso as to avoid privacy issues. Vendor pre- as an off-shoring destination. Consideringparedness, together with a robust regula- factors like language and cultural issues,tory and enforcement environment, makes time zone differences and training is alsofor a compelling proposition in deciding important. Unfavorable social, political andthe location. cultural factors can make project manage-• Government support- Government sup- ment difficult, leading to improper integra-port is a crucial factor that determines the tion and poor project execution.success of an offshoring process. A high Keeping these factors in mind can help alevel of support from the Government trans- company select a viable off-horing site. Besideslates into ease of operations in offshoring its cutting down on infrastructure and operation-business processes. Support could be in the al costs, choosing the right offshoring partnerform of tax relief, employment regulations, allows companies to focus better on their corepublic infrastructure, etc. competencies and strategic priorities. Destinations Compendium 2011
  • 96. 98 E X P E R T S Bangalore: GLOBAL SERVICES MAGAzINE India’s Ideal Offshoring Destination Past Issues Among Indian off shoring destinations, Bangalore tops the list followed by Chennai, 2011 September Issue Delhi , Mumbai and many others. The tech- Hot &New: “WFM Has Changed to a Know- Why Governments Are Android Accelerates Mobile ledge-based Function” Pg 8 Treading Slow Pg 10 Application Development Pg 22 nology hub of the East, Bangalore has been The gateway to the global sourcing of IT and BPO services September 2011 ADM & serving global clients for over two decades. Hot and ADM New: Testing Services & Some of the factors that work in its favor Testing Services include: Click Here To Read • Diversity-Bangalore offers clients low- 2011 July cost technology services in diverse areas. Issue It’s Silicon Valley –like combination of tal- HRO So ent and a vast network of consultants and Old, Yet So New vendors makes it an attractive outsourcing destination for global clients. • Skilled workers- The metro city has a Click Here To Read talented and technologically savvy work- 2011 May force that can provide quick ramp-ups and Issue The at affordable operating costs. Promise of IaaS • Geography- The strategic positioning of Bangalore makes it a preferred location for offshoring. It is directly connected through Click Here air routes to international locations. To Read 2011 April • Proven reputation- With Industry lead- Issue The New ers like Accenture, Google, IBM, Cisco, Intel Rules in and Yahoo! having critical operations in the BPO city, Bangalore comes across as a safe bet for companies looking to offshore due to its proven reputation. Click Here To Read Destinations Compendium 2011
  • 97. E X P E R T S 99 Comparative analysis of the most preferred offshoring destinations - India Vs China Factors India China Software quality CMM Level 5 CMM Level 3 Advanced Business Skills Vast experience in catering Limited experience and to the requirements of therefore, plenty of room western IT services clients for skill enhancement Better skills like project management, business analysis, etc. Business Languages English/Hindi Mandarin/Mandarin Global Reach Expansion to Latin Limited reach beyond America, U.S., Eastern China Europe, and China Average IT Staffer Salaries $9,896 $10,095 Technology Infrastructure Excellent IT infrastructure Good IT infrastructure within technology parks but not as robust as in India Popularity Contest Ranked as the best Ranked #3 for the Eastern destination for offshore IT Europe regions services by Western buyers Source: CIO 2011 March Contact 2011 February Next 2011 January Utility Compu- Issue Center Issue & Best Issue ting: The Industry: Practices Reality Check Where Do in Global You Go Sourcing In the decade From Here? Thought- that went by, Contact leading the outsourcing Centers Practi- tioners’ industry had and the Viewpoint many momen- Challenge of Social tous shifts Media Click Here Click Here Click Here To Read To Read To Read 2010 Archives www.globalservicesmedia. com/e-magazine Destinations Compendium 2011
  • 98. 100 E X P E R T S Does Captive Offshoring Still Make Sense? S ummary: Captive offshore operations have evolved signifi- cantly over the past decade in response to a changing global sourcing landscape. A recent TPI study examined the state of the captive opera- tion and assessed the operational perform- ance of 30 captive units. The findings, summarized here, indicate that the captive model remains an integral component of a Nigel hughes comprehensive sourcing strategy. When India was the de facto offshoring Compass Management Consulting destination, captive operations were a rela- tive no-brainer. Large global organizations seeking cost savings could leverage their established Indian presence, eliminate the margins and overhead associated with outsourcing, and avoid the risks posed by putting operations in the hands of service providers who likely lacked the necessary skills and expertise. Things are much more complicated today. For one thing, myriad countries and regions now compete intensely to be anointed the latest offshoring “hot spot,” and political and economic turmoil raises Destinations Compendium 2011
  • 99. E X P E R T S 101doubts about stability. This means that the workforce development. This reflects theoptimal geography for offshoring is going general maturation of client organizationsto change over time, causing businesses in the space, and of the sourcingquestion the viability of a long-term marketplace in general, andinvestment in a captive. Moreover, demonstrates the realiza-the increasing maturity of sourc- tion that offshoring ining providers – in India and else- and of itself is not enoughwhere – has closed the skills gap to gain a competitivebetween in-house and external edge. In today’s sourcingstaff. environment, any strategy These doubts not- requires effective operationalwithstanding, the off- management.shore captive opera- One key finding of the anal-tion remains essential ysis: captives are adoptingto the sourcing strat- a global service deliveryegy of many business organizations. TPI model by diversifying their(owned by ISG, Inc., the same par- geographic portfolioent company that owns beyond the typical captiveCompass) recently locations.completed a bench- For example, parent entities aremark study across 30 leveraging cost arbitrage by combiningIT and BPO Captive operations in Tier I and Tier II cities. (Theunits. The analysis, led by median study participant had deliveryGaurav Kumar, TPI Director and Lead, centers in more than three low-cost loca-Captive Consulting, assessed business, tions.) Companies taking this approachfinancial, and personnel metrics against tend to identify specific cities to sourcecomparable captives from the previous best-of-breed skills for their operations,year. To ensure an apples-to-apples con- so that, for example, knowledge proc-text, exchange rates and working hours esses might be based in Delhi, applica-per year were also normalized across all tion development and maintenance andparticipants. R&D in Bangalore, and IT infrastructure Overall, a clear trend that emerges from in Chennai.the analysis is that offshore captives are A related trend is a notable increaseincreasingly focused on improvement ini- in multi-country and multi-region cap-tiatives and optimizing efficiency, pro- tive presence for large companies. Matureductivity, and investments in training and companies segment work into the “front Destinations Compendium 2011
  • 100. 102 E X P E R T S of the back office,” where services are oTher oBServATIonS: delivered from captive locations within Parent entities are taking advantage of the same region or time zone, and the captives’ familiarity with local business “back of the back office,” where work is conditions and opportunities to deliver done from a global low-cost locations such services within domestic markets. By lev- as India, the Philippines, or China. eraging the same platform to support The increasing prevalence of hybrid both international and domestic opera- delivery models is another indication of tions, the parent organizations achieve the emphasis on operational optimiza- economies of scale and ensure consist- tion. Captives are integrating third-par- ency on regulatory compliance and inter- ty providers into their existing captive nal controls and audits across the entire operations to perform non-IP-sensitive franchise. processes. • Cost-reduction strategies include This hybrid delivery model can take aggressive segmentation of salary and the form either of co-sourcing, where cap- facility costs. tive and third-party units coexist at the • Captives are optimizing technology same location, or where the captive opera- and telecom costs through rational- tion uses use third parties to augment ization, implementing thin clients, their teams, while retaining overall project and consolidating bandwidth. management responsibility. • Support costs continue to offer captives To address the constant challenge of an opportunity to realign their cost cost efficiency, captives reducing technol- base and prune expenses. Specifically, ogy and telecom costs by adopting cloud technical training leading to certi- and virtualization solutions and by utiliz- fication continues to be an impor- ing thin clients. tant investment. Top-performing Captives are also proving to be a valua- captives employed internal trainers ble source of talent for the global business, for Business as Usual requirements and are enabling their parents to success- and external trainers for specialized fully acquire domain experts and talent requirements. for their core business operations globally. While the role and characteristics For example, the analysis observed situa- of captive operations continue to tions where captive personnel with dem- evolve in response to a dynamic onstrated expertise have moved across marketplace, evidence suggests that parent entities to either lead operations in they will remain an integral compo- other geographies or to assist in scaling up nent of a comprehensive sourcing such operations. strategy. GS Destinations Compendium 2011
  • 101. E X P E R T S 103 Africa Rising – Outsourcing Juggernaut set Sails O ver the past few years coun- tries in Africa have been try- ing to position themselves on the global sourcing map as competitive destinations for service deliv- ery. The efforts and initiatives of countries in the region are paying off with several multinational companies making invest- ments in the last few quarters, to both serv- ice the regional market and also to use the geography as a global service delivery hub! Dr. P.K. Mukherji African nations have realized the poten- President & Managing Partner, Avasant tial of the IT/BPO sector as an integral pil- lar to foster economic growth in an inclu- sive fashion. Their competence in terms of demographics and language skills has been well established. Their advantage in terms of time zone compatibility with the European nations and shared busi- ness culture has also been acknowledged by many clients and service providers. To harness these capabilities some of the African nations have taken a stride ahead and progress in this domain can be clearly seen. There has been significant improve- ment in the infrastructure, noticeably Destinations Compendium 2011
  • 102. 104 E X P E R T S • Improved Mobile subscribers, & Broadband Telecom. Infrasructure Government making the • New Technology Growing Market Size continent the Parks fastestgrow- • Government Human ing ICT mar- Incentives ICT Multinational Capacity • Private Sector Development Industry Corporations ket in the initiatives world. The public • Tax Breaks Incentives Impact and private • Subsidies Sourcing sector has also made in the telecommunication & technology considerable progress in improving fiber parks and human capital development. connectivity. Since the fiber optic SEACOM These improvements have resulted in a subsea cable went live in 2009 and the dra- constantly growing IT/BPO market. matic reduction in Internet costs that fol- lowed (prices in some parts of East Africa InfrASTrucTure IMproveMenTS: fell from $4,000 to under $500 per megab- key To SuSTAIned GrowTh it), broadband consumption has jumped in Infrastructure development projects are some cases almost 10 fold within the first on an upswing in many locations within year of commercial service. In the 2010 ITU Africa with increased participation from report, out of the top ten countries show- both public and private sector. A huge ing the steepest decline in prices world- improvement can be seen especially in the wide, nine of them were African countries. communication sector and the commercial Along with the development in the real estate with multiple IT parks becom- telecom landscape many technology ing operational. parks have been developed to promote Large Telecom operators like Bharti the growth of the IT/BPO industry in Airtel are looking to harness this large Africa. Parks like Smart Village in Egypt, untapped market as well as contribute Innovation hub & Softline Technology Park to the infrastructure development thereby in South Africa, Casablanca Technopark making it a more conducive outsourcing in Morocco provide state of the art facili- location. Airtel has already invested $ 11 ties and incubation centers to the IT/BPO Billion in Africa which has led to almost industry. Tunisia, for instance, has recently a 50% reduction in mobile telecom tariffs. announced an ambitious plan to build 10 During the past five years, Africa’ s cellular technopolis to disseminate digital culture market has grown 5000% to over 400 million and new technologies within the next ten Destinations Compendium 2011
  • 103. E X P E R T S 105years. Kenya also has outlined an ambi- education levels in Africa to fulfill thetious plan of developing a 5,000 acre East requirements of growing ICT industries.African technopolis. These developments Apart from the government initiatives inand plans pave the road ahead for a sus- improving the education system and pro-tainable growth in the ICT sector of Africa. viding training grants to corporations, a lot of initiative has been taken up by pri-GovernMenT IncenTIveS: vate companies. Some of the recent initia-foSTerInG GrowTh tives such as the Microsoft’s South African Governments in most African nations Innovation Centers to promote the jobhave been actively engaged in develop- enablement program have started yieldinging the IT/BPO industry and from time results. The AfDB has invested in informa-to time have released attractive incentive tion and technology skills at two regionalplans. These incentives by the govern- Centers of Excellence in ICT in Tunisia andment have enabled an increasing inflow of Rwanda and in a High Tech Centre in ICTForeign Direct Investment since 2000 and is in Mali. MTN & Cisco have also invested inexpected to touch the 2008 marks again by skills development in South Africa. ITIDA2013 (Depicted in the Chart 1 – There was (Egypt) has also launched European lan-a reduction in FDI in 2009 and 2009 due guage programs in partnerships with lead-to global recession) and attracting service ing cultural institutes in Egypt to enhance© Copyright 2011 – All Rights Reserved, availability of talent for technical sup-Avasant LLC Page 3 of 5 providers to set up port with proficiency in French, Spanish,delivery centers and MNCs to set up shared German and Italian. These initiatives byservice centers. Recent incentives by the both the government and the private sec-South African government aim to reduce the tor have increased the employable popula-operating cost of BPOs by an additional 20%. tion in the African continent resulting inSimilar incentive schemes have been rolled an improved IT/BPO market.out by most African countries and haveacted as a key factor in developing the IT/ IT/Bpo MArkeT: The GrowThBPO industry. Strong data and IP protection STorylaws have also been tabled by governments In the past couple of years there has beenindicating a positive directional movement a significant development in the IT/BPOto create a conducive business environment. space with many third party providers entering the African Landscape. This mar-huMAn cApITAl developMenT ket has seen an increase in not just third There have been considerable efforts, party service providers but also captives ofin the past few years, to improve the major MNCs. In order to tap the potential Destinations Compendium 2011
  • 104. 106 E X P E R T S at the bottom of Chart 1 - FDI and ODA flows to Africa the pyramid, 80 Impact Sourcing *ODA CAGR – 12% 70 *FDI CAGR – 18% as a method of outsourcing has 60 become a lead- 50 ing phenomenon USD Billion 40 taking cues from 30 the rural sourc- 20 ing initiatives 10 in countries like 0 India. 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Ranking DDA FDI of countries Source: DECD/DAC for ODA, UNCAD for FDI 2000-2010. Projections for 2011: FDI: IMF; ODA: Simple forecast like Egypt has improved significantly from a 13 in 2007 to setting up © Copyright 2011 – All Rights 4 in 2011 on the AT Kearney Global Service Reserved, Avasant LLC Page 4 of 5 shop in Location index and the Government is the country in the last two years. Genpact projecting revenue of $ 2 Billion from the Ltd, Aegis Communications Group Inc. IT/BPO industry by 2013. Faced with and IBM have started operations, while intense competition and eroding margins Mahindra Satyam is planning to open a due to inflation in India, Spanco a tech- center of its own. Entry of these large IT/ nology firm expanded in Africa and now BPO companies in the African market is a earns nearly half its profit from the African testimonial of the traction the industry has region in 2 years employing nearly 2500 gained over the last couple of years. people here. In Kenya, for instance the Shared Service Centers of Multinationals number of IT/BPO companies has grown have forayed into the African market not from just 1 in 2005 to over 25 in 2010. just to create value through outsourc- Tele Tech entered the Ghana BPO space ing services to a low cost destination but in October 2010 with the acquisition of to enter into the huge untapped African Vodafone’s call center and now has a 600 Market. Nestle, for instance, has strength- seat center in Ghana, making it one of the ened its presence in Africa by setting up a bigger third party players in the African shared service center in Accra (Ghana) to market. Over 200,000 South Africans are support back office operations to 40 African already employed in the BPO sector, with nations and is expected to employ 150 peo- five of the world’s top 10 BPO firms ple by 2012. Entry of large multinationals Destinations Compendium 2011
  • 105. E X P E R T S 107into the African market has served them Ghana, for instance, out of the 2500 oddthe dual purpose of establishing a foothold seats in the BPO sector, almost 30% can bein this geography as well as to exploit the classified as Impact Sourcing seats. Rightbenefits of a low cost destination. skilling of work and identifying train- Government projects and collaboration able skills have enabled development ofwith private players are encouraging the specific skill based training to increase thedevelopment of the IT/BPO landscape employable population in these countries.through various e-Governance and digiti- Corporations around the world and gov-zation projects. The Governments in coun- ernments in Africa are beginning to realizetries like Ghana and Kenya are not just the huge potential this segment of the out-promoting this industry through aids and sourcing market offers and have started toinfrastructure development but also have make investments.become the users of these services, creat-ing an anchor demand essential for the concluSIongrowth of this industry. Africa has always been perceived as geography with huge potential but in theAchIevInG IncluSIve GrowTh: recent years, significant progress in real-IMpAcT SourcInG izing the potential has been observed. Impact sourcing, a new phenomenon Infrastructure improvements and reduc-in the sourcing world revolves around tion in ICT costs have fostered the growththe premise of a social impact through of the IT/BPO industry. Significant inflowBPO. It involves employment generation of FDI and foray of service provider com-within the poorer sections of the society panies have demonstrated the fact that theand has seen a huge potential in Africa. African IT/BPO industry is set to competeA constantly increasing ODA (Official globally with the established geographiesDevelopment Assistance) as seen in chart- in this sphere. It has become difficult to1, demonstrates an active participation ignore this huge market both in terms of aof various organizations and govern- low cost location with a young populationments in developmental projects in Africa. as well as a regional market with sizableInitiatives from groups like Rockefeller demand for goods and services. FurtherFoundation strengthen the viability of this capacity building activities already initiat-newly established mode of outsourcing. ed by the African nations will enhance theVarious models have been identified to pace of growth and pave the road aheadcreate employment in the underprivileged for further expanding the IT/BPO indus-sections of the society through BPOs. In try in the region. GS Destinations Compendium 2011
  • 106. 108 E X P E R T S Africa : A Ripe Terrain for Impact Sourcing A s early as 1995, C.K. Prahalad author of The Fortune at the bottom of the Pyramid: Eradicating poverty through profits, asked three pertinent questions i) What are we doing about the poorest peo- ple around the world ii) Why is it that with all our technology, managerial know-how, and investment capacity, we are unable to make even a minor contribution to the problem of pervasive global poverty and Pumela Salela disenfranchisement iii) Why can’t we cre- BPO Consultant ate inclusive capitalism? C.K. Prahalad correctly stated that new and creative approaches are needed to convert poverty into an opportunity for all concerned. A few years later, after the growth of Sourcing, the Sourcing industry can play a role in answering some of the late C.K. Prahalad’s questions. This is a legacy the industry can contribute to, not only for the sake of C.K. Prahalad himself but for the future generations, if each industry player could tap into this new socially responsible and sustainable way of sourcing. Destinations Compendium 2011
  • 107. E X P E R T S 109whAT IS IMpAcT SourcInG? Sourcing is currently $4.5 billion and has the Impact Sourcing employs individu- potential to reach $20 billion and employals with limited opportunity for sustain- 780,000 by 2015. The report, conducted byable employment as principal workers in Monitor Group, suggests a strong businessBusiness Process Outsourcing (BPO) centers case for Impact Sourcing, which can provideto provide high-quality, information-based high-quality, reliable services at prices thatservices to domestic and international public are at least competitive with traditional BPOand private-sectorclients. . Accordingto the MonitorGroup, Base of thePyramid is definedas the populationearning $2/day orbelow in PPP termsfor most lower andmiddle income centers and, incountries. Different some cases, almost 40organizations refer percent lower than what tradi-to this new move- tional providers can offer. It states thatment in different ways : The Rockefeller today, the total global IS market (which gen-Foundation calls it Impact Sourcing (IS) erates an estimated $4.5 billion in revenueswhilst the Global Sourcing Council refers to as indicated above) represents 3.8 percentit as 3S, which stands for Socially responsi- of the entire $119 billion BPO industry andble and Sustainable Sourcing. Regardless of directly employs about 144,000 people acrossthe names given to this new form of sourc- all segments.Of this, $1.2 billion is estimateding social revolution,the unifying principle to reach IS workers as employment that Outsourcing work must be given to Analysis suggests that the share of IS in totalthose communities who are poor as a means BPO could increase and , more than $10 bil-of stirring up economic growth in the areas lion will reach IS workers through employ-where they live. ment income in the few years to come.whAT IS The SIze of The MArkeT The role of GovernMenTAnd ITS poTenTIAl? Governments need to come up with A new report funded by the Rockefeller government policies that create an ena-Foundation estimates that the field of Impact bling environment for Impact Investing. Destinations Compendium 2011
  • 108. 110 E X P E R T S Governments need to direct The role of prIvATe the market and industry SecTor/InduSTry to be socially respon- Impact Investors on the sible and sustain- other hand, need able. Governments to find a balance should encourage between making new activities in profits and philan- underserved areas. thropy. The private sec- Innovative approaches should tor need to create a pri- be encouraged in order to bring vate market that sup- about a new way of doing things ports socially responsible and solving day to day problems. The and sustainable sourc- government could provide direct finan- ing. Industry should start cial support in the form of incentives or outsourcing to the severely institutional support and influence markets economically distressed areas. through laws, regulation, policy innovation One of the demand constraints and economic development. that are faced with Impact Sourcing Service An example could be made of the South Providers (ISSP’s) is accessing clients and African government, which, in its quest to contracts at their early stage of development. bring BPO jobs to the people , identified Due to their rural nature they struggle to areas within the country ( South Africa) attract a sizeable amount of clients. I believe which had been previously identified as that this is a short-term challenge. The more poverty nodes, as areas that could be used awareness is created about Impact Sourcing to promote Impact Investment. The South , the more it should form part of the social African government came up with a policy agenda of each organization that is involved which gave investors additional incentives in Sourcing, be it as a client or a third party if they located their operations in the desig- service provider that is located in an area that nated areas. This encouraged the workforce is more “upmarket” than the rural areas that not to leave their places of birth, which are we have referred to throughout this text. largely rural, in search of better jobs in the big cities, but to provide the services where The role of cIvIl SocIeTy they live. This allows a greater interaction Ordinary citizens have a big role to play with their communities which promotes in this new “movement”. They need to hold social cohesion. This initiative also prevents government and the investors/private sector labour movement as people are able to have accountable . If communities hear of a new decent lives where they were born. investment in their areas they should try to Destinations Compendium 2011
  • 109. E X P E R T S 111find out how the benefits will trickle down Going back to the question of “Why Africato those who are less fortunate. This is not for Impact Sourcing”? The answer could beabout bulldozing investments. What it calls explained as follows : Africa has one billionfor is a robust engagement to determine how inhabitants The continent has a high unem-communities could provide the labour and ployment rate yet a number of Africans arethe services , in a manner that is decent and well educated, in Africa and abroad ( mainlypromotes the dignity and welfare of commu- Europe and the United States of America).nities. Furthermore, civil society should put What they lack is the employment opportuni-the government and private sector to task so ties to give them the edge in life. They have thethat the two (government and private sector) professional skills and know how in terms ofcan provide the infrastructure that is some- how the global world works. Lack of employ-times lacking in these communities. ment opportunities are not only for the educat- ed, but the poor and the downtrodden contin-why AfrIcA ? ues to be the obstacle to Africa’s development. The Rockefeller Foundation’s Poverty Sometimes you find a combination of the two,Reduction through Information and Digital whereby individuals are educated yet poor.Employment (PRIDE) work aims to har- In Africa there is also a large young popu-ness the global outsourcing sector’s inno- lation which is technologically –savvy. Ifvative employment and efficient serv- we draw inferences from the growth of theice delivery models, and substantially mobile market in Africa, it surpassed allimproved Information and Communication projections, which turned out to be timidTechnology (ICT) infrastructure in Africa compared to the aggressive nature in whichto create jobs for people at the base of the mobile phones grew in Africa. Figures tell uspyramid who would otherwise not have that there have been 316 million new mobilethe opportunity for sustainable employ- phone subscribers that have been signed upment. PRIDE is aimed at creating sustain- in Africa since year employment opportunities for people AFRICA FACTS & FIGURESat the base of the pyramid by fostering this Africa’s collective GP will be $2.6 trillionnew critical new arm of the outsourcing by 2020industry called Impact Sourcing (IS). The Africa’s consumer spending will be $1.4 trillion by 2020Global Sourcing Council (GSC) has , as one The number of Africans of working ageof its pillars the development of Socially will be 1.1 billion in 2040Responsible and Sustainable Sourcing in The number of African households withAfrica, and has to this effect appointed an discretionary income will be 128 millionAfrican Ambassador for “3S” to carry out its by 2020 Source: McKinsey Global Institute(2010), Lions on the move: The progress andmission and objectives. potential of African economies. Destinations Compendium 2011
  • 110. 112 E X P E R T S whAT IMpAcT SourcInG AcTIvITIeS smaller service providers who would have hAve TAken plAce In AfrIcA ? otherwise not had such an opportunity . Various organisations have proved that Enterprise customers send Samasource a this model of Impact Sourcing as a means project that is broken down by a proprietary of employment works : Samasource , for technology platform into smaller tasks called example seeks to help women, refugees "microwork”, a term coined by Samasource and young people in developing countries founder and CEO Leila Chirayath Janah to earn a living wage by doing work over in 2008. These tasks are sent to Service the internet. In Africa the organisation has a Partners - nonprofit organizations, grass- presence in Uganda and Kenya. The compa- roots businesses, and educational institu- ny has been able to provide a living to com- tions that work with people living in pov- munities which were living on less than $2 a erty. Service Partners, which are in charge of day by giving them income that is as high as managing and paying Samasources work- $10 an hour. Samasource works with com- ers, must meet a range of criteria in line with panies that need services such as database Samasources social mission. cleanup, translations , transcriptions and so The Global Sourcing Council has out- on. The workers can perform different tasks sourced its web design and web hosting which vary from low -end to high- end. This services to a small company in Nigeria has opened a world of opportunities to the founded and owned by a young woman, Destinations Compendium 2011
  • 111. E X P E R T S 113Izizi Obele Okpara of Nigerian descent. in the field of Impact Sourcing. SupportedFor the last 2 years La Vida Enterprise hasby an international donor organisation, thebeen responsible for uploading 3S Awards conference will bring together current andentrees and the general competition entry future stakeholders of Impact Sourcingmanagement which is quite a high end job which include the private sector, govern-because entrants need to submit videos or ments, civil society, advocacy and researchpowerpoint presentations for them to quali-institutions ,individuals and the media .fy. The Nigerian company also monitors that Case studies will be shared on how tothere are no multiple entries from the samebring Impact Sourcing initiatives to life. Anorganisation, amongst other things. This isactivity agenda will be mapped out so thatanother” proof in the pudding” that Africanall African countries could participate in thiscompanies can be part of the Globalization initiative.of Services. In addition , the company offers It should be stated, however, thatother services to other clients and these African countries cannot do it on theirinclude social media marketing, internet own. They need the support of sourcemarketing services, email marketing and geographies such as United States ofsearch engine optimization (SEO). America, Europe and India in order to make Impact Sourcing a reality.whAT IS The fuTure ? The positive future economic growth The future provides hope. potential of the African continent cannot be South Africa will host the first Impact disputed. What it needs is sincere partner-Sourcing conference in the country in the ships with organizations who have thefirst week of December 2011. It will be an development of Africa deeply imbedded inAfrican wide conference with the aim of their thinking , actions and operations. Itdrawing delegates from across the African needs individuals and organizations whoContinent with world renowned speakers can “walk the talk”. GS Destinations Compendium 2011
  • 112. 114 E X P E R T S Business Transformation and the Expansion into Asia T he markets in Asia, particularly China, present a wealth of new business and growth opportu- nities for Australian organisa- tions looking to extend their international footprint. Culturally diverse and complex, the region has a challenging legislative and political landscape but for those that can succeed, it holds huge economic rewards. It is also a market no business can afford to ignore, particularly as China continues on Sudhir Narang its path to become the number one player in the international marketplace. Managing Director, BT India So what does it take to succeed in Asia? Beyond a compelling market proposition, price point and proven demand, the IT and communications assets of an organisation are pivotal to the seamless migration to an overseas market. To do this effectively, it falls to the CIO to help facilitate this growth. A new Breed of cIo Whether through mergers and acquisi- tions or solid organic growth, Australian businesses are expanding into the buoyant Asian market. These fundamental shifts Destinations Compendium 2011
  • 113. E X P E R T S 115in business are having a knock-on effect complex business strategies, undertakingon the role of IT within organisations and cost benefit analyses and risk manage-the role of the people who lead these divi- ment profiles to deliver professional serv-sions. IT is critical to successful interna- ice excellence. One fact is clear, CIOs aretional expansion and, at the heart of this a core part of the management team andsuccess, is the CIO, for whom the business have a mission critical role to play.landscape is changing. Gone are the days where IT is perceived fAcIlITATInG InTernATIonAlas a pure commodity. Effective IT deploy- expAnSIonment is now a critical part of almost every To effectively capitalise on the potentialbusiness growth strategy and CIOs play of the Asian market, organisations mustan important role in business management find ways to consolidate their IT opera-at a boardroom level. tions to achieve greater efficiencies around This requires new skills and profes- resource allocation and costs. Regardlesssional development and CIO’s are looking of whether you’re in the business of pro-to understand how IT innovations can viding online travel insurance quotes orenable collaboration across geographies, selling enterprise software, customers aretime zones and devices under a single quick to vote on their feet and IT needscommunications infrastructure. On top of to create a seamless experience for thetechnology leadership and expertise, CIOs customers you serve and the staff youhave a critical role to play in navigating employ. Destinations Compendium 2011
  • 114. 116 E X P E R T S Operating from a single set of commu- services much more effectively and IT is a nications architectures can be an effective central component of this process, deliver- way of addressing these complexities as ing services in the most technologically it provides a uniform tool from which advanced way possible. As such, ques- to manage all IT assets. It also helps to tions in the boardroom must be raised facilitate borderless communications and around the longevity of existing IT assets seamless access to information, regardless and of current IT capabilities to support of where an employee is based or the end- business transformation. point they are using. Against this backdrop of changing atti- It is here where conversations around tudes towards IT, the business case boils transitioning to the cloud are coming in down to efficiency of service and customer to question, with many CIO’s seeking to experience. Organisations that can operate understand which services they should more efficiently on both a human and IT place in the cloud, which should be kept level and then measure the effectiveness on-premise and which to combine. of these changes and benchmark success, In the area of cloud services, hybrid stand to do well. models are emerging that combine mul- tiple cloud offerings, provide more tai- The dAwn of dynAMIc lored services, more integrated security collABorATIon and better service level agreements. It is In today’s highly connected and com- also possible to combine private clouds petitive world, being at the forefront of and existing on-premise services, withcommunication is one of the most criti- those located in the public cloud. Thecal factors for business success, especial- advantage is that CIO’s can then view ly when operating in an international technology investments as a stage in amarketplace. progressive migration path that focuses Successful business transformation on strategic business needs, rather than requires an increased focus on IT to enable a huge upfront cost. In effect, CIOs can businesses to adapt to market changes and break down big decisions into smaller,reduce operational costs. So in a climate less risky ones. where the next change is around the cor- ner and the pace of technological change enSurInG The lonGevITy of IT shows no signs of abating, businesses ASSeTS must react quickly or risk falling behind Business models have to evolve to the competition – a fate no organisation remain competitive. They must deliver wishes to fall victim to. GS Destinations Compendium 2011
  • 115. E X P E R T S 117 Location Strategy For Indian Delivery Centers W ith the threat of a meltdown looming over global econo- mies, companies are now gearing up to face a fresh recession. Weak finances, rising costs, unabated inflation rates are making the Indian economy less resilient and many Viral Thakker Jehil Thakkar analysts are expecting a domestic busi- ness will also face lot of cost pressures. Executive Director Executive Director The Indian IT-ITES industry, overly Head – Shared Head – Global dependent on developed economies such Services and Location and as USA and Europe, fears a reduction in Outsourcing Expansion Services Advisory Advisory business due to the slowdown. However, KPMG in India KPMG in India many analysts believe that a mild reces- sion is good for the industry as the demand market would continue to look at IT and IT enabled services (ITES) to get solutions which would help them reduce costs and find new revenue streams. While this may be true to some extent, the opportunity does not come without the threat of clients cutting margins and getting into a hard bargaining exercise with vendors. Therefore, it is becoming necessary for Indian IT-ITES companies to find newer avenues to reduce their cost of operations Destinations Compendium 2011
  • 116. 118 E X P E R T S While the Census Commission defines Tier Tier III and now Tier IV/ rural locations I, II and III cities on the basis of population and GDP, the services sector has re-defined to set up operations in, others have shut the cities, changing their status on the basis shop even in fairly established Tier I and of IT-ITES growth in the locations. According Tier II locations. to the new ‘services-focused’ classification: Organizations while designing a loca- • Tier I cities correspond roughly with tion strategy believe that they will find metros, and are the most expensive in a location which is ‘perfect’. However, terms of rentals and capital values. They account for about 60 percent of the total this is an unrealistic expectation. A per- real estate space. fect location with the low costs, best • Tier II cities are the mini-metros and skills, enabling business environment large cities, which have seen significant and world class infrastructure does not IT and real estate construction activity in exist – companies must keep in mind that recent years. • Tier III cities are the emerging IT there are always trade-offs. destinations Aligning the location strategy to the Source: IBEF – Urban Development Publication business requirement is the first step to even further so as to manage the lowering a successful selection exercise. What the of margins. organization needs/ expects from the Since over a decade IT-ITES companies location must be well thought through have been considering emerging loca- not only by the C-level executives, but tions to reduce their cost of operations also through discussions with the busi- and hedge their risks. ness unit heads. With telecom, internet connectivity A well-defined location strategy not now reaching remote rural India even only has the potential to reduce operat- Tier III and IV locations are beginning ing costs, but could also be an answer to to reap the benefits of India’s economic many other business problems. progress as they are being considered in the location selection strategies of many Indian IT-ITES firms. GeTTInG locATIon rIGhT 1. Defining the location strategy Selecting an alternate location is one of the most effective strategies for cutting costs. However, getting this strategy right is of paramount importance. While some organizations are continuing to explore Destinations Compendium 2011
  • 117. E X P E R T S 119Some of the challenges/ business requirements that could be addressed are: Common requirements for IT-ITES companies: An Illustration Grow the domestic business Many IT-ITES companies are looking at India’s grow- ing domestic market to hedge against risks such as exchange rate fluctuations, declining international busi- ness, etc. Operations that have been set up in emerging Tier II and II destinations in India would help the compa- nies get closer to the local market as well as give them an access to a variety of languages Gain access to specific skills Companies looking to grow/ enter into certain business verticals could devise their location strategy in a way that would give them access to such skills. Ahmedabad, for e.g. is ranked very high for financial services, given the Strategic Objectives business acumen of the locals. Pune on the other hand is an automobile hub Get a first-mover advantage Many state governments are offering incentives over and above those that are being given at a country level to attract IT-ITES players. Getting a first-mover advan- tage in these states could bring significant benefits. For e.g. depending on the scale of the project, the Madhya Pradesh government is offering free land and other incentives to players, to improve IT-ITES presence in the state. Defining a hub and spoke strat- A hub and spoke model could be an optimal model egy using Tier II and Tier III locations as spokes to the hub at established IT-ITES cities. However, there are some critical success criteria for this model, such as: a) Smart break-up of process; b) Clarity on what can effectively be done out of the Tier II and III centers and c) Stringent quality control measures Lower operating costs Tier II and III locations in India (Bhubaneswar, Kochi, Vadodara, Coimbatore) are able to offer 20% – 30% of a Operational Objectives cost arbitrage over the existing established IT-ITES loca- tions such as Bangalore and Mumbai Curb attrition rates Due to the limited opportunities in emerging destinations, attrition rates are in single digits Plan for business continuity and Setting up operations in Tier II and III cities that act disaster recovery as BCP/ DR locations help in planning for business continuity Destinations Compendium 2011
  • 118. 120 E X P E R T S 2. Location Assessment Once the strategy has been put in place and business requirements have been set, getting to the locations shortlist becomes relatively easy. An evaluation framework will help determine the optimal location for the organiza- tion. Once the section criteria are defined, organizations need to assign priorities to the criteria, which could be scores or weights. This process is methodologically sound and also takes into consideration the consensus from key stakeholder discussions regarding priorities. Some of the criteria considered for the selection could be as below. It must be noted, that these selection criteria must be mapped to the defined business requirements in order to arrive at the final selected location. 3. Micro-site Selection operations. These areas, often at the Even after a location is selected, the periphery of the metropolitan, offer lower exercise is not complete. Identifying office rentals than the business districts of potential micro-sITeS within the city/ the metro. They are also able to attract, location is an important step to the loca- similar (maybe slightly lower) skillsets tion finalization. that are available in the metros. Some cities have sub-urban areas Visits to the shortlisted locations will which are being earmarked for IT-ITES help the organizations gain firsthand Destinations Compendium 2011
  • 119. E X P E R T S 121 Case Example: Manesar, a growing suburb of Gurgaon is advantage these cities offer, however the emerging as the next IT-BPO destination in trade off could be lack of relevant skills northern India. With office rentals at or English language capabilities to handle around 40% - 50% lower than Gurgaon, the international operations. area is becoming an attractive destination. Companies such as HCL Technologies and Sometimes, these trade-offs come at Agilent have already set up operations in the cost of savings (that would have Manesar. been made by moving to the location) orexperience of the economic and social even reputation, which would lead to thedevelopment of the city. These visits location strategy failing and organiza-should also entail dialogues with the tions pulling out after making significantreal-estate agents, existing players in the investments/, local recruitment agencies etc. Companies need to therefore under- stand that a ‘cookie-cutter’ or ‘me-too’concluSIon approach can no longer be used for loca- While Tier II, III and IV cities are tion selection. It involves not only theconstantly being talked of as upcom- marrying of business objectives to theing IT-ITES locations, organizations must location strategy, but also an in-depthbear in mind the distinct advantages as assessment of the selected locations andwell as drawbacks of moving to such loca- understanding all contextual conditionstions. Cost of operations is one important associated with the selected city. GS Destinations Compendium 2011
  • 120. E X P E R T S