The Complete IDC Intelligence Solution


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The Complete IDC Intelligence Solution

  1. 1. Global Sourcing - The Coming Reversal of Offshore Delivery: Are The Critics Right? – A Panel Discussion Bob Welch, IDC
  2. 2. Panel Members <ul><ul><ul><li>Samantha Covell, VP Services Procurement, BT </li></ul></ul></ul><ul><ul><ul><li>Aidan Connolly, Finance Director, UK & Ireland, Sodexho </li></ul></ul></ul><ul><ul><ul><li>Neeraj Gupta, Executive Vice-President, Patni Computer Systems </li></ul></ul></ul><ul><ul><ul><li>Padma Ravichander, President & Managing Director, Global Consulting and Applications Solutions and Chief Executive APAC region, Perot Systems. </li></ul></ul></ul>
  3. 3. Offshore Services - Key Messages <ul><li>Offshore is transforming to a strategic and disruptive form of service delivery </li></ul><ul><li>Offshore labor-only model has a limited lifespan of effective service delivery </li></ul><ul><li>Customers are looking to ensure that they mitigate their sourcing strategies across geographies and service delivery models </li></ul><ul><li>Expansion by non-India countries as primary sources of services is expected to be incremental over the next 2 to 3 years, but potentially significant in the longer term </li></ul>
  4. 4. From Defense to Offense: Offshore Player Strategic Directions and Challenges Integrate Transform Optimize Phase <ul><li>Automation/capital </li></ul><ul><li>Brand image </li></ul><ul><li>Delivery Investments </li></ul><ul><li>Partnerships </li></ul><ul><li>Geographic reach </li></ul><ul><li>Expansion of skills (e.g. consulting, BPO, IT) </li></ul><ul><li>Brand image </li></ul><ul><li>Delivery Investments </li></ul><ul><li>Target buyers (e.g. CXO) </li></ul><ul><li>Global footprint </li></ul><ul><li>Delivery Investments </li></ul><ul><li>Partnerships </li></ul><ul><li>Skills </li></ul><ul><li>Brand image </li></ul>Provider Challenges 2004 2008 2007 2006 2005 <ul><li>Integrating global sourcing with hosting, utility computing/Software-as-Service </li></ul><ul><li>Market enabler: SMB, emerging </li></ul>Integrated Global Delivery <ul><li>Cost </li></ul><ul><li>Project-based (develop, maintain) </li></ul><ul><li>Tactical </li></ul><ul><li>Legacy environments </li></ul>Offshore: Discrete Sourcing <ul><li>Transformation via self-financing </li></ul><ul><li>New technologies (innovation) </li></ul><ul><li>Operational services (e.g.outsourcing) </li></ul><ul><li>Strategic </li></ul><ul><li>Industry-centric </li></ul>Global Sourcing Defense Offense
  5. 5. Emergence of Digital Services Supply Chains: Integrated Global Delivery “Platform” Procuring integrated IT, business process and industry-specific services Customer <ul><li>Business consulting </li></ul><ul><li>Operations </li></ul><ul><li>Hosting </li></ul>Local Delivery Access to community of developers, technologies, processes and industry-specific expertise and skills Global Resource Community <ul><li>Transformational services </li></ul><ul><li>Operations </li></ul><ul><li>Hosting </li></ul>Global Delivery
  6. 6. Emergence of “Disruptive” and “Transformative” Global Sourcing Delivery Options <ul><li>Delivering “large-scale” IT outsourcing on a cost-effective, global delivery model (e.g. HCL – Autodesk/$50M, DSG International/$338M) </li></ul><ul><ul><li>Integration of global sourcing (offshore) with a hosted “onshore” infrastructure (e.g. data centers) </li></ul></ul><ul><ul><li>Leverage partnerships for hosting </li></ul></ul><ul><li>Enabling new service options: SaaS (Software-as-a-Service) </li></ul><ul><ul><li>Tata, Wipro partnering with </li></ul></ul><ul><ul><ul><li>Providing systems integration via global sourcing to SaaS provider customers </li></ul></ul></ul><ul><ul><li>OpSource and IndusLogic </li></ul></ul><ul><ul><ul><li>IndusLogic acts as offshore “SOA” factory for OpSource’s on-demand delivery platform </li></ul></ul></ul>Offshore providers expanding market potential with disruptive delivery models and placing greater pressure on global players to maintain pace
  7. 7. Global Sourcing Risk Mitigation and Management <ul><li>Customers are increasingly looking to mitigate sourcing risks via: </li></ul><ul><li>Diversification of geographic locations </li></ul><ul><ul><li>Require core requirements: strong infrastructure, educated workforce, language, IP protection, security (physical and logical) </li></ul></ul><ul><li>Vendor requirement of investing in local assets for strategic relationships (business consulting, outsourced/managed services) </li></ul>Market data from 2007 US Utility Computing Market Adoption Respondents: CEO, CIO, CTO, IT/telecom Directors/VP, N=320 <ul><li>Utilization of newer service delivery models as substitutes (e.g. utility computing/SaaS) </li></ul>Top 3 benefits from leveraging utility computing as an outsourced service
  8. 8. Competing Business Models: Investment Considerations and Staffing Impacts <ul><li>2005 Data: Company Reports </li></ul>Growth $612K $185K $41K Revenue per Employee Headcount Requirements Delivery investment strategy will impact (1) Future opportunities (e.g. SMB, emerging markets) and (2) Competitive positioning (new players: online, SaaS) Offshore Economics Onshore Economics On-Demand Economics
  9. 9. Emerging Offshore Providers <ul><li>Focused on project-based IT services such as CAD (custom application development) </li></ul><ul><li>Negligible focus on BPO </li></ul><ul><li>Increase focus on R&D/engineering and testing services </li></ul><ul><li>Relatively small with only a few players having approximately $300-400M in revenue and the remaining less than $100 million </li></ul><ul><li>Lack scale, brand recognition, strong global footprints needed to gain quick traction </li></ul><ul><li>Need to develop more focused approach (e.g. industry, market – R&D/engineering services) while making strategic investments (e.g. delivery footprint and capabilities) </li></ul><ul><li>Potential Competitors </li></ul><ul><li>Latin America </li></ul><ul><ul><li>Mexico: Softtek, Neoris, Epsilon </li></ul></ul><ul><ul><li>Brazil: CPM, Politec </li></ul></ul><ul><ul><li>Argentina: Cubecorp, Globant </li></ul></ul><ul><li>CEMA </li></ul><ul><ul><li>Russia: SBS Luxoft </li></ul></ul><ul><ul><li>US-headquartered: Exigen, ePAM </li></ul></ul><ul><li>APEJ </li></ul><ul><ul><li>China: HiSoft, Augmentum </li></ul></ul>
  10. 10. Potential Next “India’s” <ul><li>Emerging geographic centers for offshore services </li></ul><ul><ul><li>Increase focus on building NASSCOM-like lobbying groups (MexicoIT, Russoft, BRASSCOM) </li></ul></ul><ul><ul><li>Increase focus by governments to drive offshore/sourcing industry (China, Chile, Mexico) </li></ul></ul><ul><ul><li>Continued weaknesses in IP protection, infrastructure, language, project mgmt, security and politic dynamics inhibit growth </li></ul></ul><ul><ul><li>Competing on cost for smaller countries is not sufficient to drive scale </li></ul></ul><ul><ul><li>Becoming effective competitors to India increasingly requires focusing on industry-specific area (e.g. Brazil/finance) </li></ul></ul><ul><li>Offshore Countries </li></ul><ul><li>Latin America </li></ul><ul><ul><li>Brazil </li></ul></ul><ul><ul><li>Chile </li></ul></ul><ul><ul><li>Mexico </li></ul></ul><ul><li>CEMA </li></ul><ul><ul><li>Southeast European: Romania, Bulgaria </li></ul></ul><ul><ul><ul><li>Entering EU in 2007 </li></ul></ul></ul><ul><ul><li>Central European: Czech, Poland, Hungary </li></ul></ul><ul><ul><li>Baltic States and Russia: Russia </li></ul></ul><ul><li>APAC </li></ul><ul><ul><li>China </li></ul></ul>
  11. 11. Panel Discussion <ul><li>What has changed in the sourcing model for offshore delivery? </li></ul><ul><li>What are some of the key lessons learned by buyers of offshore services? </li></ul><ul><li>What are some of the key lessons learned by providers of offshore services? </li></ul><ul><li>Conversion of offshore owned to offshore/ contacted? </li></ul><ul><li>Do clients favor vendor sourcing models that include offshore delivery? </li></ul><ul><li>Examples of where it works well and why </li></ul><ul><li>Examples where it hasn’t worked well and why </li></ul><ul><li>Major investment areas for companies with offshore delivery capabilities </li></ul>