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Globant -Leading the IT Outsourcing Revolution in Latin America- ...

Globant -Leading the IT Outsourcing Revolution in Latin America-
By:
Shingo Murakami, MBA Candidate, 2006
Roger Premo, MBA Candidate, 2006
Ina Trantcheva, MBA Candidate, 2006
Erik Yeager, MBA Candidate, 2006

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    Caso Globant - MIT G-Lab Case Caso Globant - MIT G-Lab Case Document Transcript

    • 15.389 MIT G-Lab Case March 21, 2006 Globant: Leading the IT Outsourcing Revolution in Latin America Shingo Murakami, MBA Candidate 2006 Roger Premo, MBA Candidate 2006 Ina Trantcheva, MBA Candidate 2006 Erik Yeager, MBA Candidate 2006
    • Sitting in his Buenos Aires office, Martin Migoya put down a copy of La Nacion, one of Argentina’s leading newspapers, after reading a new article on Globant and looked out over the River Plate. As the CEO of Globant, he had grown the company from a few contract workers into a modern IT outsourcing company with over 240 employees in just four years. Now he was looking forward to sales of over $12 million in 2006. This growth had largely been based on Martin’s and his partners’ network of contacts. He and the CTO, Guibert Englebienne, had sold business through extensive travel and connections. Although they now sat in Buenos Aires, that was a rarity. Most weeks were spent in London, Boston, Dallas or Madrid or on planes between those locations. Although Martin took great pleasure in Globant’s past accomplishments, his aspirations for the company were even greater. He wanted to build a company that could pride itself as being the best offshore IT outsourcing company in the Western world. For this, Martin sought to expand and modify the current sales system of informal networking to build more business. He needed to create an independent sales organization in the company that could develop leads in a more systematic manner. Another challenge for Globant was the focus of the business. While the early sales were based on reputation and connections, that also meant that projects spanned multiple industries and functions. Would the new sales process require focus and expertise in a particular industry or roles (horizontal versus vertical focus)? Would a focused repeatable process allow Globant to sell more quickly and at higher margins? Or would it move the company into a small niche that limited company growth? 1
    • The final challenge was competitive. While Globant was the largest independent IT outsourcer in Argentina, the company faced increasing competition for talented workers as large Indian and American outsourcing companies sought to build and grow development centers in Argentina. How would Globant respond to this threat? The IT Outsourcing Industry Outsourcing in one form or another has existed for thousands of years. At its root, outsourcing describes the practice of subcontracting certain functions or tasks to an outside resource. It was the Industrial Revolution that brought outsourcing into common practice, as specialization allowed the outsourcing of everything from insurance and accounting services to component manufacturing. IT outsourcing really began in the early 1990’s with the advent of the internet and the vastly improved forms of communication that came along with it. Businesses recognized the need to both build a business presence on the World Wide Web, and prepare for the “Y2K” issues that promised to affect IT systems at the start of 2000. Very few U.S. companies had the internal capabilities to address either of these issues, and so began to outsource this IT work to a growing pool of domestic companies created specifically to address these needs. IT Offshoring At the same time as many U.S. firms began outsourcing domestically, the Indian government saw an opportunity to build its own outsourcing industry. Based on a strong telecom infrastructure, a growing base of technology professionals, and low-cost labor, India began positioning itself as a destination for IT offshoring. This offshoring practice included firms that chose to both build internal resources in India and outsource functions and tasks to Indian companies. By recognizing 2
    • the trend early, India and its companies were able to position themselves as the strongest players in the IT offshoring market. Size of the IT Outsourcing Market While IT spending has experienced its ups and downs over the past decade, the IT outsourcing market has been steadily increasing (see Exhibit 1). With a total market size of $84 billion in 2005, the U.S. IT outsourcing industry presents a gigantic opportunity. More importantly for Globant, however, is the size of the offshoring portion of that market. In 2005, U.S. spending on IT offshoring was $15.2 billion, with projected growth to nearly $40 billion in five years (see Exhibit 2). Clearly, the value pie is large enough to be spread around, and Globant’s primary task would be to figure out the best way to procure its slice. Why Outsource? There are a number of reasons that firms have for establishing an outsourcing relationship (see Exhibit 3). The most critical reasons fall into three areas: (1) Cost and time savings, (2) Access to expertise not available internally, (3) Ability to refocus on core business functions. Developing countries offered the best opportunity for cost and time savings due to the low cost of labor, and the abundance of resources available to throw at projects. Meanwhile, specialized skills and expertise could be found both domestically, nearby in Canada and Mexico, and overseas, depending on the type and depth of knowledge required. Overall, firms were looking to offload areas of work that were not central to their business, allowing them to focus their efforts on those areas where they could differentiate themselves. Other reasons to outsource are more difficult to generalize, but may be important on a case-by-case basis. 3
    • Selecting an Outsourcing Partner In order to win new business and expand its operations in the U.S., Globant needed to understand what criteria were important to IT decision makers when selecting an outsourcing destination. There are many factors that companies consider when evaluating outsourcing vendors for a potential partner (see Exhibit 4). However, the most important factors fall into three categories: (1) Vendors’ capabilities, (2) Total cost, and (3) Communication capability. An outsourcing company’s capabilities are determined by investigating its specific technical and industry expertise and by speaking with reference customers. To gain new accounts, Globant would need to make sure that it compared favorably with the competition on each of these key factors. Current State of the Industry In early 2006, the IT outsourcing industry had matured. Most companies have had at least some experience managing outsourcing relationships, and there is a catalog of knowledge about success factors and challenges in outsourcing projects (see Exhibit 5). Outsourcing vendors need to prove that they are equipped to work closely with their clients and have a strong process in place to manage their projects. Additionally, multitudes of companies have arisen to focus on very specific technologies. A generalist IT outsourcing company like Globant needed to have even stronger differentiators to compete in this highly fractured environment. Company Background Globant was founded in 2003 by four engineers who had a clear goal in their minds: to create the best offshore IT outsourcing company (see Exhibit 6 for the founders’ biographies). Their strategy was simple—recruit the best local talent and deliver high quality solutions while ensuring superb customer service. Three years later, the results have been impressive. The company has grown to 4
    • more than 240 professionals while its sales have doubled each of the past three years and are projected to exceed $12 million by the end of 2006. Its client base has also grown tremendously, spanning across the U.S. and Western Europe and serving four different industries (see Exhibit 7 for a sample list of customers). With these numbers, Globant has become one of the fastest growing independent offshore companies in Latin America and the largest in Argentina. Based in Buenos Aires, Globant has benefited greatly from its location in Latin America for several reasons. First, the company’s proximity to the U.S. as well as its Western cultural fit allows for better communication and ongoing project management. Second, the as-yet untapped technology talent pool in Argentina allows the company immediate access to specific technology and industry expertise on an as-needed basis. Third, the local low-cost structure allows Globant to offer competitive pricing and high cost savings. While economically devastating to most Argentine businesses, the country’s 2001 devaluation of the peso enabled the IT outsourcing industry to compete on price. The Wall Street Journal summarized Globant’s location in Buenos Aires well: “Latin America comes out ahead of India and China in the off-shoring equation when factors like labor quality, labor supply and time-zone differences are taken into account.” (Wall Street Journal, 2004) The company’s business model encompasses three phases of a product’s life cycle: (1) software development services which cover every aspect from conception to final quality assurance, (2) infrastructure management which is offered on a 24x7 basis, and (3) other value-added services such as globalization (for more detailed description, please refer to Exhibit 8). 5
    • The company’s culture can be defined as very close-knit and informal. Unlike its competitors, the company prides itself on below industry average employee turnover rate of 5%. Mostly young professionals, the employees thrive on the global aspect of the company and the possibilities of international business travel. To ensure that the language barrier is reduced to a minimum, Globant requires all of its employees to master a business level of English proficiency. With Globant’s appeal as a fast growing and global company, recruiting for local talent is not a challenge. Given the large number of quality job applicants, the company has the luxury of selecting and retaining only the best. The backgrounds of the employees vary in terms of technological skill-set—complementing each other well for the diverse demands of each project. Employees’ knowledge domains differ across platforms (Linux, Unix, and Windows), technologies used (such as Java, .Net, LAMP, and Oracle), system administration experience as well as application design work. Although Globant places special emphasis on open source technologies, the company is always ready to provide any skill-set that a client might request. While the technical skills present ensure a consistent quality of delivery for the final product, it is the level of service that ultimately influences the clients who choose to outsource with Globant. In fact, when describing Globant, some of the most common responses among its clients are the ease of communication, high level of service, and strong management ethic that the company offers. With this reputation, Globant can rely on word-of-mouth marketing to increase awareness among potential customers. Globant’s ability to be close to the customer and understand and satisfy their needs is what ultimately wins new business and retains the old. As one long-time, happy customer put it, “We first chose Globant through a referral [from another client] and we stayed with them because we wanted someone that we can depend on.” 6
    • Competition There are literally thousands of IT outsourcing companies across the globe, from domestic giants like IBM and EDS, to top Indian firms like Infosys and WiPro, to a myriad of smaller, regional companies. These companies choose to compete on a range of different attributes, including cost, speed, size, geographic proximity, cultural fit, industry expertise, and functional expertise. Differentiation is very difficult given the sheer size of the industry, as there are usually several similar companies for any particular attribute space. Within the IT outsourcing market, firms choosing vendors often look to select the region first (see Exhibit 9 for regional salaries and hourly rates). As one of the most popular outsourcing countries, India has built up a strong reputation over the years, and has the most experience and largest number of existing relationships and reference customers. However, the country is beginning to run into manpower limitations. China and Southeast Asia have the lowest labor costs and large, growing labor pools, but find it difficult to provide a cultural fit with western companies. Latin America also provides low costs, as well as both geographic proximity and cultural ties to the United States. Eastern Europe has low costs, but boasts a better fit with Western Europe than with the U.S. Finally, U.S. firms sometimes outsource to Canada, or firms in low-cost, Midwestern states. While the cost benefits in these regions are not as high, the fit with the business culture and language skills is ideal. Direct Competitors While it is impossible to address the laundry list of competitors Globant faces in this industry, below are a few of the larger players Globant is likely to compete against. 7
    • Tata Consulting Services (TCS) was founded in 1968, and is currently headquartered in Mumbai, India. TCS provides IT outsourcing services to almost all lines of business. It had revenues of $1.8 billion in FY05, with 60% of that derived from the U.S. business. TCS went public on the Bombay stock exchange in 2004, and with over 50,000 employees, is the largest of the Indian IT outsourcing companies. TCS has global development centers in both Uruguay and Brazil, presenting a direct challenge to Globant’s cultural advantage. Infosys was founded in 1981 by a group of software professionals in Pune, India. It is currently located in Bangalore, and is listed on the NASDAQ stock exchange. With just under 50,000 employees, it is of similar size to TCS, but is considered a slightly more upscale firm, often winning awards as the top Indian IT firm. Revenues in FY05 were $1.6 billion. Like TCS, Infosys has no specific industry focus, preferring to offer IT solutions across all industries. Infosys currently has no presence in Latin America. Luxoft is Russia’s largest IT services firm, with approximately 1,400 employees and revenues of about $37 million. Luxoft was formed in 2000, and is currently held privately. Without the size of its Indian counterparts, Luxoft focuses on four industries: IT/Telecom, Discrete Manufacturing, Financial Services, and Software/Product Development. Luxoft also has no presence in Latin America. Accenture (formerly Anderson Consulting) was formed in 1989, and is based in Chicago. With revenues of $15.5 billion in FY05, and over 126,000 employees, Accenture still dwarfs its international competitors. In addition to IT outsourcing, Accenture provides management consulting services, which are far more difficult for companies in developing countries to provide. 8
    • The company’s IT services division delivers solutions across industries, and is often pitched together with its management consulting solutions. Accenture has offices all across Latin America, but costs considerably more than most other offshore vendors. In addition to these large players, Globant faces a number of smaller competitors, many with North American sales offices right next to Globant’s Massachusetts location (see Exhibit 10). As a result, Globant needed to both, identify who its real competitors were, and figure out how to position itself to succeed against them. Structure of Relationships Winning deals while competing head-on with a vast number of vendors would be difficult enough for Globant. However, the company also has to face an environment where many firms already have existing, long-term relationships with offshore partners. Specifically, large firms which spend a large portion of their revenues on IT typically already have an outsourcing vendor with whom they have been working for 5-7 years. These relationships are often extremely tight, as outsourcing partners are privy to confidential information, work on projects of critical importance, and have already invested the time and resources to iron out the kinks in their working relationships. “I’ve been working with my vendor for 8 years. They satisfy our needs. I’m sorry, but I’m not looking for a new partner” said the CTO of one Northeastern telecom company. Still, such relationships do present some opportunities for companies like Globant. A former VP of Sales for an Eastern European outsourcing firm observed “Every company who has ever worked with an Indian outsourcing firm has had problems—find a way to alleviate those problems and you’re starting out on common ground.” If Globant could identify companies having problems with 9
    • their current outsourcing relationships, it could be a prime opportunity to present itself as a firm offering better services. In addition, there are firms who already have partners but are looking to diversify their geo-political risk by “multi-sourcing” in different geographic regions. Globant’s other option was to focus on the small to mid-size businesses. While the overall market was still very large, individual contracts were smaller, and the relationships would probably not be as valuable in the long-term. Consequently, Globant needed to first determine whether the outsourcing market in this lower segment was addressable enough to include it in its market entry strategy. Selecting a Target Market As Globant continued to grow rapidly, Martin realized that some focus was needed to prevent the company from spreading itself too thin. He felt that it was necessary to target both specific vertical industries and geographic regions. The management team decided to select four industry verticals based on their past experience and project expertise. With their first and most consistent client being EMC, the High Tech sector was an obvious industry to target. In addition, they had built up considerable knowledge in the Travel industry with two of their largest current clients, OAG and lastminute.com. Guibert, the CTO, also had extensive experience in the Telecom sector, having worked as an executive for a New York-based telecommunications company. Finally, COO Martin Umaran had previously managed IT implementation products in the Financial Services industry, which became their fourth target. Geographically, Martin decided to begin with U.S. markets where he had existing customers, the East Coast and Texas, hoping to utilize references there to expand outward. 10
    • While he was satisfied with the logic behind his selections, Martin still wanted confirmation that he was choosing the right industries and that the geographic markets were large enough. A simple market size analysis proved that the addressable market was large. Focusing strictly on small to mid-sized businesses (annual revenues of $100 million to $1 billion), Globant developed a report that showed their total addressable market to be $2.6 billion (see Exhibit 11). A more difficult task was understanding the needs of each industry they were targeting. Industry Review: High Tech While high tech is a common industry description, there are several distinct industries that fall under this umbrella, ranging from product- to service-oriented businesses. High Tech manufacturing and computer peripheral companies are the most product-focused, followed by pre- packaged software, data-processing and preparation, and lastly, IT services companies themselves. As each sub-segment has its own needs, Globant would have to understand them in more depth before deciding which of these sub-segments to target (see Exhibit 12 for a summary of the trends in each sub-segment). In addition, Globant would need to extend its reach to California if it wished to compete in any of the high tech industries. California represented about 30% of the high tech space, and contained many of the big name companies that would provide the most value as reference customers. High Tech Manufacturing is focused on squeezing every penny possible out of its operations. Because this includes IT spending, firms in this sub-segment are very willing to explore low-cost IT outsourcing relationships. Their largest areas of IT spending occur around data analysis, IT cost containment, compliance, and manufacturing operations. In addition, due to economies of scale, there are relatively few small to mid-size manufacturing firms. Most of the larger firms are heavy 11
    • users of packaged software such as SAP or Oracle, and their greatest outsourcing need is for customization expertise in these packages. Pre-packaged Software is unique in its IT outsourcing needs, as firms in this sub-segment will outsource not only their IT functions, but also pieces of their product development. Approximately 80% of the companies in this area outsource some part of their application development. Among all high tech sub-segments, pre-packaged software is the one with the most interest in large-scale outsourcing arrangements. Additionally, it can be characterized as having a strong interest in using open source technologies. Areas of focus include implementing Service Oriented Architecture (SOA), Software as a Service (SaaS), application development, and specialized IT services. Data Processing and Preparation firms spend the largest percentage of their revenue on IT, averaging between 6 – 20%. However, due to sensitive data and proprietary software, these firms are often hesitant to outsource, and even more so to offshore. On the occasions that they do outsource, projects are usually discrete with short-term scope. The most common areas of outsourcing in this sub-segment are quality assurance for applications, IT support, data collection and analysis, and large mainframe applications. IT Services companies are found to be the least likely to outsource, spending less than 2% of their budget on IT. For the most part, the only use that one of these firms would have for another outsourcing company is to serve as a “body shop” to partner with for low-cost labor. Other IT functions they would outsource are mostly those associated with making their consultants more productive, such as Voice over IP (VOIP) and security solutions for mobility. 12
    • Industry Review: Travel The travel industry has undergone a major shift away from its traditional means of conducting business towards online commerce. By using the Internet for travel research and booking, users have come to value the convenience, speed and easy access to competitive pricing and itinerary choices. By 2005, 78% of all travelers had turned to the Internet when planning their trips, as opposed to 65% in 2004. This number is projected to grow further and with an 11% annual growth rate, the online travel market is forecasted to become a $91 billion industry by 2009 from $51 billion in 2004. As a result, the online travel market is now the leading and fastest growing category of e-commerce, accounting for over 45% of all online sales. The industry structure consists of several players: suppliers (such as the airlines, hotels, and car rentals), agents and global distribution system (GDS) operators (such as Amadeus, Sabre, Expedia.com, and lastminute.com), and web portals (such as Yahoo! and AOL) (see Exhibit 13 for a graphical representation of this structure). Although traditionally suppliers have relied on their agents and GDS operators to reach the end users, the popularity of the internet has moved this relationship towards competition. Airlines are now fighting with agents, GDS operators and web portals for market share based on website features and user content. As a result, there is an increasing pressure for online websites to cut costs and differentiate themselves through innovative technologies, breadth of functionality, and international capabilities. Given these requirements, the interest to outsource in the travel industry is growing. Although off-shoring is still a relatively new idea in the travel industry, most lead players have already had successful experiences with this process. The most common services being outsourced are business processes, web hosting, and technology solutions which include custom product 13
    • development, internet booking engine, pricing tools, back office automation, and 24/7 operations and support. Moreover, given the global aspect of this industry, internet marketing is also becoming an important part of the business model in the travel industry. Through internet marketing, firms benefit not only through reduced distribution costs but also through a continued and targeted dialog with their customers and thus an improved customer loyalty. Industry Review: Telecom Global telecoms have been internally focused until recently, as they needed to eat into the debt mountains that they accrued from acquiring 3G licenses, M&A activities and other infrastructure investments in the late 1990s. Today, the winning companies are emerging back into profitability and there is more room to evaluate their IT needs and revamp their existing systems. The percentage growth of off-shoring in the next five years is expected to reach 32-50%. Although the telecom industry looks attractive, there is considerable competition. Historically, Indian outsourcers have been the most popular offshoring destination in the telecom industry. Large companies such as Wipro and Infosys have accrued the knowledge and expertise in various fields of telecom outsourcing. Even for the small and mid-sized companies which these big Indian outsourcers do not normally target, there are still many competitors that have both industry and technical expertise. As one CIO of a mid-sized telecom company shared, “Given the large number of outsourcers out there, expertise in both telecom and the specific technology we are using is a strong prerequisite for selecting an outsourcing vendor. Anyone lacking both pieces would not even be considered as a potential partner.” 14
    • Industry Review: Financial Services The Financial Services industry (FS) has been the leading consumer of IT services. With an expected growth in spending of 4.2% CAGR through 2009 (Gartner, 2004), FS has the makings of an attractive market to enter. FS is already a heavy consumer of outsourcing with 90% of firms using IT outsourcing to some degree. The midsize market, however, is characterized by a different profile of companies than the overall market. Midsized FS firms exist primarily in retail banking, broker dealers, mortgages and investment advisory services. Overall, the midsized segment has a few major needs that are common among the different sub- segments. The first concern is data security. For competitive, regulatory and operations reasons, it is essential to maintain system and data integrity. This has traditionally been a hindrance to offshore infrastructure management, but not necessarily to application development. Additionally, some firms have devised sophisticated ways to handle infrastructure and operations offshore while maintaining the needed level of security. Legacy systems are also an issue throughout FS. Some of the core banking and trading applications for FS customers are as many as 30 years old. The process of transitioning these systems onto a modern platform is a complex, risky and expensive proposition. Expertise in both the legacy systems code (normally COBOL) and modern platforms (J2EE and others) is needed in addition to understanding the business drivers for the new systems. The build versus buy decision is also more pertinent in the midsize segment. While larger firms have the scale to build their own applications, many midsize FS firms have chosen to purchase 15
    • third-party software to handle core banking, trading, online presence and other functions. Although the use of commercial software is known to be widespread, the actual penetration is unknown. Security Brokers and Dealers A variety of companies fall into this sub-segment as defined by the Standard Industrial Classification (SIC) system of the U.S. Department of Labor. Firms range from providers of outsourced trading technology platforms to other brokers and dealers to money managers that trade on behalf of their investors. Although highly heterogeneous, all companies examined in this sub- segment are heavy consumers of IT. Retail Banking By far the most numerous sub-segment in FS, retail banking is composed of credit unions, regional and local banks. Competition in this segment is fierce with new offerings and innovations driving customer acquisition and retention. Retail banks also seek to offer new products to their customers to gain a greater share of the banking spend (wallet share). Fortunately for Globant, many of the new products are technology based such as online banking, mobile banking and electronic billing. There is wide heterogeneity in the degree to which retail banks use outsourcing now, the types of technologies they are prioritizing and the types of customer needs they address. Other Sub-Segments Within the midsize market, there are also a variety of mortgage, bond and advisory services companies. The low number of targets in each group within the midsize market makes determining the trends in this sub-segment difficult. 16
    • Sales Acquisition Process When companies select their IT outsourcing vendors, they normally either send an RFP (Request For Proposal) to several potential vendors, or ask a vendor directly for a proposal if they know someone from previous working relationship, reputation, or referral. After these vetting processes, they sometimes ask the selected vendor(s) to demonstrate qualifications through references or pilot engagements with them. Historically, Globant has relied mainly on the management team’s human network when it pursued a new contract, and had not typically faced competitive bidding situations. For example, Globant’s client lastminute.com, a major European online travel agency, was introduced by one of lastminute’s previous clients. Similar to this reference, most of Globant’s other clients have made positive referrals to Globant’s increasing customer base. Although the company has benefited greatly from such informal networking, Martin felt that it was time for the company to adopt a more systematic approach to acquire new customers, especially in the U.S. where the company had a limited customer base. While Martin’s focus on the four industries in the East Coast region and Texas was justified as good starting point to expand the customer base, this focus was not enough to help Globant define its sales strategy. Globant had to look into additional factors to narrow down and prioritize the potential pool of clients: Technology use: There are two types of businesses that differ through their use of technology— technology creators (companies that use technology as a competitive advantage) and technology consumers. Given Globant’s software development expertise, companies defined as the technology creators would benefit more from Globant’s services. Another factor when choosing a potential 17
    • client would be companies that work with open source technologies, an area where Globant had particularly strong technical expertise. Argentina/Latin America presence: Companies with offices in Argentina are more familiar with the area and are more likely to choose to outsource there. No captive offshore development center: A company is unlikely to outsource with Globant if it has its own captive center for low-cost development and infrastructure management. Hiring technologists: Companies that are actively hiring IT engineers (information easily obtainable via internet job postings) indicate the need for IT expertise, which Globant might be able to provide. The second step after prioritizing the potential clients is to create leads to these companies. Given the competitive nature in this industry, a simple cold call is likely to be futile. As one CIO of a software company shared, “I receive about ten cold calls a day from various IT outsourcers. If the vendor can’t give me some differentiating offer—specific technology or industry expertise—and be able to articulate that within five seconds, I will hang up the phone.” Accordingly, Globant had to explore other means of accessing a potential customer such as a personal or professional connection or through expanding the company’s visibility through industry associations, trade shows, and other networking web sites (i.e. LinkedIn.com). 18
    • Expanding the Sales Organization Beefing up the sales force was another important hurdle. To make effective sales calls, it was necessary for Globant to train its sales force to share one standard successful sale pitch as the background story for everyone. Recently, the company hired Daniel Kuperstein as VP of North America sales and operations. Before joining Globant, Daniel was working as the Director of Globalization for EMC, the largest information storage and management firm in the world, where he had worked in a variety of senior marketing positions for the past ten years. Because EMC was Globant’s first major client, Martin was sure that Daniel’s internal knowledge of the company as well as his industry experience and social network would help Globant win great new contracts, especially in the high tech industry. While Daniel found Globant to be an extremely capable firm in terms of its technical solutions and customer care, he needed to understand how Globant’s leadership wanted to position the company. He also needed to know how far to cast his net, both in terms of industry and geography. With his local presence in the U.S., Globant could stay close to its customers and maintain an ongoing relationship, something that not all of its competitors could offer. Finally, Martin was sure that Argentina and Buenos Aires offered tremendous advantages for potential clients. The geographic proximity, western culture, and modern city lifestyle were all attractive features. However, he found that there was a general lack of knowledge about his country among many U.S. IT executives. In addition, fears of criminal activity and political instability were holdovers from some public problems the country faced in the past. What was the best way to present Argentina’s recovery and promise in sales presentations? 19
    • As Martin was looking out through his office window, he realized that a more structured sales approach was needed if the company were to achieve its ambitious goal of doubling its size by the end of 2006. It was in Daniel’s hands now to fully develop this new methodology and implement it in the U.S. Martin grabbed his brief case and left the office for the next sales call. 20
    • Appendix Exhibit 1 U.S. IT and IT Outsourcing Spending $1,000 $900 $800 $700 $600 $B $500 $776 $732 $733 $702 $696 $400 $300 $200 CAGR 9.2% $100 $84 $76 $67 $70 $59 $0 2001 2002 2003 2004 2005 Outsourcing Total IT Spending Source: Forrester Research Exhibit 2 U.S. Software and IT Services Offshore Spending 45 40 38.2 35 31.6 30 26.3 25 $B 22.1 20 18.4 15 15.2 12.3 10 9.8 5 0 2003 2004 2005 2006 2007 2008 2009 2010 Source: Global Insight Exhibit 3 Reasons Firms Gave for Outsourcing their IT Needs 21
    • MOST IMPORTANT • Cost savings • Access to outside expertise • Improve focus on company’s core business IMPORTANT • Improve service • Access to better technology • Time savings SOMEWHAT IMPORTANT • Share risks • Make capital funds available • Cash infusion Exhibit 4 Selection Criteria for Choosing an Outsourcing Vendor 100% Percent of Survey Responses 90% for Each Factor 80% 70% Not a Factor 60% 50% Slight Factor 40% Important Factor 30% 20% Essential Decision Factor 10% 0% O al R Co on ne m ne Pa nc e eri ls s So ti o try Sa c e S ips e C rtne Cu nce ua l ati ers os im ort e C shi p xp kil tis ic ti o Zo un p h rs Hom ifica Pr S i te e Z om er e u r ns up on e e xp ag st t er lE Ti e n e la pp e T du gu E e ca n M rR ef try y m La l it ni s ch e on h er Q Te is pe In O gl Pe c R En M i fi ec Sp Source: Survey of CIOs and CTOs 22
    • Exhibit 5 Reasons for IT Outsourcing Project Success and Failure Importance Success Factors Challenges High • • Ongoing management Problems managing remote vendor team • Well-defined processes • Loss of control • Contract with clear goals and • Vendor team performance metrics Medium • • Work closely with vendor Language and cultural barriers • Proper vendor selection • Poor planning • Communication • Unclear contracts Low • • Identify the details Provider turnover • • Many releases Accountability • • Simplicity Unforeseen expenses 23
    • Exhibit 6 Management Team Biographies Martin Migoya, CEO Martin has extensive experience in business management, sales and marketing. As Globant’s CEO, his focus is to drive revenue, objectives and profitability. He oversees the company's long-term objectives, planning and analysis. Prior to co-founding Globant, Martin was Director of Business Development and Latin America's Regional Business Manager at a large consulting and technology services company, developing the IT and ERP markets in Brazil and Argentina. He was instrumental in managing and developing high technology businesses related to SAP and the Internet, with customers like Procter & Gamble, Renault, and Roemmers Laboratories. Previously, Martín worked as Project Manager for REPSOL - YPF, Argentina's largest oil-and-gas company. Martin has lived and worked in Argentina, Brazil, Mexico and the U.K. He holds a degree in Electronic Engineering from La Plata University and a Masters degree in Business Administration from CEMA University. Guibert Englebeienne, CTO Guibert has an extensive experience in the information technology and communication industries. As Globant’s CTO, Guibert is in charge of the software production process, and the creation and management of strategic company technology partnerships. Prior to co-founding Globant, Guibert was a scientific researcher at IBM and later the CTO for CallNow.com Inc., a telecommunications company based in New York providing international callback services through the Internet. He also conceived and developed a U.S. patented technology powering a service named 2Speak, to use the Internet to anonymously connect two parties through phone lines. Guibert was responsible for the phone-chat implementation in Chinadotcom Co., owner of the biggest Asian Internet portals. He has also worked as an IT Development Manager outlining and developing software for tax collection through Internet governmental portals. Guibert has lived and worked in Argentina, US, Venezuela and the U.K. He holds a degree in Computer Science and Software Engineering from UNICEN University. Martin Umaran, COO Martin has extensive experience in executive and business management for technology industries. As Globant’s COO, Martin is responsible for the delivery of products and professional services, and is actively involved in capacity growth and process initiatives. Prior to co-founding Globant, Martin was CEO for Neuwagen, a company focused on selling cars to Caja de Ahorro y Seguro's customers (Argentina's largest insurance company). He also worked at several technology companies as Senior Business Manager. At Santander Bank, he was responsible for their CRM implementation initiative. He also negotiated, implemented and operated a state-of-the-art Tax Collection System in several Venezuelan cities. At YPF Ecuador, Martin worked as a manager of facilities automation and maintenance. He also worked at Roman Logistics, where he managed several projects for the Argentinean offices of Ford, GM and Unilever. Martin has lived and worked in Argentina, Ecuador, Venezuela and the U.K. He holds a degree in Mechanical Engineering from La Plata University and a Masters in Business Administration from IDEA University. Nestor Nocetti, VP of Corporate Services Nestor has a considerable amount of experience in the information technology industry, both in operational and advisory roles. As Globant’s VP of Corporate Services, Nestor is in charge of determining the structure for business consolidation and expansion, aligned with the corporate objectives and vision. Prior to co-founding Globant, Nestor worked as Internet Manager in an Argentinean information technology company, where he specialized in internet marketing and web portals localization with customers like EMC, a world leader in information storage, and Techint, an engineering and procurement services provider. He also worked on several projects related to Geographic Information Systems for Light Rio de Janeiro, electricity providers in Brazil and UTE, and a public electricity provider in Uruguay. He worked as a consultant on issues related to IT development, strategy, and operations in the oil- and-gas market, for ENAP Chile and YPF Argentina. Nestor has lived and worked in Argentina, Chile and Brazil. He holds a degree in Electronic Engineering from La Plata University and a degree in Business Direction from IAE University. 24
    • Exhibit 7 Sample list of customers Exhibit 8 Globant’s Service Offerings 25
    • Exhibit 9 Representative Salaries and Hourly Rates for IT Outsourcers Across the Globe Programmer Annual Country Salary Hourly Rates Ireland $23,000 - $36,000 $40 - $80 Canada $20,000 - $40,000 $40 - $80 Singapore $9,000 - $20,000 $30 - $60 Mexico $7,000 - $12,000 $20 - $35 Russia $5,000 - $9,000 $20 - $40 India $5,000 - $9,000 $20 - $40 Philippines $5,000 - $9,000 $20 - $40 Vietnam $3,000 - $6,000 $15 - $25 China $3,000 - $7,000 $15 - $25 Source: Meta Group. Exhibit 10 Descriptions of Various IT Outsourcing companies Company Location(s) Est. Staff Services Model Client Types (onshore- offshore) Revenue StarSoft Cambridge, MA 400 Custom Heavy- offshore Corp. IT St. Petersburg (NA-NA) Maintenance ODC* IT Services Dnipopetrovsk, UA $10.5M (2005) R&D ISV’s** Internationalization SoftServe Waltham, MA 450 R&D Heavy- offshore ISV’s, small to Lviv, Ukraine (7-443) QA mid-size $6.5M est. (2005) Maintenance Minimal Corp IT Lohika San Mateo, CA 120 ISV R&D Hybrid, US: ISV’s Lviv, UA (15-105) Including System Architects. Hardware/device Odessa, UA $3.5M est. (2005 embedded SW. Virtusa Boston, USA 1800 Corp IT Hybrid, leveraging Fortune 1000 UK (200-1600 est) ISV’s offshore resources Small->mid-size Chennai $50-100m est. Maintenance onsite. (50+ H1’s!) ISV’s Sri Lanka QA Technology Co.’s Patni 24 Sales off. 11,000 IT Full IT Services, Corporate IT 8 Offshore $326M (2004) IT Management hybrid model Technology Co.’s locations BPO*** R&D Sonata Software 7 Sales, 1,100 ISV Full IT Services, Corp IT 4 Offshore $77M Enterprise/Corp IT hybrid model ISV’s Locations in India Embedded E5 Systems VA, USA NA IT Outsourcing Heavy Offshore Corp IT. China India Foliage Boston, USA 150 Consulting -> Heavy onshore- Corp clients, India (partners) (150-?) Systems “offshore ready” embedded $30M est. Development systems. Array Software Boston, USA 150 Software Hybrid, w/offshore Technology Co.’s Partners: India, (20 – 130) Maintenance partners sub- Russia, Ukraine Est. $15M contracted *ODC – Offshore Development Center **ISV – Independent Software Vendor ***BPO – Business Process Outsourcing Source: Mark Kapij, MIT Sloan Fellow. 26
    • Exhibit 11 Potential Market Size (East Coast and Texas) U.S. Market Segmentation by number of subsidiary companies East Coast Texas Rest of U.S. Hi Tech 295 (40%) 48 (6%) 396 (54%) Telecom 195 (55%) 33 (9%) 125 (35%) Financial Services 636 (44%) 111 (8%) 705 (49%) Travel 151 (43%) 23 (7%) 186 (53%) U.S. Market for Outsourcing (in $M) East Coast Texas Hi Tech $372 $56 Telecom $471 $77 Financial Services $1,227 $202 Travel $139 $25 27
    • Exhibit 12 Outsourcing Trends in the High Tech Industries Sub-Segment IT Focus • Better Utilization and Analysis of Data High Tech Manufacturing • IT Cost Containment • Compliance • Lean Manufacturing Processes • Building in SOA to all applications Pre-packaged Software • Specific IT services requiring specialized knowledge (i.e. firewall maintenance) • Application development • SaaS for non-core activities – HR/Payroll, Recruiting, Professional Services Automation • Further refine business process IT • Infrastructure Support (including helpdesk) • Business Analytics (how to evaluate implementations of software packages) • QA for applications Data Processing and Preparation • IT Development and Support • Further refine automation for data collection and analysis • Upgrade and retire legacy applications • 24/7 Data Collection and Analysis • Large mainframe applications • Web Development IT Services • VOIP and other “distance-killing” applications for mobile workers • Infrastructure Management • Mainly Sales and HR applications • Security for mobile workers • Programming services during projects – low rates, body shop Exhibit 13 Travel Industry Structure: Major Players 28