Rise Of Regional Service Providers


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Rise Of Regional Service Providers

  1. 1. Navigating the Globe: The Rise of Regional Service Providers www.yankeegroup.com by Camille Mendler and Agatha Poon | January 2009 Executive Summary Running a multicountry operation isn’t a trivial matter for any To maintain the growth momentum, businesses must align supplier business, whether it employs a few hundred or a few thousand capabilities with their business objectives. As shown in Exhibit 1, employees. But the global interconnectedness of commerce— Yankee Group identifies four major business objectives that particularly to and from Asia—is now a constant. Success in global enterprises want suppliers to help them with: business relies heavily on the effective use of communication tools. • Growing the business Among European and North American businesses, for example, every • Simplifying the business 1 percent rise in the value of bilateral trade with Asia triggers a 5 • Protecting the business percent volume boost in interregional data communications traffic, • Supporting the business according to Yankee Group estimates. It’s never been more critical to identify the right technology partner. The good news: Businesses can find multiple vendors offering global Global economic challenges are driving many organizations to IT and networking services to support growing communication needs. reconsider international investments. A winner-takes-all approach of The bad news: Choice can be bewildering. Not least, working with a giving international business to a single supplier may not be a wise well-known name at home may not translate well internationally. move. This report examines why enterprises should consider using regional service providers to reduce the risk to their global operations and increase quality of service, and discusses navigation tools required to plot an enterprise’s bearings on a compass. Exhibit 1 Aligning Supplier Capabilities to Business Objectives Source: Yankee Group, 2009 This custom publication has been sponsored by SingTel. © Copyright 2009. Yankee Group Research, Inc. All rights reserved. This Yankee Group Report is published for the sole use of Yankee Group clients. It may not be duplicated, reproduced or transmitted in whole or in part without the express permission of Yankee Group, Prudential Tower, 800 Boylston Street, 27th Floor, Boston, MA 02199. For more information, contact Yankee Group: info@yankeegroup.com; phone: 617-598-7200. All rights reserved. All opinions and estimates herein constitute our judgment as of this date and are subject to change without notice.
  2. 2. Navigating the Globe: The Rise of Regional Service Providers Table of Contents I. Globalization Erases Boundaries to Business Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Businesses Large and Small Go Global . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 II. Supplier Procurement Options Fail to Satisfy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Adopting a Best-of-Region Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 III. Aligning Business Objectives with Service Provider Attributes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Proof Points for Goal-Oriented Regional Supplier Choice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 IV. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 I. Globalization Erases Boundaries to Business Growth Businesses Large and Small Go Global Doing business internationally is now common practice, regardless of There’s no doubt about the link between telecommunications and the a company’s size. Today, three-quarters of major multinational acceleration of global trade. Exactly 150 years ago, the first corporations (MNCs) headquartered in Europe or North America have transoceanic cable was launched. Then, the 99-word message from connectivity needs into Asia. Smaller enterprises are also spreading Queen Victoria congratulating U.S. President James Buchanan took 16 their ambitions globally. According to the Yankee Group Anywhere hours to transmit across the Atlantic. Today, modern communication Enterprise—Large: 2008 IT and Managed Services Survey, 60 percent from much longer distances takes only milliseconds. of European midsize enterprises (typically employing between 500 The death of distance has had profound effects on commerce between and 2,500 people) operate between two and nine offices abroad. The Europe, North America and Asia. As Exhibit 2 illustrates, the value of proportion rises to 63 percent among North American midsize enterprises. bilateral trade with Asia is growing more than 8 percent per annum. In Even if economic challenges persist, trade patterns are now firmly data traffic alone, the multitrillion-dollar trade between Asia and its established—although pressure to reduce costs is now acute. The European and North American trading partners has boosted Asia-centric survivability of global infrastructure remains a perennial concern. data communications volumes in excess of 40 percent per annum—a Earthquakes, tsunamis and cuts in submarine cables are highly trend that Yankee Group predicts will continue at similarly aggressive damaging to businesses whose communications suppliers do not have rates through 2012 and potentially beyond. backup plans. Exhibit 2 Networked Economies: Bilateral Trade with Asia and Telecom Traffic Flows Source: Yankee Group, 2009 2 © Copyright 2009. Yankee Group Research, Inc. All rights reserved.
  3. 3. January 2009 But that’s only part of the challenge for enterprises going global. The • The winner-takes-all approach: This approach involves thornier issue is ensuring good supplier performance during the entire contracting with one service provider for all international life cycle of the relationship, for day-to-day operation and not just the technology services. Typically, the choice defaults to the same organization that provides domestic services in the company’s dramatic. That means setting the right goals and expectations from the headquartered country. beginning. - Promise: Potentially familiar with the business and its needs, offering management simplicity and negotiating II. Supplier Procurement Options Fail to Satisfy power to buyers through volume discounting. Handles What’s the best approach to choosing an international service downstream negotiations with local suppliers in required provider? According to the Yankee Group Anywhere Enterprise— geographies and manages all service delivery. Large: 2008 IT and Managed Services Survey, the average contract - Reality: Built on the incorrect assumption that the sole length is 5.5 years. With that in mind, it’s important to get it right. Procurement trends have ebbed and flowed considerably during the supplier is consistently resourced and knowledgeable, years. That’s because dissatisfaction with the options available has irrespective of global geography. In practice, this approach prevented businesses from anchoring their approach. does not guarantee the global supplier deals with the best- of-breed vendor in each country or obtains the best pricing Until recently, enterprises have churned through three principal terms. Service quality standards may be contractually procurement options: consistent, but often down to the basic service level. The The consortium approach: Ten years ago, telecom operators were • relentless push for a regional footprint by a handful of busy building global multivendor alliances with ambitious names global service providers suggests that their worldwide such as Unisource, Concert and Global One. They claimed they resources are far from adequate. Global deals also risk could deliver and manage seamless communications in any corner supplier lock-in due to the complexity of disengagement. of the earth. - Promise: A tempting offer of management simplicity, service consistency and vast volume discounts across Adopting a Best-of-Region Approach multiple operators’ networks. A fourth approach—the best-of-region approach—is building momentum. Among the largest European and North American - Reality: A promise unfulfilled; all global consortia have multinationals that Yankee Group has surveyed during the past five now collapsed—partly due to management squabbles. They years, 49 percent make purchasing decisions centrally, charging back never delivered service consistency or holistic costs to regional divisions. A further 27 percent specify requirements accountability. centrally, but devolve purchasing regionally. The piecemeal approach: As its name implies, the piecemeal • According to interviews with CIOs that Yankee Group conducted for approach means selecting a single vendor for each country where this report, central purchasing divisions are increasingly open to operations exist. spreading risk by carving out networking and IT investments - Promise: Potential to obtain the best-of-breed option in regionally. In part, this is a response to continuing poor levels of every locality. service delivery and support. According to Yankee Group research, more than 60 percent of international connectivity outages are the - Reality: Difficult to scale; complex and costly to manage fault of a local access provider. By choosing a regional service a multiplicity of service providers, with minimal power to provider (RSP) with physical proximity and regional familiarity, negotiate preferential discounts. Service quality across global enterprises expect to exert better control and responsiveness. service providers is inconsistent. This approach is also risky Indeed, CIOs that Yankee Group interviewed that have moved to a because of the need to keep a direct eye on all moving parts best-of-region approach say the differences are clearest in account of the company’s global communications infrastructure. management quality and responsiveness. 3 © Copyright 2009. Yankee Group Research, Inc. All rights reserved.
  4. 4. Navigating the Globe: The Rise of Regional Service Providers The best-of-region approach requires the selection of a single best-of- breed supplier that is responsible for all in-region needs. This strategy III. Aligning Business Objectives with Service will not work in every geographic region. To demonstrate well- Provider Attributes balanced regional capabilities such as management skill and service Just as explorers such as Marco Polo relied on the sextant and the quality of a supplier in all countries against competitive strengths in a astrolabe to navigate international waters, successful global businesses single or few geographical locations, an underlying requirement is the also need effective navigation tools to select the right service existence of healthy interregional trade and market competition. But provider. Think of the navigation tools as bearings on a compass. where the market conditions are right, the best-of-region approach can There are four bearings that a service provider must have to live up to outrank others, as Exhibit 3 suggests. its promise on meeting enterprise requirements: The best-of-region approach is valid in Asia because interregional • Value: Assessing the true value of services on offer involves a trade is growing fast, stimulated by both a domestic economic drive detailed review of internal business costs using appropriate and international investment. This has triggered strong demand for performance and financial metrics. Those metrics may be unique and investment in robust communications infrastructure. Today, to a particular company, but the RSP should be able to map its multiple RSPs are competing to deliver on the needs of regional service intelligibly to them. Discussions with the RSP’s bid team businesses and global MNCs that require reliable regional support. should begin with a definition of business goals and then a road The best-of-region approach shows great promise by lowering risk to map of how to achieve them. out-of-region customers with a local presence in the region because delivering service in the region is a core business activity for the RSP. • Security: Choosing to work with an RSP should involve either an Also, it offers “one throat to choke” on a regionalized basis, which acceptable business risk or a reduced exposure to risk for the has proven to be a more manageable option than a piecemeal contracting enterprise. This includes disclosure of infrastructure approach with its multiplicity of vendor relationships. Strategically, redundancy, certified skills, subcontracting parties to reach out to the best-of-region approach enables enterprises to maintain highly regulated markets such as Vietnam and China, and not competitive tension and prevent the supplier lock-in that is commonly least, supplier financial strength in a given region. seen in a winner-takes-all context. Comparatively speaking, best-of- region RSPs are nimble to demonstrate their service reach, superior service levels, responsive support and preferential pricing through the right mix of direct investment in regional network infrastructure and support centers, as well as a deep and active network of local partnerships to serve in-region customers. Exhibit 3 Assessing International Procurement Methods Source: Yankee Group, 2009 4 © Copyright 2009. Yankee Group Research, Inc. All rights reserved.
  5. 5. January 2009 • Accountability: The RSP must have world-class, end-to-end Exhibit 4 reporting processes and tools with a transparent governance Linking Business Objectives to Supplier Proof Points framework for alerting and responding to issues. Typically, Source: Yankee Group, 2009 accountability is defined and governed contractually through what’s known as a service-level agreement (SLA). It’s also seen in the process certifications that the service provider maintains—for example, routinely audited and certified skills in project management and IT governance such as Six Sigma, ITIL and COBIT, coupled with ISO quality accreditations. Contractual commitments must be managed via trained customer service teams and online customer portals that are accessible around the clock. • Agility: During a multiyear contract, business priorities can change and needs fluctuate. The relationship with the RSP should be flexible enough to anticipate and plan for change. That’s a factor related to the contract structure and the supplier’s investment commitments, but also to the quality of the account management team assigned to the relationship. Actively participating in industry groups developing next-generation services such as the Metro Ethernet Forum is a proactive way to demonstrate service commitment. Proof Points for Goal-Oriented Regional Supplier Choice The core business objectives of most enterprises have nothing to do with technology, but the right application of technology can ensure they are met. At their core, these objectives include: IV. Conclusions Successful global businesses must be able to navigate calm or • Growing the business: Ensure that the RSP is committed to be troubled waters. If they can’t predict the weather, they can at least technically and strategically world class to support the enterprise’s growth. ensure that their operations are agile enough to adapt. That’s why the choice of business partner for communications infrastructure services • Protecting the business: Ensure that the RSP is transparent about is crucial. The choices of approaches to handle international needs its technical operations and commercial commitments. Real-time have been unsatisfactory or even risky for many years. But the performance reporting tools that display a customer-centric view competitive landscape—coupled with robust infrastructure of activity enable an enterprise to correctly assess its risk investment—has now matured to offer a wider range of options to management profile. businesses with global operations. • Simplifying the business: Ensure that the RSP invests in global The potential to work with an experienced regional partner can offer a preferential balance between management simplicity and risk as well standards and certifications to validate its ability to provide as value and best-in-class performance. Businesses still must ensure productivity-enhancing solutions to the enterprise and facilitate that their regional partner’s capabilities are aligned with their specific smooth global technology migration and communications with objectives. But by following the right bearings, they will achieve their other suppliers. business goals effectively. • Supporting the business: Ensure that the RSP has a well- structured cross-border sales program to address diverse business requirements regionally and globally. The 24/7 help desk and customer support center are considered table stakes. A key differentiator is the platform and tools for customization, integration and business process management. As shown in Exhibit 4, linking these business objectives to supplier attributes requires scrutiny of several proof points. 5 © Copyright 2009. Yankee Group Research, Inc. All rights reserved.
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