NASSCOM GIC Conclave 2014 - Thought Leadership Research: Cost Competitiveness of Global In-house Centers (GlCs) - Everest Group
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NASSCOM GIC Conclave 2014 - Thought Leadership Research: Cost Competitiveness of Global In-house Centers (GlCs) - Everest Group

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  • 1. Thought Leadership Research: Cost Competitiveness of Global In-house Centers (GlCs) NASSCOM GIC Conclave 2014 | Presentation April 16, 2014
  • 2. Proprietary & Confidential. © 2014, Everest Global, Inc. 2 Everest Group – NASSCOM Research on cost competitiveness of GICs | Key highlights 1 GICs in leading delivery locations provide savings of 30-70% with source markets 2 India’s cost competitiveness has strengthened compared to 2012 3 Cost arbitrage in most other countries has largely remained similar to 2012 4 Best-in-class GICs have utilized efficiency levers to reduce costs by 8-10% 5 GICs need to continue focus on “cost and value addition” and NOT “cost instead of value addition”
  • 3. Proprietary & Confidential. © 2014, Everest Global, Inc. 3 72-74% 62-64% 36-38% 37-39% 23-25% 44-46% Most GICs provide cost savings of 30-70% with source markets 80-82% 69-71% 41-43% 47-49% 29-31% 56-58% Typical Total Cost of Ownership (TCO) savings between U.S. (Tier-2 cities) and GIC destinations 2014; Percentage India Philippines Poland Mexico Brazil China 74-76% 65-67% 41-43% 41-43% 28-30% 49-51% KPO/ANALYTICS IT-ADM (BASE SKILLS) BP (TRANSACTIONAL PROCESSES) Note: TCO includes total cost incurred for service delivery – includes operating costs (i.e., salaries and benefits, real estate, technology, telecom, and miscellaneous expenses) and costs associated with set-up, transition, and ongoing governance of the GIC
  • 4. Proprietary & Confidential. © 2014, Everest Global, Inc. 4 While India’s cost competitiveness has strengthened compared to 2012, arbitrage in most other GIC destinations has remained largely similar 2012 2014 Typical TCO savings between U.S. (Tier-2 cities) and GIC destinations 2014; Percentage BP – transactional processes 2012 2014 IT – ADM (base skills) 10-20% 25-35% 10-20% 25-35%Brazil 40-50% 40-50% 40-50% 40-50%Poland 55-65% 55-65% 45-55% 45-55%China 65-75% 65-75% 60-70% 60-70%Philippines 45-55% 45-55% 40-50% 40-50%Mexico 70-80% 75-85% 65-75% 70-80%India
  • 5. Proprietary & Confidential. © 2014, Everest Global, Inc. 5 Cost arbitrage in leading delivery geographies is likely to sustain for the medium-to-long term duration Arbitrage hurdle rate1 @ 30% U.S. tier-2 TCO (in US$) U.S. inflation: 1-2% BPO (TRANSACTIONAL PROCESSES) 1 Arbitrage hurdle rate refers to the minimum differential between the cost of operations in the source country and TCO of destination country, which still allows for meaningful offshoring. Hurdle rate is estimated as approximately 30% 2 TCO inflation includes the impact of people costs and other cost elements (e.g., real estate, telecom, technology, and miscellaneous cost items) Mexico tier-1 MXN at 13 per US$ (2018) TCO inflation2 @ 4-6 p.a.% Philippines tier-1 PHP at 40 per US$ (2018) TCO inflation2 @ 6-8% p.a. India tier-1 15-18 years INR at 52 per US$ (2018) TCO inflation2 @ 6-8% p.a. 13-16 years 8-11 years
  • 6. Proprietary & Confidential. © 2014, Everest Global, Inc. 6 BP (transactional processes) BP (judgment processes) IT – ADM (base skills) <5 years>10 years 5-10 years Current arbitrage sustainability (base case) KP/ Analytics Contact Center (English) IT – ADM (niche skills) ES – R&D TCO savings sustainability with U.S. locations 2014; Number of years 10-13 12-15 13-16 13-16 9-12 9-12 9-12Philippines 7-10 7-10 9-12 9-12 6-9 5-8 7-10China 7-10 7-10 10-13 10-13 8-11 4-7 7-10Poland 7-10 7-10 8-11 8-11 <5 4-7 4-7Mexico <5 <5 <5 <5 <5 <5 <5Brazil While arbitrage is sustainable for most locations and functions, there are likely to be meaningful exceptions 12-15 13-16 14-17 15-18 12-15 12-15 12-15India
  • 7. Proprietary & Confidential. © 2014, Everest Global, Inc. 7 Best in class GICs have utilized multiple efficiency levers to reduce costs by 8-10% Increase capacity utilization Increase entry-level mix in overall pyramid Reduce general and admin. expenses Increase span of control Low attrition through talent management practices Leverage low-cost locations (e.g., tier-2 cities) 2 1 Efficiency levers utilized by GICs 3 4 5 6
  • 8. Proprietary & Confidential. © 2014, Everest Global, Inc. 8 Implications for GICs and call to action Increase complexity of work and end-to-end delivery from GICs to increase quantum of arbitrage and manage overall portfolio level cost arbitrage 1 Prioritize 1-2 efficiency levers to optimize costs without compromising on value drivers 2 Recognize differences in arbitrage across functions and intentionally design location portfolio 3 Take a broader view of location sustainability beyond cost savings4
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