Global Sourcing - The Coming Reversal of Offshore Delivery: Are The Critics Right? – A Panel Discussion Bob Welch, IDC

Panel Members Samantha Covell, VP Services Procurement, BT Aidan Connolly, Finance Director, UK & Ireland, Sodexho Neeraj Gupta, Executive Vice-President, Patni Computer Systems Padma Ravichander, President & Managing Director, Global Consulting and Applications Solutions and Chief Executive APAC region, Perot Systems.

Samantha Covell, VP Services Procurement, BT

Aidan Connolly, Finance Director, UK & Ireland, Sodexho

Neeraj Gupta, Executive Vice-President, Patni Computer Systems

Padma Ravichander, President & Managing Director, Global Consulting and Applications Solutions and Chief Executive APAC region, Perot Systems.

Offshore Services - Key Messages Offshore is transforming to a strategic and disruptive form of service delivery Offshore labor-only model has a limited lifespan of effective service delivery Customers are looking to ensure that they mitigate their sourcing strategies across geographies and service delivery models 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

Offshore is transforming to a strategic and disruptive form of service delivery

Offshore labor-only model has a limited lifespan of effective service delivery

Customers are looking to ensure that they mitigate their sourcing strategies across geographies and service delivery models

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

From Defense to Offense: Offshore Player Strategic Directions and Challenges Integrate Transform Optimize Phase Automation/capital Brand image Delivery Investments Partnerships Geographic reach Expansion of skills (e.g. consulting, BPO, IT) Brand image Delivery Investments Target buyers (e.g. CXO) Global footprint Delivery Investments Partnerships Skills Brand image Provider Challenges 2004 2008 2007 2006 2005 Integrating global sourcing with hosting, utility computing/Software-as-Service Market enabler: SMB, emerging Integrated Global Delivery Cost Project-based (develop, maintain) Tactical Legacy environments Offshore: Discrete Sourcing Transformation via self-financing New technologies (innovation) Operational services (e.g.outsourcing) Strategic Industry-centric Global Sourcing Defense Offense

Automation/capital

Brand image

Delivery Investments

Partnerships

Geographic reach

Expansion of skills (e.g. consulting, BPO, IT)

Brand image

Delivery Investments

Target buyers (e.g. CXO)

Global footprint

Delivery Investments

Partnerships

Skills

Brand image

Integrating global sourcing with hosting, utility computing/Software-as-Service

Market enabler: SMB, emerging

Cost

Project-based (develop, maintain)

Tactical

Legacy environments

Transformation via self-financing

New technologies (innovation)

Operational services (e.g.outsourcing)

Strategic

Industry-centric

Emergence of Digital Services Supply Chains: Integrated Global Delivery “Platform” Procuring integrated IT, business process and industry-specific services Customer Business consulting Operations Hosting Local Delivery Access to community of developers, technologies, processes and industry-specific expertise and skills Global Resource Community Transformational services Operations Hosting Global Delivery

Business consulting

Operations

Hosting

Transformational services

Operations

Hosting

Emergence of “Disruptive” and “Transformative” Global Sourcing Delivery Options Delivering “large-scale” IT outsourcing on a cost-effective, global delivery model (e.g. HCL – Autodesk/$50M, DSG International/$338M) Integration of global sourcing (offshore) with a hosted “onshore” infrastructure (e.g. data centers) Leverage partnerships for hosting Enabling new service options: SaaS (Software-as-a-Service) Tata, Wipro partnering with salesforce.com Providing systems integration via global sourcing to SaaS provider customers OpSource and IndusLogic IndusLogic acts as offshore “SOA” factory for OpSource’s on-demand delivery platform Offshore providers expanding market potential with disruptive delivery models and placing greater pressure on global players to maintain pace

Delivering “large-scale” IT outsourcing on a cost-effective, global delivery model (e.g. HCL – Autodesk/$50M, DSG International/$338M)

Integration of global sourcing (offshore) with a hosted “onshore” infrastructure (e.g. data centers)

Leverage partnerships for hosting

Enabling new service options: SaaS (Software-as-a-Service)

Tata, Wipro partnering with salesforce.com

Providing systems integration via global sourcing to SaaS provider customers

OpSource and IndusLogic

IndusLogic acts as offshore “SOA” factory for OpSource’s on-demand delivery platform

Global Sourcing Risk Mitigation and Management Customers are increasingly looking to mitigate sourcing risks via: Diversification of geographic locations Require core requirements: strong infrastructure, educated workforce, language, IP protection, security (physical and logical) Vendor requirement of investing in local assets for strategic relationships (business consulting, outsourced/managed services) Market data from 2007 US Utility Computing Market Adoption Respondents: CEO, CIO, CTO, IT/telecom Directors/VP, N=320 Utilization of newer service delivery models as substitutes (e.g. utility computing/SaaS) Top 3 benefits from leveraging utility computing as an outsourced service

Customers are increasingly looking to mitigate sourcing risks via:

Diversification of geographic locations

Require core requirements: strong infrastructure, educated workforce, language, IP protection, security (physical and logical)

Vendor requirement of investing in local assets for strategic relationships (business consulting, outsourced/managed services)

Utilization of newer service delivery models as substitutes (e.g. utility computing/SaaS)

Competing Business Models: Investment Considerations and Staffing Impacts 2005 Data: Company Reports 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

2005 Data: Company Reports

Emerging Offshore Providers Focused on project-based IT services such as CAD (custom application development) Negligible focus on BPO Increase focus on R&D/engineering and testing services Relatively small with only a few players having approximately $300-400M in revenue and the remaining less than $100 million Lack scale, brand recognition, strong global footprints needed to gain quick traction Need to develop more focused approach (e.g. industry, market – R&D/engineering services) while making strategic investments (e.g. delivery footprint and capabilities) Potential Competitors Latin America Mexico: Softtek, Neoris, Epsilon Brazil: CPM, Politec Argentina: Cubecorp, Globant CEMA Russia: SBS Luxoft US-headquartered: Exigen, ePAM APEJ China: HiSoft, Augmentum

Focused on project-based IT services such as CAD (custom application development)

Negligible focus on BPO

Increase focus on R&D/engineering and testing services

Relatively small with only a few players having approximately $300-400M in revenue and the remaining less than $100 million

Lack scale, brand recognition, strong global footprints needed to gain quick traction

Need to develop more focused approach (e.g. industry, market – R&D/engineering services) while making strategic investments (e.g. delivery footprint and capabilities)

Potential Competitors

Latin America

Mexico: Softtek, Neoris, Epsilon

Brazil: CPM, Politec

Argentina: Cubecorp, Globant

CEMA

Russia: SBS Luxoft

US-headquartered: Exigen, ePAM

APEJ

China: HiSoft, Augmentum

Potential Next “India’s” Emerging geographic centers for offshore services Increase focus on building NASSCOM-like lobbying groups (MexicoIT, Russoft, BRASSCOM) Increase focus by governments to drive offshore/sourcing industry (China, Chile, Mexico) Continued weaknesses in IP protection, infrastructure, language, project mgmt, security and politic dynamics inhibit growth Competing on cost for smaller countries is not sufficient to drive scale Becoming effective competitors to India increasingly requires focusing on industry-specific area (e.g. Brazil/finance) Offshore Countries Latin America Brazil Chile Mexico CEMA Southeast European: Romania, Bulgaria Entering EU in 2007 Central European: Czech, Poland, Hungary Baltic States and Russia: Russia APAC China

Emerging geographic centers for offshore services

Increase focus on building NASSCOM-like lobbying groups (MexicoIT, Russoft, BRASSCOM)

Increase focus by governments to drive offshore/sourcing industry (China, Chile, Mexico)

Continued weaknesses in IP protection, infrastructure, language, project mgmt, security and politic dynamics inhibit growth

Competing on cost for smaller countries is not sufficient to drive scale

Becoming effective competitors to India increasingly requires focusing on industry-specific area (e.g. Brazil/finance)

Offshore Countries

Latin America

Brazil

Chile

Mexico

CEMA

Southeast European: Romania, Bulgaria

Entering EU in 2007

Central European: Czech, Poland, Hungary

Baltic States and Russia: Russia

APAC

China

Panel Discussion What has changed in the sourcing model for offshore delivery? What are some of the key lessons learned by buyers of offshore services? What are some of the key lessons learned by providers of offshore services? Conversion of offshore owned to offshore/ contacted? Do clients favor vendor sourcing models that include offshore delivery? Examples of where it works well and why Examples where it hasn’t worked well and why Major investment areas for companies with offshore delivery capabilities

What has changed in the sourcing model for offshore delivery?

What are some of the key lessons learned by buyers of offshore services?

What are some of the key lessons learned by providers of offshore services?

Conversion of offshore owned to offshore/ contacted?

Do clients favor vendor sourcing models that include offshore delivery?

Examples of where it works well and why

Examples where it hasn’t worked well and why

Major investment areas for companies with offshore delivery capabilities