Key Market Developments in Q1-2011: Market Vista Report Briefing

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Everest Group research analysts will highlight the findings of the Market Vista Q1-2011 Report. Insights will include outsourcing transactions activity, captive market dynamics, location and service provider developments. The webinar also features a special topic on the offshore services industry in Brazil.

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Key Market Developments in Q1-2011: Market Vista Report Briefing

  1. 1. Today’s Webinar is brought to you by Everest GroupToday’s WebinarKey Market Developments in Q1-2011: Market Vista Report BriefingSynopsis: Everest Group research analysts will highlight the findings of the Market VistaQ1-2011 Report. Insights will include outsourcing transactions activity, captive marketdynamics, location and service provider developments. The webinar also features aspecial topic on the offshore services industry in Brazil.About Everest GroupEverest Group is an advisor to business leaders on next generation global services with a worldwidereputation for helping Global 1000 firms dramatically improve their performance by optimizing their back- andmiddle-office business services. With a fact-based approach driving outcomes, Everest Group counselsorganizations with complex challenges related to the use and delivery of global services in their pursuits tobalance short-term needs with long-term goals. Through its practical consulting, original research and industryresource services, Everest Group helps clients maximize value from delivery strategies, talent and sourcingmodels, technologies and management approaches. Established in 1991, Everest Group serves users ofglobal services, providers of services, country organizations and private equity firms, in six continents acrossall industry categories. For more information, please visit www.everestgrp.com andwww.everestresearchinstitute.com.For more information, contact Mark Williamson at mark.williamson@everestgrp.com 1 Proprietary & Confidential. © 2011, Everest Global, Inc.
  2. 2. Q&ATo ask a question during the Q&A session Click the question mark (Q&A) button located on the floating tool bar in the bottom right of your screen. This will open the Q&A Panel Be sure to keep the default set to “send to a Panelist” Then, type your question in the rectangular field at the bottom of the Q&A box and click the send button to submit 2 Proprietary & Confidential. © 2011, Everest Global, Inc.
  3. 3. Key Market Developments inQ1-2011: Market Vista BriefingWebinarMay 12, 2011
  4. 4. Introductions Eric Simonson Managing Partner, Research Everest Group eric.simonson@everestgrp.com Amneet Singh Vice President, Global Sourcing Everest Group amneet.singh@everestgrp.com Salil Dani Research Director, Global Sourcing Everest Group salil.dani@everestgrp.com 4 Proprietary & Confidential. © 2011, Everest Global, Inc.
  5. 5. Context settingWhat will you learn from this Webinar? Key findings from the Q1 2011 Market Vista report and what they mean for buyers and service providers Highlights of trends across outsourcing and offshoring transactions, captives, location dynamics, supplier developments, and implications for stakeholders in the global services industry Special focus on the state of the offshore services industry in Brazil and implications for stakeholders in the global services industry 5 Proprietary & Confidential. © 2011, Everest Global, Inc.
  6. 6. The increasing complexity of the global servicesmarket has amplified the risk exposure for companiesFactors driving increased risk Examples of risksVendor and model proliferation Regulatory riskMultiple service providers and business Ensuring compliance with regulatorymodels guidelines in source and destination countries across service providersLarge span of functions Performance riskTypically combination of many IT, BPO Business case risk Managing quality ofand some KPO services Managing wage service delivery, attrition, inflation without knowledge retentionIncreasing scope affecting quality ofSignificant proportion of operations now Data security and servicein low cost locations intellectual property risk Implementing measures toGlobal delivery chain safeguard data andServices often delivered from multiple intellectual property Concentration risklocations with diverse risk footprint Business continuity riskDynamic economies Currency riskMost delivery locations are emergingeconomies going through rapid change ….Most large companies have capabilities in global risk management. However, the level and typeof risk exposure that is emerging from the globalization of services is unprecedented 6 Proprietary & Confidential. © 2011, Everest Global, Inc.
  7. 7. Global services leaders are asked to manage globalsourcing risks and deliver improving results Are there What is the real What are my opportunities inflation and how peers doing? to optimize my does it compare to pricing? price increases in my portfolio? Are there new What new service delivery relevant economic models / service providers are How can I better incentives? my peers leveraging? manage forex changes? What new risks are Are their any new my service political or macro- Who are the How are the providers taking on? economic risks I need emerging service relative costs to be aware of NOW ? providers in my moving across areas? locations? Key decisions that global services managers need to support  Comparison with peers  Location risk management  Service provider selection and optimization  Design of new deals  Price benchmarking and contract renewals 7 Proprietary & Confidential. © 2011, Everest Global, Inc.
  8. 8. Market Vista provides continuously updated facts andanalysis every quarter to enable effective managementof global services portfolios Overall sourcing market Supplier landscape Detailed analysis of trends by  Updates on supplier industry vertical and geography market share, Report of transaction volume, capabilities, and size, and momentum performance Perspective on events with  Supplier profiles, significant industry impact (e.g., including data on: M&A)  Transactions Implications of regulatory  Location footprint changes  M&A activity Location data and dynamics Processes and models Data on market activity in  Process-level trends key offshore geographies  Captive set ups,  Political divestures, and overall  Macroeconomic trends  Promotion incentives  Fact-based insights on Trends in wage inflation, adoption of emerging attrition, and arbitrage pricing models  Data and perspectives on new opportunity areas Location Supplier Quarterly Location Breaking Primer Insights capability Industry trends Report database viewpoint e-newsletter profiles 8 Proprietary & Confidential. © 2011, Everest Global, Inc.
  9. 9. Agenda Key market developments in Q1-2011 Special topic: Offshore services industry in Brazil 9 Proprietary & Confidential. © 2011, Everest Global, Inc.
  10. 10. The outsourcing transactions and captive activityremained healthy in Q1-2011Index of outsourcing transactions1 Index of offshore captive health1Number Number Captive announcements2 = Actual + Planned Captive divestures = Actual + Planned 533 35 34 35 508 444 18 20 22 17 5 14 13 2 0 0 3 Q1 2010 Q4 2010 Q1 2011 Q1 2010 Q4 2010 Q1 2011 1 Includes only data that has been publicly disclosed 2 Announcements include both new set-ups and expansion of existing captive operationsSource: Everest Research Institute Transaction Intelligence Database 10 Proprietary & Confidential. © 2011, Everest Global, Inc.
  11. 11. Activity in financial services picked up in NorthAmerica with an increased share of BPO transactionsBFSI transactions by buyer geography1 BFSI transactions by functionNumber Number100% = 73 89 94 100% = 73 89 94 5% Both ROW2 21% 23% 20% BPO 44%Rest of Europe 14% 51% 17% 24% 57% UK 10% 18% 16% North America 55% 56% ITO 49% 45% 37% 37% Q1 2010 Q4 2010 Q1 2011 Q1 2010 Q4 2010 Q1 2011 Industry-level trending analysis included in the Market Vista Industry Trends reports 1 Buyer geography is the buyer location or the signing region associated with the transaction 2 Includes other countries in Asia Pacific, Middle East, Africa, and Latin AmericaSource: Everest Research Institute Transaction Intelligence Database 11 Proprietary & Confidential. © 2011, Everest Global, Inc.
  12. 12. Service provider developments | Market Vista Indexservice providersTraditional global service providers Offshore-centric service providers 1 3 21 Perot was acquired by Dell in Sep 2009 and has been rebranded as Dell Services2 EDS was integrated into HP, and the segment is now called HP Enterprise Services (HP ES)3 Hewitt merged with Aon in October 2010 and the combined entity is now known as Aon Hewitt 12 Proprietary & Confidential. © 2011, Everest Global, Inc.
  13. 13. Service provider developments1 | OverviewBy sequential growth in revenues By sequential growth in operating margins2(Q4 2010 vs. Q3 2010) (Q4 2010 vs. Q3 2010)Percentage Basis points (bps)Capgemini 19.2% Unisys 496Atos Origin 14.6% Highest growth in Q4 2010 Genpact 435Accenture 11.5% Atos Origin 318 5.1% Total Market Vista Index service providers 137 CSC 0.8% -168 WNS -1.0% WNS Least growth in Q4 2010 -242 Convergys -4.0% HP ES -742 Aon HewittTop events in Q1 2011 Top service providers by numberTop outsourcing transactions by deal value of transactions announced Significant M&A deals ArcelorMittal-CSC: US$600 million (5 years)  IBM: 16 deals  ACS-Unamic/HCN: The acquisition will expand Centrica-HP: US$400 million (7 years)  CSC: 12 deals ACS’s customer care capabilities in the CEVA Logistics-Accenture: US$300 million  HP ES: 11 deals Netherlands, Belgium, Turkey, and Suriname Fomento De Construcciones Y Contratas-HP:  Atos Origin: 9 deals  Dell-SecureWorks: The acquisition will expand US$300 million (7 years)  Capgemini: 9 deals Dell’s portfolio of IT-as-a-service solutions Oklahoma Health Care Authority-HP: US$281  IBM-Tririga: The acquisition will accelerate IBM’s million, 7 years smarter buildings initiatives 1 Analysis includes financials for Mahindra Satyam, which was acquired by Tech Mahindra in April 2009 2 Normalized operating margins excludes ACS, Capgemini, and Dell Services as information is not availableSources: Company disclosures; websites; press releases; Everest estimates 13 Proprietary & Confidential. © 2011, Everest Global, Inc.
  14. 14. Leading service providers reported lower mergers &acquisitions in Q1 2011 while the number of alliancesincreased compared to Q4 2010M&A by service provider category Alliances by service provider categoryNumber of acquisitions Number of alliances 16 49 41 12 Offshore-centric service 18Traditional global providers service 16 providers 37 5 Traditional global service 23 5 providers Q4 2010 Q1 2011 Q4 2010 Q1 2011Sources: Company websites; press releases; Everest analysis 14 Proprietary & Confidential. © 2011, Everest Global, Inc.
  15. 15. Offshore location activity reduced in Q1 2011 comparedto Q4 2010 with preference towards Tier-2 cities Q1 2010 Q1 2011 2010 Quarterly averageMarket activity across geographies Market activity across Tier-1 and Tier-2 locationsNumber of service delivery centers set up Number of service delivery centers set up 29 24 23 21 21 20 20 18 14 10 9 8 7 7 5 Asia Europe and Africa1 Latin America Tier 1 Tier 2 1 Three delivery centers were set up in Africa during Q1 2011Source: Everest Research Institute analysis 15 Proprietary & Confidential. © 2011, Everest Global, Inc.
  16. 16. While Asia continued to account for the majority ofcaptive market activity, adoption also increased innewer geographies such as Africa Europe: 7 captive East Asia: 7 captive announcements in multiple announcements including countries Vivante and Yahoo!Latin America: 2 captive Middle East and Africa: 6 India: 13 captive announcementsannouncements including captive announcements including including JP Morgan, Honeywell,GE Dell, Microsoft, and Nestle and TescoNote 1: Indicate announcements related to new captives and expansionNote 2: All references to captives include only offshore captivesSource: Everest Research Institute analysis 16 Proprietary & Confidential. © 2011, Everest Global, Inc.
  17. 17. Notable insights: Increase in market activity in EasternEurope; service providers beginning to leverage Tier-3locations in IndiaIncrease in market activity in Eastern Europe Average annual attrition rate in BPOcompared to 2009 and early 2010 2011; Percentage Leading players such as ACS, Cisco, Emerson, HP, and IBM have set-up delivery centers in recent quarters Budapest 8-10 Increase in demand from source geographies in Western Europe Moderate wage inflation and higher inflation than 2010 Prague 7-9 resulted in higher operating cost for global services Bucharest 7-9Leading service providers are beginning to leverage Operating cost per FTE for BPOTier-3 cities in India, mostly for domestic market 2011; US$ ‘000s Increased traction in Tier-3 cities such as Hubli, Karnal, Ajmer, Dehradun, and Raipur 16-18 Tier-1 Advantages include lower cost than Tier-1 and 2 cities, sizeable labor pool, and higher employee retention Challenges around labor pool quality, fewer options of 13-15 Tier-2 good quality infrastructure, and relatively nascent business environment impacting offshore delivery 9-10 Tier-3Source: Everest Research Institute analysis 17 Proprietary & Confidential. © 2011, Everest Global, Inc.
  18. 18. Agenda Key market developments in Q1-2011 Special topic: Offshore services industry in Brazil 18 Proprietary & Confidential. © 2011, Everest Global, Inc.
  19. 19. Brazil’s IT and BPO markets are evolving differently,driven by different motivationsAnnual graduate pool for IT1 Average annual operating cost per FTE for2011; ‘000s non-voice BPO2 2011; US$ ‘000s Sao Paulo 14-16 Sao Paulo 54-56 Buenos Aires 10-12 Buenos Aires 18-20 Monterrey 7-9 Monterrey 29-31 Santiago 5-7 Santiago 36-38 San Jose 1-2 San Jose 28-30 1 Annual graduates from relevant courses for IT 2 Operating cost includes cost of direct salary, benefits, management overheads, facilities, equipment, telecom, etc. Operating costs are ‘blended costs’ that take into account all seniority levelsSources: Respective Ministries of Education; inputs from market participants; Everest Research Institute analysis 19 Proprietary & Confidential. © 2011, Everest Global, Inc.
  20. 20. Buyers and service providers are selectively leveragingBrazil in IT services with Engineering Services/ R&Demerging as a growth opportunityDistribution of Forbes 2000 captives and leading Brazil moves into category of Matureglobal service providers in Brazil by functions1 locations in Market Vista LocationMarch 2011; Percentage Heatmap100% = 51  Joins India, Philippines, and China in an elite club of countries that have 50+ delivery centers of leading buyers and IT-ADM 50-55 service providers  Focus remains on regional delivery for IT services, across both base and domain skillsIT-Infrastructure 30-35  Emerging opportunity in Engineering/R&D services  Unlikely to be a contender to India in the 5-7 year horizon BPO 22-27 Please refer our recent newsletter “Perspectives on the Maturity of Brazil’s R&D/ 17-22 Offshore Services Market” for more details Engineering and insights 1 Total does not add up to 100 as delivery centers serve multiple functions Note: Analysis assumes offshore delivery across North America and EuropeSource: Everest Market Vista Location Heatmap 20 Proprietary & Confidential. © 2011, Everest Global, Inc.
  21. 21. Q&A Click the question mark (Q&A) button located on the floating tool bar in the bottom right of your screen – this will open the Q&A Panel Be sure to keep the default set to “send to All Panelist” Then, type your question in the rectangular field at the bottom of the Q&A box and click the send button to submit Upcoming Webinar Introduction to Enterprise Cloud EconomicsDate: Tuesday, May 24, 2011Time: 9:00 a.m. CDT; 10:00 a.m. EDT; 2:00 p.m. GMTPresenters: Scott Bils, Partner, Everest Group Dale Stara, Engagement Director, Everest GroupMore Information: Visit www.everestgrp.com/category/webinars 21 Proprietary & Confidential. © 2011, Everest Global, Inc.
  22. 22. For more information Attendees will receive an email with a link to download today’s webinar presentation. A recording of the webinar will be available within 24 hours on our website, www.everestgrp.com/category/webinars For advice or research on outsourcing and offshoring, please contact :  Eric Simonson, eric.simonson@everestgrp.com  Amneet Singh, amneet.singh@everestgrp.com  Salil Dani, salil.dani@everestgrp.com For background information on Everest Group, please visit:  www.everestgrp.com  www.everestresearchinstitute.com Thank you for attending today’s presentation 22 Proprietary & Confidential. © 2011, Everest Global, Inc.
  23. 23. Everest Group leads clients from insight to actionContact us for more information about our consulting, research, and industry resources. Dallas (Corporate Headquarters) Canada info@everestgrp.com canada@everestgrp.com info@everestresearchinstitute.com +1-416-865-2033 +1-214-451-3000 +1-214-451-3110New York India/Middle Eastinfo@everestgrp.com india@everestgrp.com+1-646-805-4000 +91-124-496-1000 +91-124-496-1100 UK Netherlands & Continental Europe unitedkingdom@everestgrp.com benelux@everestgrp.com +44-870-770-0270 +31-20-301-2138www.everestgrp.com | www.everestresearchinstitute.com | www.sherpasinblueshirts.com 23 Proprietary & Confidential. © 2011, Everest Global, Inc.

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