Monitor | Predict | Manage                                    Supply Risk                   Sample GSRM Reportwww.NeoGroup...
Confidentiality and Terms of Use    • All Neo deliverables, presentation formats, frameworks, parameters, data and webinar...
About GSRM and Baseline Risk Reports      Global Supply Risk Monitoring    • Global services industry‟s first ever compreh...
Risk Model and Rating    RISK MODEL                   Provider Risk                        Financial                      ...
Table of Contents        1   Monitor: Ability to view and compare risk                    Baseline Risk Report: Country, C...
Comparative Risk Profile – Countries          Risk Assessment – Countries (Overall Risk):                                 ...
Comparative Risk Profile – Cities           Risk Assessment – Cities (Overall Risk):                                      ...
Comparative Risk Profile – Suppliers      Risk Assessment – Suppliers (Overall Risk):                                     ...
Countries Risk Assessment Dashboard                                                                                       ...
Cities Risk Assessment Dashboard                                                                                          ...
Service Providers Risk Assessment Dashboard                                                                               ...
Table of Contents         1   Monitor: Ability to view and compare risk                     Baseline Risk Report: Country,...
Country Risk: Country A     Macro-Economic Risk           Macro-economic risk for Country A is at „Low‟ level. Growing dom...
City Risk: City A         Financial Risk                   Financial risk for City A is close to “High” Level. City A is o...
Provider Risk: Supplier A      Financial Risk              Financial Risk for Supplier A is at “Low” level. The company is...
Risk Update: Countries                                     Country A                        Country B                     ...
Risk Update: Cities                                         City A                    City B                             E...
Risk Update: Service Providers                                             Supplier A                               Suppli...
Table of Contents         1   Monitor: Ability to view and compare risk                     Baseline Risk Report: Country,...
Country A – Risk Summary and Guidance                                                                       Macro – Econom...
City A – Risk Summary and Guidance                                                                                  Financ...
Supplier A – Risk Summary and Guidance                                                                                    ...
Appendix: Profiles; Key Market/Performance Indicators                 1     Country A                 2     City A        ...
Country Risk: Country A        Profile      Country A is the seventh-largest country by geographical area, the second-most...
Country Risk: Country A     Key Market Indicators (1/5)                      Average Annual ITO Salary 2008-2010          ...
Country Risk: Country A     Key Market Indicators (2/5)                  ITO Wages Inflation Rate                         ...
Country Risk: Country A     Key Market Indicators (3/5)                    Macro - Economic Indicator                     ...
Country Risk: Country A     Key Market Indicators (4/5)                          Tele Density       70%                   ...
Country Risk: Country A     Key Market Indicators – Quarterly Trend (5/5)                    Stock Market Fluctuation –   ...
Appendix: Profiles; Key Market/Performance Indicators                 1     Country A                 2     City A        ...
City Risk: City A     Profile      City A, the technology and outsourcing hub of the India is also known as the “Silicon V...
City Risk: City A     Key Market Indicators (1/2)                    Average Annual ITO Salary 2008 - 2010                ...
City Risk: City A     Key Market Indicators (2/2)                    Wages Inflation           25.0%                      ...
City Risk: City A     Key Market Indicators – Quarterly Trend                  Wages Inflation                            ...
Appendix: Profiles; Key Market/Performance Indicators                 1     Country A                 2     City A        ...
GSRM Abridged Report
GSRM Abridged Report
GSRM Abridged Report
GSRM Abridged Report
GSRM Abridged Report
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GSRM Abridged Report

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Global Supply Risk Monitor (GSRM) is the Global services industry's first ever comprehensive Risk Monitoring service developed by Neo Group Inc to proactively identify, monitor and report services supply chain risks, ensuring global corporations can sustain and further the gains from outsourcing.

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GSRM Abridged Report

  1. 1. Monitor | Predict | Manage Supply Risk Sample GSRM Reportwww.NeoGroup.com
  2. 2. Confidentiality and Terms of Use • All Neo deliverables, presentation formats, frameworks, parameters, data and webinar content are confidential and exclusively meant for audience internal to the Client. • Client and any of its employees may not share any of Neo material associated with this report/service to any group or member outside of Client. • Should Client need to use specific portions of the material published by Neo to internal audience, the source should be acknowledged by using the phrase “Source: Global Supply Risk MonitorSM”. • The professional fees, annual subscription charges and any other pricing information for this service should be treated as strictly confidential.2 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  3. 3. About GSRM and Baseline Risk Reports Global Supply Risk Monitoring • Global services industry‟s first ever comprehensive risk monitoring service developed by Neo to proactively identify and report services supply chain risks • Monitoring conducted and reported at a Country, City and Provider level • Includes Baseline risk reports, Quarterly risk updates and Event alerts Baseline Risk Reports & Updates • Baseline risk reports provide a detailed assessment of risks and Neo‟s analysis of risk scenario • Baseline risk reports offer risk profiling, risk ratings and risk mitigation recommendations • Quarterly updates continuously highlight the changes to risk scenarios and update the risk rating and recommendations • Event alerts provide quick summaries of real-time events that have impact on risk scenarios Methodology • Risk information tracked from public, semi-private and private sources • Risk ratings provided relatively on a 10 - point scale: 10 (most risky) – 1 (least risky)3 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  4. 4. Risk Model and Rating RISK MODEL Provider Risk Financial Clients People Alliances Service Thought Governance Infrastructure Capability Leadership City Risk Macro-Economic Financial Business Infrastructure Geo-Political Legal Scalability Quality Of Life Country Risk Macro-Economic Financial Business Infrastructure Geo-Political Legal Scalability Quality Of Life 10 – point RISK RATING rating scale Negligible Low Moderate High Extreme Risk Risk Risk Risk Risk4 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  5. 5. Table of Contents 1 Monitor: Ability to view and compare risk Baseline Risk Report: Country, City, Supplier (Service Provider): • Comparative Risk Profile • Risk Assessment Dashboard 2 Predict: Before they impact Baseline Risk Report: Country, City, Supplier (Service Provider): • Individual Risk Drivers Update Risk Report: Country, City, Supplier (Service Provider): • Risk Updates: Quarterly Trend 3 Manage: Actionable risk mitigation recommendations Risk Summary and Guidance: • Country • City • Supplier (Service Provider)5 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  6. 6. Comparative Risk Profile – Countries Risk Assessment – Countries (Overall Risk): Q1 2011 Overall Risk Score Country A: 4.3 (Moderate) Country B: 4.1 (Moderate) Negligible Moderate Extreme Risk Assessment Countries (Individual Risk): Q1 2011 Individual Risk Score COUNTRY A COUNTRY B Macro-Economic Macro-Economic 3.5 2.9 Quality of Life Financial Quality of Life Financial 6.6 4.7 4.6 3.9 Scalability Geo-Political Scalability Geo-Political 7.0 6.6 2.2 3.2 Infrastructure Legal Infrastructure Legal 4.5 4.2 5.8 Business 5.8 Business 3.6 3.76 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  7. 7. Comparative Risk Profile – Cities Risk Assessment – Cities (Overall Risk): Q1 2011 Overall Risk Score City A: 4.2 (Moderate) City B: 4.9 (Moderate) Risk Assessment - Cities (Individual Risk): Q1 2011 Individual Risk Score CITY A CITY B 2.6 2.6 Macro-Economic Macro-Economic Quality of Life Financial Quality of Life Financial 6.0 5.4 4.2 4.7 Scalability Geo-Political Scalability Geo-Political 3.3 5.4 4.2 5.1 Legal Infrastructure Legal Infrastructure 5.4 5.3 5.7 5.9 Business Business 5.1 5.97 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  8. 8. Comparative Risk Profile – Suppliers Risk Assessment – Suppliers (Overall Risk): Q1 2011 Overall Risk Score Supplier A: 2.6 (Low) Supplier B: 2.9 (Low) Negligible Moderate Extreme Risk Assessment – Suppliers (Individual Risk): Q1 2011 Individual Risk Score SUPPLIER A SUPPLIER B Financial Financial 2.9 3.7 Thought Leadership Service Maturity Thought Leadership Service Maturity 1.9 3.3 2.9 3.5 Governance Governance Alliances Alliances 1.0 2.7 2.7 1.5 Clients People Clients People 1.0 4.4 2.2 5.0 Infrastructure Infrastructure 1.0 1.08 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  9. 9. Countries Risk Assessment Dashboard Macro-economic Financial Country B Geopolitical Infrastructure Business Legal Country A Scalability Quality of Life 0 10 20 30 40 50 60 70 80 Negligible Low Moderate High Extreme9 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  10. 10. Cities Risk Assessment Dashboard Macro Economic Financial City B Geo-Political Infrastructure Business Legal City A Scalability Quality of Life 0 10 20 30 40 50 60 70 80 Negligible Low Moderate High Extreme10 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  11. 11. Service Providers Risk Assessment Dashboard Financial Service Maturity Supplier B Governance People Infrastructure Clients Supplier A Alliances Thought Leadership 0 10 20 30 40 50 60 70 80 Negligible Low Moderate High Extreme11 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  12. 12. Table of Contents 1 Monitor: Ability to view and compare risk Baseline Risk Report: Country, City, Supplier (Service Provider): • Comparative Risk Profile • Risk Assessment Dashboard 2 Predict: Before they impact Baseline Risk Report: Country, City, Supplier (Service Provider): • Individual Risk Drivers Update Risk Report: Country, City, Supplier (Service Provider): • Risk Updates: Quarterly Trend 3 Manage: Actionable risk mitigation recommendations Risk Summary and Guidance: • Country • City • Supplier (Service Provider)12 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  13. 13. Country Risk: Country A Macro-Economic Risk Macro-economic risk for Country A is at „Low‟ level. Growing domestic demand, investments in infrastructure, increase in exports and support from a stable pro - industry government, helped the country overcome recessionary trends i quickly. First signs of de - coupling of Country A‟s market from global economy was evident as the financial markets in the country stood strong in comparison with volatile global markets. Growing inflation is a key concern area. Currency has depreciated in recent months and outsourcing buyers with local agreements (between two entities in Country A) should continue to benefit. Country A still remains the most favorable destination for FDIs. Social/Security Macro – Economic Risk: Extreme Negligible Risk High Macro – Economic Risk Impact Currency Risk Low Negligible Extreme Risk Score Key Risks Positives • Inflation for 3 quarters in 2010 was below 7 %. However inflationary • Country A‟s currency depreciated against the $ in 10 – 11‟. pressure surged during the Q4 2010 to nearly 10%.The pressure on • However, there is a positive turnaround for ITO and BPO outsourcers the lower and middle – class population in the country is heightened having large delivery centers in the country as the depreciation should due to the surge in prices for essential commodities. result in increased profitability • Over the last two quarters, the Government had faced criticism for • Based on review of currency forecasts provided by several market failing to control inflation rates. In December, the Government analysts, we expect the currency to further appreciate in 2011 announced several monetary measures to keep inflation at check. • Reduction in fiscal deficit from to 5.5% in FY 2009 to 5% in FY 2010. The industrial production output has been higher and has been • While the impact of global recession brought uncertainty to the country‟s helpful in keeping the inflation below 10%. stock markets, the impact was lower than indices in several other • GDP growth rate fell from 8.9% in Q1 to 8.6% in Q4 – 2010. Fitch developed and developing economies. Country A has been able to post Ratings forecasts an 8.7% GDP growth for Country A (in comparison 8+ % GDP growth rate for four consecutive quarters. to 9.5% for China and 5.5% for Brazil) in the next fiscal and this forecast is in line with several other analysts. • Forex reserve fell by 7% YOY to $261 B13 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  14. 14. City Risk: City A Financial Risk Financial risk for City A is close to “High” Level. City A is one of the most expensive cities in India for outsourcing in terms of human resources costs, the cost of living and real estate costs. Short to mid term i financial risk is high while costs could increase in line with inflation and general economic conditions. Outsourcing buyers could evaluate moving lower end services to other low cost locations in India or other global cities. Overall Risk: Negligible Extreme High Operation Cost Risk Impact Labor Cost Risk - BPO Labor Cost Risk - ITO Low Negligible Extreme Risk Score Key Risks Positives • Due to the rapid expansion of IT and BPO industry for the past several • Lack of availability of grade A office space combined with high years, the city‟s IT and BPO wages went up rapidly and remained high. rental values in CBD area has forced many companies to shift to • High attrition rate leads to high salary inflation in the IT and BPO non-CBD areas where they can get the same type of facilities at industries. a lower cost. This has resulted in a marginal decrease of about • City A has a high cost of living, with basic groceries such as 6% in rental values in the CBD area, thereby reducing the rice, wheat, flour, fruits and vegetables being more expensive than other operation cost risk marginally. Indian cities. • For expatriates, City A is the 38th cheapest place to live in the world, out of 276 international locations.14 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  15. 15. Provider Risk: Supplier A Financial Risk Financial Risk for Supplier A is at “Low” level. The company is fundamentally stable and have i maintained the revenue and profitability growth trend over the years. While the appreciating Rupee made an impact in the company‟s financials, Supplier A was able to maintain growth. Based on management commentary, performance in the last four quarters was led by increased revenues from Europe, further increase in the FPP (fixed price project) revenue, increase in employee utilization, and improvement in the employee pyramid (more of less experienced employees) Financial Risk: Social/Security Negligible Risk Extreme High Profitability Risk Impact Balance sheet risk Investment Risk Low Negligible Extreme Risk Score Key Risks Positives • The company will be impacted by the current strength in the Rupee. Supplier A is very strong fundamentally and continues to remain • Assets and liabilities risk is on the rise with the payables, current the third largest IT company in India with market capitalization of and total liabilities, long term debt increasing. US$37.45 Billion and IT revenues for 10 pegged at US$5.14 • Close to 80% of shares held by promoters. Billion. • Moody rates Supplier A in the mid rung companies - can adequately Supplier A has been able to consistently maintain a healthy meet the financial/credit requirements for 2010 -2011 and is more growth and profitability target. susceptible to adverse economic conditions. The company has very less to negligible long term liabilities and bad term risk. The consensus recommendations by various analyst firms suggest higher appreciation for Supplier A stock in the long term.15 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  16. 16. Risk Update: Countries Country A Country B Country A Country B Q4-2010 Q1-2011 Q4-2010 Q1-2011 • Macro-Economic: Rising • Macro-Economic: FDI Overall Risk 4.4 4.6 4.1 4.1 oil prices continue to increase, controlled contribute towards rising inflation rates, stable bank Macro Economic Risk 3.1 4.6 3.5 3.0 2.9 inflation rates lending rates and low stock • Retail prices of Fuel is fluctuation contributed Financial Risk 6.4 6.4 4.6 4.6 expected to go up by 5- towards a marginal dip in 10% in the near future risk ratings • The Forex reserves are Geo-Political Risk 7.0 7.0 6.6 6.6 expected to increase in the coming quarters Infrastructure Risk 4.5 4.5 4.3 4.3 • Legal: Final regulations for implementation of the Business Risk 3.6 3.6 3.8 3.8 2008 IT Act, dealing with protection of personal information issued on Legal Risk 5.8 5.8 5.8 5.8 April 13, 2011, which could have a profound Scalability Risk 3.0 3.0 3.2 3.2 effect on the outsourcing industry Quality Of Life Risk 4.0 4.0 3.9 3.9 Risk Levels Risk Update Extreme Increasing Risk High Decreasing Risk Source: Global Supply Risk Monitor www.neoadvisory.com/www.neogroup.com Moderate Stable Low16 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  17. 17. Risk Update: Cities City A City B Executive Summary and Risk Guidance Q4’10 Q1 ‘11 Q4 ‘10 Q1 ‘11 City A City B Overall Risk 4.2 4.2 4.9 4.9 • Financial: Average • Geopolitical: Stable Macro-Economic Risk 2.6 2.6 2.6 2.6 ITO/BPO/KPO Salary political environment inflation rates, reduced and reduced crimes rates operating costs and drivers for dip in risk Financial Risk 6.2 6.0 5.2 5.2 favorable taxation rating policies driving marginal • However, upcoming state Geo-Political Risk 5.4 5.4 5.3 5.1 dip in risk rating elections and rising • Scalability: Strong instances of political Infrastructure Risk 5.3 5.3 5.9 5.9 industry growth primary corruption could drive driver for dip in risk the risk rating higher in Business Risk 5.1 5.1 5.9 5.9 rating; ITO and BPO the coming quarters industry grown to (recent arrest of a former US$16.32b and US$2.7b tele-communication Legal Risk 6.1 6.1 5.7 5.7 respectively in Q1-2011 minister on bribery • Quality of Life: Rising charges to the tune of Rs Scalability Risk 3.9 3.7 4.2 4.2 Traffic density, 3,000 crores or US$670m population explosion and is a prime example) Quality Of Life Risk 4.4 4.5 5.4 5.4 rising power cuts in summer driving rise in risk rating Risk Levels Risk Update Extreme Increasing Risk High Decreasing Risk Moderate No Change Low17 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  18. 18. Risk Update: Service Providers Supplier A Supplier B Supplier A Supplier B Q4 ‘10 Q1 ‘11 Q4‘10 Q1 ‘11 • Financial: Increase in • Financial: The risk rating Overall Risk 2.8 2.6 3.4 2.9 risk ratings due to decreases due to better lower-than-expected market capitalization, Financial Risk 2.6 2.9 3.9 3.7 revenue numbers for institutional investment, Q1-2011 higher gross profit, Service Capabilities Risk 3.2 3.3 3.4 3.4 • Service Capabilities: operating profit and net The risk raises income incrementally, due to Clients Risk 2.4 2.4 2.2 2.2 the top level executives resignation and the Governance Risk 3.3 3.3 2.7 2.7 relocation of Japanese employees People Risk 5.4 5.4 5.0 5.0 Infrastructure Risk 1.0 1.0 1.0 1.0 Alliances 1.0 1.0 1.5 1.5 Thought Leadership 1.9 1.9 2.9 2.9 Risk Levels Increasing Risk Extreme Decreasing Risk High Stable Moderate Low18 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  19. 19. Table of Contents 1 Monitor: Ability to view and compare risk Baseline Risk Report: Country, City, Supplier (Service Provider): • Comparative Risk Profile • Risk Assessment Dashboard 2 Predict: Before they impact Baseline Risk Report: Country, City, Supplier (Service Provider): • Individual Risk Drivers Update Risk Report: Country, City, Supplier (Service Provider): • Risk Updates: Quarterly Trend 3 Manage: Actionable risk mitigation recommendations Risk Summary and Guidance: • Country • City • Supplier (Service Provider)19 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  20. 20. Country A – Risk Summary and Guidance Macro – Economic Risk RISK PROFILE FORECAST & RECOMMENDATIONS Overall: Low Risk • Growing inflation is a concern area and we expect it to further increase in the near term. This could eventually lead to an increase in salaries and wages thereby leading to possible increase in pricing by service providers. Diversification of Key Risk Parameters: low-end processes with no/minimal complexity to other low cost locations could be an option for organizations with an • Economic Indicators: Low Country A-only presence. • Currency : Negligible • Currency has depreciated in 2010 and we expect this trend to continue. Ensure that right contractual terms are incorporated in outsourcing agreements to hedge against currency fluctuations Financial Risk RISK PROFILE FORECAST & RECOMMENDATIONS Overall: High Risk • Salaries are bound to increase substantially during the next fiscal year and we expect providers to push for price increases. Buyers should evaluate multiple options such as moving to a managed services model, reducing the Key Risk Parameters: proportion of senior resources and optimizing service levels during negotiations. Buyers should also be • ITO Labor Cost: Moderate aware of provider‟s profitability and the impact salary increases have on the same. • Tier - 2 cities offer greater savings and more companies are expected to shift work to a Tier - 2 city. Outsourcing • BPO Labor Cost: Extreme buyers should de-risk by mandating providers to use Tier - 2 cities for delivering non-complex services as • Operations Cost: Moderate operations and human resources costs are lower • While supply of plug-n-play real estate slightly fell short of demand in 2009 resulting in a decline in real estate prices, 2010 saw a marginal pick-up towards the end of the year. Firms planning to setup shared services operations should consider long-term contracts. • From March 2011, income tax benefits and concessions offered to STPI units until now, will not be applicable anymore. However, there are several benefits being offered to units operating from SEZs (Special Economic Zones). We expect service providers (registered as STPI units) not operating from SEZs to push for price increases or contract changes. Outsourcing buyers should carefully evaluate the current contracts and work portfolio, and consider moving portions of work to providers with delivery locations in SEZs. Infrastructure Risk RISK PROFILE FORECAST & RECOMMENDATIONS • Government provides excellent support to outsourcing industry and we expect this trend to continue Overall: Moderate Risk • Transportation infrastructure continues to be under -developed in many cities. Increasing vehicle density is further Key Risk Parameters: choking the infrastructure as the development of new roads has not kept pace. Intra-city commute time in many cities • Government Support: Low will further increase in the near term. Preference should be given to local resources in the hiring process. Ensure that firm sponsored commute options are available. • Power Supply: High • The power supply situation across the country continues to be a key concern area. While it is gradually improving in • Telecom: Moderate some cities, the demand is far greater than supply. Ensure that providers have adequate power backup solutions • Transportation: Moderate and are prepared for frequent and prolonged powers cuts, especially during the summer season when power supply is lesser then usual. • Facilities: Low • Physical infrastructure in SEZs are excellent and will continue to get better in the future. Recommend considering an SEZ over stand-alone campus for new center setups.20 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  21. 21. City A – Risk Summary and Guidance Financial Risk RISK PROFILE SUMMARY & GUIDANCE Overall: High Risk • Short to mid term financial risk is high as costs could increase in line with inflation and general Key Risk Parameters: economic conditions. Labor cost will remain moderate to high in the long run • ITO/BPO/KPO Salary Growth: • Excess supply of office real estate space is likely to continue for some time and is expected to keep High rental values under pressure in some micro markets in the short to medium term • Operating Cost: Moderate • Outsourcing buyers should evaluate moving lower end services to other low cost locations in • Taxation: Moderate India or other lower cost global cities Geo-Political Risk RISK PROFILE SUMMARY & GUIDANCE Overall: Moderate Risk • City A has a coalition government that is currently shaky. Major policy decisions may be put on hold. Key Risk Parameters: This scenario is likely to continue in the short-term • Political(State/Province): High • The government has initiated several steps to improve terror intelligence mechanisms to proactively • Social / Security : High manage terror threats. Apart from high terrorism threats, City A is prone to religious tensions where several minor incidents have occurred. • Natural disaster: Low • Due to its geographic location, the city is safe from floods, tsunami, drought and earthquakes • Foreign nationals are advised to avoid crowded areas as much as possible, and keep a low profile in public Infrastructure Risk RISK PROFILE SUMMARY & GUIDANCE Overall: Moderate Risk • Public transportation infrastructure in City A is currently constrained and is necessitating the Key Risk Parameters: Government to take drastic measures to keep up with the city‟s growing population. Construction of • Economic: High the metro rail system has caused serious traffic bottlenecks in the city and is a concern area . Hire local resources, provide firm sponsored transportation facility • Government Support: Negligible • City A has a power shortage of 400 MW and 2-3 hours of power cuts daily. Power backup systems • Power Supply: Extreme are a must for smooth operations • Transportation: High • The state government is focusing on developing and improving the general infrastructure of the city • Facilities: High by constructing flyovers and the introducing the metro railway system. With the completion of the inter-city expressway corridor projects over the next few years, City A will have good infrastructure that will improve risk rating21 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  22. 22. Supplier A – Risk Summary and Guidance Financial Risk RISK PROFILE SUMMARY & GUIDANCE • The company is fundamentally stable and has maintained the revenue and profitability growth trend over the Overall: Moderate Risk years. While the appreciating Rupee made an impact in the company‟s financials, Supplier A was able to maintain Key Risk Parameters: growth • Investment Risk: High • Investment risk for the company is high due to the high promoter holdings and lower institutional investments and the high stock price fluctuation in one year. With stabilizing economy the risk is forecasted to come down. • Balance Sheet Risk: Negligible • The consensus recommendations by various analyst firms suggest higher appreciation for Supplier A stock in the • Profitability Risk: Extreme long term Service Capability Risk RISK PROFILE SUMMARY & GUIDANCE Overall: Low Risk • The company generates significant proportion of business from fixed priced deals which demonstrates strong project management capabilities and depth of solutions Key Risk Parameters: • Supplier A has a high senior to junior ratio with well managed processes and operations. Companies outsourcing • Operating Model: Low to Supplier A should evaluate proposed team composition before taking decisions on critical projects • Quality Certifications: Negligible • Supplier A has a well diversified service portfolio that addresses outsourcing requirements of most clients. Attrition levels in the company are comparable to market. • Infrastructure Delivery Center: • Employee training policy within the company is world class and can be put to maximum use for client Negligible specific requirements • Human Resources: High Clients Risk RISK PROFILE SUMMARY & GUIDANCE • Clients continue to repose their faith in Supplier A‟s service delivery capabilities, while Supplier A also continues to Overall: Low Risk improve its value proposition to its clients. This is evident from the number of Fortune 1000 companies being part Key Risk Parameters: of Supplier A‟s clientele • Existing Client Base: Negligible • Supplier A maintained a very high retention rate (did not lose a single client in the quarter) and repeat business % • Minimal client flight experienced and Supplier A generated large proportion of its revenues from existing • Client Flight/Repeat Business: clients. Low • Growing experience in multi-geography deals and diversified client portfolio are excellent signs for the company. • Service Lines ITO: Low Buyers can leverage these capabilities by rolling out outsourcing initiatives from multiple locations and • Verticals by ITO and BPO; Low expect Supplier A to support them effectively • Supplier A has been successful in growing several of its US$1-5mn clients by offering complimentary services and • Geographies: Moderate new fixed price engagements © 2010 Neo Group Inc.22 All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  23. 23. Appendix: Profiles; Key Market/Performance Indicators 1 Country A 2 City A 3 Supplier A23 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  24. 24. Country Risk: Country A Profile Country A is the seventh-largest country by geographical area, the second-most populous country, and the largest democracy in the world. Country A has a pluralistic, multilingual and multiethnic society, It has the worlds twelfth largest economy at market exchange rates and the fourth largest in purchasing power. The ITO and BPO sectors play a significant role in driving the growth of Country A‟s economy. Economic reforms since 1991 have transformed it into one of the fastest growing economies in the world; however, large proportion of its population still suffers from poverty, illiteracy, diseases and malnutrition. Outsourcing Industry Specific Information Country Demographics Parameter Sub Parameter Measure (2010) Parameter Measure (2010) Key ITO Cognizant, Capgemini, Accenture, Infosys, Wipro, TCS, HP Total Population 1.1 billion Outsourcing Companies BPO Genpact, WNS, 24/7 Customer, Aditya Birla, Covansys, EXL Government Prime Minister is Dr. Manmohan Singh from Evalueserve, Aranca, OPI, Copal Partner, RocSearch, KPO Integreon the Indian National Congress party. Industry Size ITO $37.3 billion Prime Minister since BPO $13 billion May 2004 Software Parks 101 technology parks and Special Economic Zones (SEZ) Currency Indian Rupee (NR) across Country A 1 USD = 44.5 INR (As on April 2010) Salary (per • ITO 0-2 yrs exp $8300- $8500 annum) • 2-5 yrs exp $14500 - $14700 Largest cities Mumbai (14M), New based on • (5+ yrs exp) $26100 - $26300 (Population) Delhi (12.6M), experience • BPO 0-2 yrs exp $7400 - $7600 Bangalore (7.5M), • 2-5 yrs exp $13,900 - $14000 Kolkata (5.1M), • (5+ yrs exp) $26,200 - 26300 Chennai (4.6M), Hyderabad (4M), KPO 0-2 yrs exp $7400 - $7600 Ahmedabad ((3.9M), Salary Growth ITO 9% - 11% Pune (3.5M), Jaipur (%) (2.1M) BPO 9.5% - 10.5%24 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  25. 25. Country Risk: Country A Key Market Indicators (1/5) Average Annual ITO Salary 2008-2010 $35,000 $32,621 $30,000 $26,208 $23,849 Avg. Entry Level Salary $25,000 $20,000 $18,105 $14,611 Avg.Team Lead Level Salary $13,296 $15,000 $9,636 $10,000 $7,644 $8,400 Avg.Managers Level Salary $5,000 $- 2008 2009 2010 Average Annual BPO Salary 2008-2010 $35,000 $32,857 $30,000 $26,207 $23,848 $25,000 Avg. Entry Level Salary $20,264 $20,000 Avg. Team Lead Level Salary $13,970 $15,000 $12,713 Avg. Managers Level Salary $10,000 $6,825 $7,500 $7,815 $5,000 Source: Industry publication, secondary $- research, industry association, NeoGroup estimation 2008 2009 201025 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  26. 26. Country Risk: Country A Key Market Indicators (2/5) ITO Wages Inflation Rate BPO Wages Inflation Rate 14.00% 14.00% 13.00% 12.50% 12.50% 12.50% 11.50% 11.50% 12.00% 12.00% 10.00% 12.00% 9.50% 12.00% 11.00% 11.50% 12.00% 10.00% 10.00% 11.00% 9.00% 9.00% 8.00% 8.00% 6.00% 6.90% 7.00%7.30% 6.00% 6.50% 6.50% 6.90% 7.00% 6.60% 4.00% 4.00% 2.00% 2.00% 0.00% 0.00% 2008 2009 2010 2011 2008 2009 2010 2011 ITO Entry Level ITO Entry Level ITO Team Lead Level ITO Team Lead Level ITO Manager Level ITO Manager Level Source: Industry publication, secondary research, industry association, NeoGroup estimation26 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  27. 27. Country Risk: Country A Key Market Indicators (3/5) Macro - Economic Indicator GDP growth (2010) – 8.6% 10.00% Fiscal Deficit (2010) – 5% 8.6% 8.4% 5.00% 5.7% GDP Growth Country A witnessed a rebound in its GDP growth (Total) in 2010 and the situation is expected to improve in 0.00% Fiscal Deficit line with recovering market conditions. 2009 2010 2011 -5.00% -5.0% -5.7% The fiscal deficit narrowed during 2010 due to the -10.00% reversal of recessionary pressures; this situation is -10.2% expected to further improve in 2011. -15.00% Forex - Country A ($ vs INR) Forex Reserve - Country A Billions 45.50 $400 45.00 44.97 $350 $353 44.50 44.53 $300 2009 44.00 2009 $297 $250 $284 2010 43.50 2010 $200 43.00 2011 2011 $150 42.50 42.54 $100 42.00 $50 41.50 $0 41.00 2009 2010 2011 2009 2010 2011 Source: Industry publication, secondary research, industry association, NeoGroup estimation27 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  28. 28. Country Risk: Country A Key Market Indicators (4/5) Tele Density 70% 64% 60% 50% 52% 40% 42% 2009 30% 2010 20% 2011 10% 0% 2009 2010 2011 Attrition Rate Country A has one of the highest attrition rates globally. 30 25 Attrition rate is higher for BPO than ITO and is higher 25 among the lower experienced resources 20 18.5 17 22 ITO Attrition levels reduced in 2009 as new job opportunities 15 nose-dived as a result of global economic slowdown. 16.4 BPO 10 13 However, in 2010, as most ITO and BPO companies announced plans for massive hiring, attrition rates 5 increased as expected. 0 2009 2010 2011 Source: Industry publication, secondary research, industry association, NeoGroup estimation28 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  29. 29. Country Risk: Country A Key Market Indicators – Quarterly Trend (5/5) Stock Market Fluctuation – Bombay Stock Exchange (BSE) Currency Exchange Rates ($ vs. INR) 21000 20509 50.0 20000 BSE… 49.0 20094 48.0 19000 47.0 18000 17679 46.0 46.6 44.7 44.9 45.0 $ / INR 17000 44.7 44.0 16000 43.0 Q3 Start Q4 Start Q4 End 42.0 Q2 Start Q3 Start Q3 End Q4 End • Market grew in Q2 with limited volatility (Est.) • Positive market sentiments and better company results across industries triggered growth Employee Attrition Rates 20% • Q4 „10 was a difficult period for several ITO 17.1% 17.0% 15.4% and BPO firms as attrition rates remained high 15% 13.0% across all job levels. • As positive signs from the world economy 10% continued in 2010, firms started hiring Q3 10 aggressively by luring candidates with higher Q4 10 pay and additional benefits 5% 0% ITO BPO29 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  30. 30. Appendix: Profiles; Key Market/Performance Indicators 1 Country A 2 City A 3 Supplier A30 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  31. 31. City Risk: City A Profile City A, the technology and outsourcing hub of the India is also known as the “Silicon Valley” of India. The city is the countrys largest exporter of software exports. While City As revenue dependency has been predominantly on the U.S. market in the past, the city has been able to garner reasonable demand from European markets in the last few years and has been endeavoring towards a balanced revenue portfolio. Mentioned below are some of the parameters which reflects the status of City A in the outsourcing industry. Outsourcing Specific Information City Demographics Parameter Sub-Parameter Measure (2010) Parameter Measure (2010) Salary (0-2 ITO $8200 - $9100 Total 7.5 million yrs Exp) Population BPO $5200 - $5900 Government Chief Minister: B. S. Salary ITO 9% - 11% Yeddyurappa (BJP, single Growth (%) party government – from BPO 10% - 11% May 30, 2008 till date) Yearly Technical Graduate 18,985 Graduate Non-Technical Graduate 5,78,813 Software STPI – City A, Electronic Pool Parks City, UB City Labor Pool ITO-Labor pool 1,66,000 Surplus / 15 Million sq feet surplus Deficit of BPO-Labor Pool 1,94,000 Office Space Key ITO TCS, Infosys, Wipro, IBM, Accenture Top Hotels Oberoi, Leela Palace, Taj Outsourcing Westend, ICT Windsor BPO Genpact, 24/7 Customers, EXL Services, ICICI Companies Sheraton, Lalit Ashok OneSource KPO Pipal Research, WNS, Mu sigma, Amba Research Industry Size ITO $15.4 billion BPO $2.7 billion31 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  32. 32. City Risk: City A Key Market Indicators (1/2) Average Annual ITO Salary 2008 - 2010 Industry Export Size 2008 - 2010 $35,000 $32,224 $20.0 $16.3 $28,900 $15.0 $30,000 $26,273 $15.0 $12.2 $25,000 Avg. Entry Level Salary $10.0 $20,000 $17,885 $16,112 $4.1 $14,782 $5.0 $2.7 $15,000 Avg. Team Lead Level Salary $2.2 $8,896 $9,519 $10,000 $8,314 $- Avg. Managers Level Salary $5,000 2008 2009 2010 ITO Export Size BPO Export Size $- Industry Size ITO (2009) – 15.0 $B 2008 2009 2010 Industry Size BPO (2009) – 2.7 $B Average Annual BPO Salary 2008 - 2010 $30,000 $27,600 $24,865 $25,000 $22,812 $20,000 Avg. Entry Level Salary $17,021 $15,266 US$ in Billion $13,941 $15,000 Avg. Team Lead Level Salary $10,000 $6,538 $5,765 $6,139 Avg. Managers Level Salary $5,000 $- Source: Industry publication, secondary research, industry 2008 2009 2010 association, neogroup estimation32 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  33. 33. City Risk: City A Key Market Indicators (2/2) Wages Inflation 25.0% Wages Inflation ITO (2009) – 10.3% Wages Inflation BPO (2009) – 10.5% 20.0% 14.5% 14.0% 15.0% 10.5% ITO 13.0% 13.5% 10.0% BPO 10.3% 5.0% 0.0% 2008 2009 2010 Attrition Rate 35.0% Attrition Rates ITO (2009) - 17% 30.0% Attrition Rates BPO (2009) – 19% 26.0% 25.0% 24.0% 19.0% 20.0% 23.0% 20.0% ITO 15.0% 17.0% BPO 10.0% 5.0% 0.0% -5.0% 2008 2009 2010 Source: Industry publication, secondary research, industry association, neogroup estimation33 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  34. 34. City Risk: City A Key Market Indicators – Quarterly Trend Wages Inflation 14.5% 14.5% The wages inflation rate in Q2 has ITO BPO increased slightly due to high attrition 14.0% 14.0% rate, rising consumer inflation rates, and 14.0% high labor pool demand from the IT and BPO companies across the city. 13.5% 13.5% 13.0% Q4-2010 Q1-2011 Attrition Rate 35.0% 30.0% 25.0% Demand for project manager level 24.0% resources has risen in Q2, reflecting 25.0% the rising attrition rates, specifically in 20.0% 22.0% the IT industry 15.0% 20.0% ITO 10.0% BPO 5.0% 0.0% -5.0% Q4-2010 Q1-2011 Source: Industry publication, secondary research, industry association, neogroup estimation34 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited
  35. 35. Appendix: Profiles; Key Market/Performance Indicators 1 Country A 2 City A 3 Supplier A35 © 2010 Neo Group Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited

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