a global sourcing primer for edas & government...
TRANSCRIPT
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A Global Sourcing Primer for EDAs & Government Agencies
September 10, 2013
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Why Should You Care?
IT Services BPO Services
– 50-100 FTE Rural Areas
– 100-200 FTE Tier 2 Cities
– Masters Education
– Undergraduate Degrees
– Technical Trade
– 100-200 FTE Rural Areas
– 200-500 FTE Tier 2 Cities
– Undergraduate Degrees
– High School Diploma
Good Job Creation
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Outsourcing Industry 101
What is Domestic Sourcing? Why Now?
Site Selection
Key Takeaways for EDAs
Agenda
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Outsourcing Definitions
• Global Sourcing – used to refer to trend of sending services overseas regardless of location offshore or nearshore (currently preferred term over offshoring)
• Offshoring – When a US firm outsources services to locations such as India, China, Malaysia or Russia
• Nearshoring – When a firm outsources services to a country near home such as Canada or Mexico
• Domestic Sourcing - Outsourcing services to a domestic or global provider where the work is taking place in the United States
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Information Technology (IT) Business Process Outsourcing (BPO)
What is Being Outsourced?
Application Development
Application Support & Maintenance
Infrastructure Management
R&D
Software Product Development
Engineering Services
Tech Support
Human Resources
Finance and Accounting
Back Office Administration
Payment Processing
CRM
Industry Specific Functions
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Cost Reduction was the Major Driver Offshore Driver
DOMINANT REASONS SECONDARY REASONS
– Lower costs
• Direct labor 75% - 90% savings
• Total project savings 20%- 50%
– Relieve internal resource constraints
– Access to variable resources
– Response to competitive pressure
– Achieve 24 x 7 operation and reduce cycle times
– Focus on competencies
– Improve service levels
– Enhance internal IT and business processes
– Gain access to offshore markets
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Outsourcing Industry 101
What is Domestic Sourcing? Why Now?
Site Selection
Key Takeaways for EDAs
Agenda
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What is Domestic Sourcing?
RURALSOURCING
INSHORING HOMESHORING
ONSHORING RURALSHORING HOMESOURCING
FARMSHORING
Outsourcing (or Insourcing) to lower cost metropolitan or rural areas that can provide significant benefits over Tier 1 metropolitan cities or offshoring.
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Is It Really New?
• Prior to global sourcing or offshoring, companies outsourced primarily for skills, capabilities & risk reduction
• When global sourcing took off, domestic outsourcing companies employed one of the following strategies:
– Developed an offshore option for their clients
– Focused on niche high end skills or onsite required staff augmentation
– Focused on regulated industries that put barriers to offshoring
Yes, somewhat…
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Traditional Drivers for Domestic Sourcing
• Dissatisfaction
– Quality & Productivity
– Communication & Cultural issues
• Rising Costs Offshore
– Wage Rates
– Real Estate & Infrastructure
• Exchange Rate Fluctuation
– Particularly deflation of the US
Dollar against many Asian
currencies 2006-2008
• 2001/2002 .COM Bust
– 1st major wave of knowledge jobs leaving the U.S.
– 2004 Election capitalized on fear
• 2009 Recession
– More “real” fear
– More proactive/positive approach
Negatives of Offshoring
Economic Downturns
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Today’s Drivers for Domestic Sourcing
General Economic Environment
Domestic Sourcing
Drivers
• High Unemployment
• Wage Deflation
• Concern over fundamental shifts in American competitiveness
• Fewer & smaller projects
• Reduced travel
• Reduced investment
• Reduced product life cycles, tighter turnaround times
• Focus on cost reduction
• New IT options (cloud, SAAS, freeware)
• New Risks
Economic Downturns
Changing Business Dynamics
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More than labor arbitrage.
• Labor Arbitrage
• Pyramid Model / Specialization
• Real Estate
• Increase Onsite/Offsite Ratio
• Productivity
• Shared Resources
Direct Costs
• True Agile Teams
• Quality
• Faster
Cost Avoidance
Domestic Sourcing can for Generate Cost Savings
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Other Benefits to be Reaped
Ease of Doing Business
• Cultural and Language Affinity
• Geographic Proximity
• Time Zone Advantage
Speed to Market
• Business to IT Alignment
• Proximity, leading to better feedback loops
• Understanding of U.S. Business requirements, etc.
Less Risk
• Regulatory/ Compliance
• Legal
• Political
• Vendor
• PR
Business Development Opportunities
• Government contracts
• Businesses looking for domestic options
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Domestic Sourcing Strategy
Role within Global Strategy
• Complimentary capacity for nearshore/offshore
• Engagements with high % of onsite requirements
• Short engagements/ quick turnaround
Scale • 50-100 IT Rural,
100-200 Tier 2
• 100-200 BPO Rural, 200-500 Tier 2
Scope of Services
• Specialized IT, Speed to Market, High Degree Interaction, Agile
• BPO: Cultural Context, Regulated/Sensitive Industry, Transactional vs. Judgement based
• Mix of Services (IT, Call Center, Business Process)
• Mid-level to Senior IT Talent
Cost Savings 15%-30% Cost Savings to Tier 1
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Agenda
Outsourcing Industry 101
What is Domestic Sourcing? Why Now?
Site Selection
Key Takeaways for EDAs
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LCD Location Selection Criteria
LCD Location Selection Criteria
40% Cost of Doing Business
35% Workforce
Business & Political Environment
15%
Quality of Life
10%
Future Revenue Potential
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Cost of Doing Business
• Labor Rates*
• Real Estate Costs*
• Infrastructure Costs*
• State & Local Taxes*
• Economic Incentives*
• Airport Access*
• State Debt
• Federal Funding Support
LCD Location Selection Criteria
40% Cost of Doing Business
35% Workforce
Business & Political Environment
15%
Quality of Life
10%
Future Revenue Potential
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Workforce
LCD Location Selection Criteria
40% Cost of Doing Business
35% Workforce
Business & Political Environment
15%
Quality of Life
10%
Future Revenue Potential
• Nearby Colleges & Universities*
• Stability of Future Workforce*
• Skill Sets of Knowledge Workforce*
• Net Migration Potential
• Population/Scale
• Current Resource Availability
• Labor Supply Competition
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Business & Political Environment
LCD Location Selection Criteria
40% Cost of Doing Business
35% Workforce
Business & Political Environment
15% Quality of Life
10%
Future Revenue Potential
• Business/Government/College Consortium*
• Political Support*
• Labor Laws
• Technology & Vendor Ecosystem
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Quality of Life
LCD Location Selection Criteria
40% Cost of Doing Business
35% Workforce
Business & Political Environment
15%
Quality of Life
10%
Future Revenue Potential
• Cost of Living*
• Housing
• Commute
• Crime Rates
• K-12 Schools
• Climate & Geography
• Arts & Recreation
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Challenges of Domestic Sourcing
Tier 1/2 Locations
Tier 3/4 Locations
– Workforce retention
– Sustainability and fluctuation of cost savings (labor, real estate, etc.)
– Scalability especially IT
– Breadth of skill sets especially IT
– Lack of business ecosystem
– Availability of appropriate real estate
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North Texas Example Communities Like Grayson Communities Like Fannin
50,000 or more 25,000 or Less
Mostly Low- to Mid-Level, Some High-Level
Mostly Low-Level, Some Mid-Level
BPO/Call Center: Up to Maximum of 300 Employees IT: 100-150 Employees (dependent on educational requirements)
BPO/Call Center: Up to maximum of 100 Employees
All levels for Call Centers and BPO, Low-Level ITO
Call Centers, Low Level BPO
– Workforce Availability – Workforce Retention – Marketing
– Workforce Skill Set – Workforce Availability – Marketing – Real Estate Availability – Business Ecosystem
Typical Population in Main Cities
Typical Skill sets Available
Typical Size Limits for an Outsourcing Firm
Typical Outsourcing Activities
Main Challenges
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Agenda
Outsourcing Industry 101
What is Domestic Sourcing? Why Now?
Site Selection
Key Takeaways for EDAs
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Key Takeaways - EDA
1. Ensure close relationship b/w education, business and government agencies
2. Add labor related incentives to real estate incentives that you have (training dollars & job creation hiring)
3. Availability of real estate will be key in final decision
4. Workforce development agencies should focus on assisting with hiring & have ability to develop customized training courses
5. Think through revenue generation opportunities for companies coming in – as extra value add
6. Appoint one liaison to coordinate with companies and other agencies
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Amrita Tahiliani Joshi CEO • Ahilia Inc.
800.489.5197 • 530.304.9026 mobile
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Thank you!