All The World’s A StageThe Offshoring Opportunity for Developing Countries

Randeep SudanGlobal ICT Department

The World Bank

2

Offshoring

• McKinsey & Co.– Addressable market for global offshoring is above $300 billion– Only 10% realized so far ($18.4 billion in IT and $11.4 billion in BPO)– $110 billion by 2010

• Growth– India: BPO exports grew at 44.5% during 2004-05– Philippines: Call center seats increased from 40,000 to 70,000 during 2004-05

• Companies– Progeon grew at 275% during 2003-04 and at 145% during 2004-05– Net margin of 24.3%, gross margin of 44%

3

The Opportunity

“So much more lies ahead. In the next five years, India's offshore industries could generate US$60 billion in export revenues, account for 17 percent of GDP growth, pay for a massive infrastructure build-out, and sustain around 9 million jobs. Saudi oil, Japanese cars, and Indian services—some industries can truly transform a nation.”

Nasscom-McKinsey Report 2005

4

Theoretical Maximum Global Resourcing in Sectors Evaluated is Approximately 18.3 million Jobs

18.34.5

4.6

0.30.22.3

3.3

2.8

0.3

PackagedSoftware

IT Services Banking Insurance Pharma Auto Healthcare Retail Totaltheoretical

maximum inindustriesevaluatedShare of

industry’s total employment percentage

49 44 25 19 13 11 8 3

Source: McKinsey Global Institute

8.7 million

5

ITO and BPO Industry Size in Outsourcing Destination Countries 2004 (Source neoIT)

BPO: Evolution of Offshore Nations

7

Drivers

• New buzzwords– Transformational outsourcing, the totally disaggregated corporation, the virtual

globally distributed corporation

• Processes on sale– Budget airline: Accenture’s Navitaire unit can manage reservations, plan

routes, assign crew and calculate optimal prices for each seat.– Market research: Evalueserve Inc. will within a day assemble a team of Indian

patent attorneys, engineers and business analysts, start mining global databases and call dozens of US experts and wholesalers to provide an independent appraisal

Source: BusinessWeek

8

Potential Across the Value Chain

Source: NASSCOM-KPMG 2004

Finance and Accounts

Product Development

Human Resources Management

Technology ServicesIn

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Human Resources• Payroll Processing• Recruitment and

selection support• HRIS

IT Services and Support• Custom development• Systems integration• Hosting / maintenance• Customer help desk /

support

Operations / logistics• Order tracking• Order / claims /

application processing• Payments processing

Sales / Marketing and Customer Service

• Tele-sales• Order Processing• Customer services and

Complaints• Help-desk

Finance and Accounting• Back-office• Accounts

payable/receivable• Financial reporting• Finance accounting• Revenue accounting

Research / Design and Development

• Clinical research• VLSI design• DSP chip design• Avionics research• Engineering design

services• Legal research

9

Global Market for IT Enabled Services (Estimates for 2008)Source: NASSCOM-McKinsey Report

41%

19%3%

2%

6%

19%

6% 4%

Customer Interaction Services Finance and Accounting Services

Translation, Transcription and Localization Engineering and Design

HR Services Data Search, Integration and Management

Website Services Market Research

10

Manpower AvailabilityIncludes engineers, finance and accounting analysts, life science researchers and professional generalists with less than 7

years experience. It excludes: doctors, nurses and support staff

1773

727

654

514

427

293285

242232

210

1029

6386

0

1000

2000

3000

4000

5000

6000

7000

India China Russia Philippines Turkey Thailand Poland Brazil Mexico Indonesia 18 otherlow-wagecountries

Totalsuitable

low-wagesupply (28countries)

28

11

10

87

54 4

43

16 100

Source: McKinsey & Co.

11

Wage Increases in India (US$)

4082 4213 4496 5852 6628

0

5000

10000

15000

20000

25000

30000

35000

40000

2000 2001 2002 2003 2004

13585 1465316319

25822

31131

0

5000

10000

15000

20000

25000

30000

35000

40000

2000 2001 2002 2003 2004

Entry Level Software Developer Project Manager

Source: McKinsey & Co.

13%

23%

12

Country Strategies

• Russia– Technoparks in St.Petersburg, Novsibirsk, Nizhny Novgorod, Dubna planned– Social Security tax lowered from 26 to 14%, VAT exemption on exports

• Nicaragua– ProNicaragua: $3 million for a 500 seat call center in Managua– Full exemption from income and capital gains tax– No duties, VAT and property taxes

• Botswana– 200% credit on employee training programs– Exemption from VAT, flat corporate tax of 15% until 2020

• eGhana

13

Establishing a niche

• Singapore– Positioned itself as a safe location for sensitive high-end activities, with

particular emphasis on business continuity, IP protection and data privacy

• Israel– Promoting itself as an ideal location for upper-end R&D, as well as multilingual

support centers

14

Andhra Pradesh

• Area: 275,000 sq kms• Population: 80 million• Per capita income: ~$500

37

153

313

520

714

0

100

200

300

400

500

600

700

800

2001 2002 2003 2004 2005

Exports of IT Enabled Services from AP ($mn)

15

Strategy Elements

• Marketing – Annual Meetings of the World Economic Forum at Davos

• Infrastructure – Telecom, office space, power, roads, airport, civic authority

• Talent Pool – Engineering colleges, Indian School of Business, International Institute of IT– Accent neutralization training

• Policy– ITES as essential service– Self Certification– APFIRST

16

The Offshore Imperative

“…if you don’t do it, you won’t survive.” Daniel Marovitz Technology Managing Director, Deutsche Bank quoted in BusinessWeek

Thank You