it offshoring industry analysis, april 2007

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2007 Peter Louis. All Rights Reserved

Global players, global delivery

IT Offshoring Industry Analysis

A cursory view into the global offshoring market

By Peter Louis

April 2007


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2 2007 Peter Louis. All Rights Reserved

Contents

IT offshoring overview


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IT offshoring overview 3 2007 Peter Louis. All Rights Reserved

What is IT offshoring

IT offshoring is the outsourcing of an IT task, function orservice such that the task, function or service isperformed offshore in another country.

Note. Various other terms in use include offshore IT outsourcing (offshore ITO),ITO offshoring, global sourcing and global delivery.

Source: SearchCIO.com


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Global IT offshoring market forecast comparison

15

150

72

180

0

20

40

60

80

100

120

140

160

180

200

2005 2010

MarketExpenditure

AddressableMarket

$USBillions

Year

Global IT offshoring market forecast

Source: McKinsey, 2006

37% CAGR

3% CAGR


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IT offshoring overview

What are the drivers behind IT offshoring?


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Drivers behind IT offshoring

0

10

20

30

40

50

60

70

80

90

2004 2005 2006

Cost Reduction

Access to Qualified Personnel

Competitive Pressures

Business Process RedesignIncreased Speed to Market

Access to New Markets

Survey Year

Growth rate of offshoring drivers over time, 2004 2006

%

ofFirmsCiting

Driversas

"Ve

ryImportant"or"Important"

Source: Offshoring Research Network (Duke University), 2007


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Drivers behind IT offshoring

0

10

20

30

40

50

60

70

80

90

2004 2005 2006

Cost Reduction

Access to Qualified Personnel

Competitive Pressures

Business Process RedesignIncreased Speed to Market

Access to New Markets

Survey Year

Growth rate of offshoring drivers over time, 2004 2006

%

ofFirmsCiting

Driversas

"Ve

ryImportant"or"Important"



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Risks associated with IT offshoring

0

10

20

30

40

50

60

2004 2005 2006

Operational Challenges

Lack of Acceptance byInternal Clients

Loss of Managerial Control

Lack of Acceptance by

Customers

Cultural Differences

Political Backlash

Survey Year

Perceived risks of offshoring, 2004 2006

%

ofFirmsCitingRiskas

"Ve

ryImportant"or"Important


Political Instability


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Risks associated with IT offshoring

0

10

20

30

40

50

60

2004 2005 2006




Lack of Acceptance by

Customers

Cultural Differences

Political Backlash

Survey Year

Perceived risks of offshoring, 2004 2006

%

ofFirmsCitingRiskas

"Ve

ryImportant"or"Important


Political Instability







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Contents

Industry analysis


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Industry analysis

Who are the players?


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Industry analysis 12 2007 Peter Louis. All Rights Reserved

Global IT outsourcing 2006 vendor shares, Big Six the incumbents

Source: SEC fiscal year 2006 10-K filings

$4.1

$5.4

$7

$17.9

$3.2

$17

Note: Accentures ITO revenues are estimated at 60% of total outsourcing revenues

In 2006, Big Six earneda total of$54.6 billion

from IT outsourcing

deals

And cornered 75% ofthe market


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Global IT outsourcing 2006 vendor shares, Big Six the incumbents

Source: SEC fiscal year 2006 10-K filings

$4.1

$5.4

$7

$17.9

$3.2

$17

Note: Accentures ITO revenues are estimated at 60% of total outsourcing revenues

In 2006, Big Six earneda total of$54.6 billion

from IT outsourcing

deals

And cornered 75% ofthe market


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2006 best managed global IT outsourcing vendors, top 10 which

includes 8 new contenders

Big ITO wins in 2006, highstandards, highest CSS scores

GM awarded more than $700m in ITservices contracts over a 5-year period

Source: sourcingmag.com, 2006


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2006 best managed global IT outsourcing vendors, top 10 which

includes 8 new contenders

Big ITO wins in 2006, highstandards, highest CSS scores

Pioneered offshore developmentcentre model for software delivery

Agile, fast moving, strong trackrecord of delivering business results

Received 2006 ITO ExcellenceAward for work with Vanguard CarRental

Crossing over to $2b in annual revenue

Well-established, structuredmethodologies grew income 38%

Indian pioneer, Fortune Top 10 companiesamong TCS valued customers

Ranked #1 among the world's specialityoffshore infrastructure service providersfor two consecutive years

GM awarded more than $700m in ITservices contracts over a 5-year period

Revenue up 33% with outsourcing

comprising > 38% of total revenue baseSource: sourcingmag.com, 2006


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Industry analysis

Where is offshoring taking place?


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Offshoring locations, top 5 the incumbents

China

Malaysia

India

Brazil

Source: AT Kearney, 2007

Thailand


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Offshoring locations, top 5 plus 9 new contenders

China

Malaysia

India

Brazil

Philippines

Indonesia

Russia

Mexico

Egypt


Poland

South Africa

CzechRepublic

Thailand

Tunisia


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Industry analysis

What do decision makers want to offshore?


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Functions likely to be outsourced over next 12 months

Source: Diamond, 2006

Application Development

Application Maintenance & Support

Help Desk

Database Management

Web Hosting

Server Management

Data Centre Management

Network Management

PC Maintenance & Support

Low HighRelative Focus

Onshore

Offshore

Buyer spending plans


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Industry analysis

And who are the decision makers?


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The corporate officers most likely to drive the IT outsourcing decision

Source: Diamond, 2005 & 2006

IT outsourcing decision makers

Low HighRelative Focus

CIO

VP IT

IT Manager

CFO

VP Ops

COO

CEO

Ops Mgr

VP Sales


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Companies who have offshored

Source: InformationAge 2007; Silicon.com, 2006; InformationWeek, 2006Note: This sample is for illustrative purposes only


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Companies who have offshored, have partnered with

Source: InformationAge 2007; Silicon.com, 2006; InformationWeek, 2006Note: This sample is for illustrative purposes only


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General offshore ITO trends over the coming years

Service providers will continue to standardise,industrialise & leverage pre-configured offerings

-By 2008, 50% of new deals will include IT utilitycomponent with infrastructure generating mostinterest from buyers & investment from providers

- By 2008, more than 70% of new application utilityofferings targeted at business units/ line managers

- Business process utility, a major evolution of BPO

where highly standardised business processes runon a unified one-to-many technology platform

Deal size, structure and complexity

- Offshore pure players invited to bid on deals > $30million; deal sizes getting smaller

- Deals have more complex terms & conditions,penalties & incentives and multi-sourcing strategiesas market matures, deals are being shared

Maturing market leads to convergence/collision

- Players, like telecommunication and financialservices providers, have blurred the distinction

between IT and business services

Emerging outsourcing centres

- Philippines, Mexico, Russia, C Europe, Vietnam &

Malaysia will attract work at the expense of India Remote Infrastructure Management Outsourcing

growth to exceed other infrastructure outsourcingmodels

- Global market valued at $8 billion by 2010

- From 2005, market will grow by CAGR of 61%

Global delivery use of IT labour continuing at arapid pace with vigorous competition

- Global sourcing moving beyond search for cheaplabour to more complex deals

- Pressure to reduce costs and improve profits

-Offshore providers seeking to better serveprospective clients by acquiring front-endcapabilities and consultancies

Nearshoring

- Risk adjusted cost/benefit assessment continues todrive some buyers into the nearshore market

Source: neoIT, 2006; Everest, 2007; Gartner, 2005; Tholons, 2007


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Disclaimer 26 2007 Peter Louis. All Rights Reserved

Disclaimer

The information presented has been prepared usingsources believed by the author to be reliable andaccurate. However, the author makes no warranty orassumes any legal liability or responsibility for theaccuracy or completeness of any informationpresented. Moreover, the author accepts noresponsibility for the decisions made by readers.


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Attachments

Attachments


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Attachments 29 2007 Peter Louis. All Rights Reserved

2006 best managed global IT outsourcing vendors, top 10 includes 8 new

contenders

$6.9b

$86.7b

$757m

$2.9b

$450m

$2.2b

$2b

$886m

$1.1b

$4.4b

Est. 05

Rev

Revenue up 33% with outsourcing comprising > 38% of total revenue baseCapgemini10

GM awarded more than $700m in IT services contracts over a 5-year periodHewlett Packard9

Ranked #1 among the world's specialty offshore infrastructure serviceproviders for two consecutive years

HCL8

Indian pioneer. Fortune Top 10 companies among TCS valued customersTATA Consulting7

Well-established, structured methodologies grew income 38%Patni6

Crossing over to $2b in Annual RevenueInfosys5

Awarded for superior ITO servicesPerot Systems4

Agile, fast moving, strong track record of delivering business resultsCognizant3

Pioneered offshore development centre model for software deliverySatyam2

2006s top ITO contract, high standards, highest CSS scoresACS1

NoteVendorRank

Source: Sourcingmag.com, 2006


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Principal offshoring locations, top 5 the incumbents

BangkokEnglish/Japanese language skills; low-cost, large volumeof highly skilled IT labour, robust high-tech infrastructure;favourable government incentives

Thailand

Kuala Lumpur, Cyberjaya andPutrajaya

English/Chinese language skills, Western businesspractices; low-cost, highly skilled IT labour; robustinfrastructure (e.g., Multimedia Super Corridor);government incentives

Malaysia

Sao Paulo, Rio de Janeiro, BeloHorizonte

Low-cost, large pool of highly skilled IT labour; culturalaffinity with US/West; favourable time-zone for US; near-shore alternative for N. America

Brazil

Shanghai, Dalian, Xian, Shenzhen,Chengdu

High volume of highly skilled IT labour; lack westernlanguage skills; culturally distant from West; deficient IPrights protection; favoured destination for Japanese firms

China

Bangalore, Chennai, Mumbai, Pune,Kolkota, Gurgaon

English language skills & conducive businessenvironment; low-cost, high volume of highly skilled ITlabour; urban infrastructure; attrition to US/Europe

India

LocationsDifferentiation / competitive disadvantageCountry



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Emerging offshoring locations 9 new contenders

TunisLow cost IT labour; French language skills; nearshore

alternative for French-speaking EuropeTunisia

Cape TownVery good English skills; cultural affinity with West;Western business practices; low cost skilled IT labour

South Africa

Cairo, Giza, AlexandriaHigh volume of engineering/IT graduates per year; English

language skills, vicinity to Europe

Egypt

ManilaVery good English language skills, cultural affinity with US;large volume of low cost IT labour

Philippines

Krakow, Wroclaw, WarsawLarge pool of IT labour; low wages encourages migration;European firms preferred nearshore alternative

Poland

Moscow, St PetersburgHuge pool of highly skilled low-cost software engineers;cultural & geographical proximity with West; stronggovernment support; weak business environment

Russia

PragueForeign language skills; IP rights protection; preferrednearshore alternative for W. European firms

Czech Rep

Mexico CityUS policies encourage investment; cultural ties to US;provides low-cost nearshore alternative for US market

Mexico

JakartaLarge volume of low-cost IT labour; English languageskills; low cost; western language skills

Indonesia

LocationsDifferentiation / competitive disadvantageCountry



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Outsourced services

CountriesDescriptionIT function

India, China, Russia,

Thailand, Philippines,Malaysia, Brazil

Includes database software maintenance &

configuration, monitoring & problem resolution andsecurity management for Oracle, UDB, MySQL, SQLServer

Database Management

India, Malaysia, CzechRepublic, Thailand,

Singapore, Brazil, Russia,Poland

Maintenance & hosting of packaged softwareapplications including SAP, PeopleSoft, Oracle and

Siebel

ApplicationMaintenance & Support

India, Malaysia,Philippines

Hosting of client websites & Intranet, site maintenance &support, traffic monitoring

Web Hosting

India, Philippines, CzechRepublic, Egypt

Desktop/client applications such as MS Office, LotusNotes, Internet Explorer, Windows XP, Microsoft Access,PC & network security

Help Desk

India, Russia, Malaysia,Brazil, Czech Republic,Israel, Thailand, Poland

Custom and packaged software applications includingenterprise-wide solutions such as SAP, PeopleSoft,Oracle and Siebel

ApplicationDevelopment



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Outsourced services, cntd

CountriesDescriptionIT function

IndiaVirus removal, software installation, data recovery,hardware replacement, software/hardware upgrades

PC Maintenance &Support

IndiaManagement of core IT operations, hardware (AS/400s,

IBM m/f, UNIX boxes), software (MVS TSO/ISPF, CICS,DB2), and personnel (operators, system analysts)

Data Centre

Management

India, Singapore,Malaysia

Network management of LAN/WAN, network support,7x24x365 network monitoring and notification, trafficanalysis, problem resolution, device management &service

Network Management

India, Malaysia,Singapore

Automated server monitoring & resolution, serverperformance management, server administration; serverbackup & restore management, email administration,enterprise application administration

Server Management



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Companies who have offshored

Accenture

Tata

Xansa

CSC

HCL

MindTree

MindTree

Satyam

Provider

Software development and support

IT helpdesk, IT infrastructure, servers and networks

Applications management, IT operations and hosting for Threshers' SAPfinancials, WebSphere, Business Objects and JDA merchandising applications.

Application support

IT infrastructure support and software development, system development,application delivery, infrastructure support and maintenance

Software development and maintenance (dealer management system)

Software development (Specification Supplier Management System)

Software development (firmware applications that run copiers)

Offshore ITO service lines

Somerfield

Dixons

Burger King

Threshers

Barclays

Whitbread

Volvo

Ricoh

Company

Source: InformationAge 2007; Silicon.com, 2006; InformationWeek, 2006


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Pound equivalents for selected items

43 billion4Global IT Offshoring Market Forecast: 2010 market expenditure

32 billion10Global IT outsourcing 2006 vendor shares, Big Six the incumbents: Earnings

107 billion4Global IT Offshoring Market Forecast: 2010 addressable market size

Pound equivalentSlideItem

Note: 1 = US$1.6682, average exchange rate from 3 Jan 2000 to 18 Apr 2007

Source: Federal Reserve Board


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Pound equivalents for selected items

43 billion4Global IT Offshoring Market Forecast: 2010 market expenditure

32 billion13Global IT outsourcing 2006 vendor shares, Big Six the incumbents: Earnings

107 billion4Global IT Offshoring Market Forecast: 2010 addressable market size

Pound equivalentSlideItem

Note: 1 = US$1.6682, average exchange rate from 3 Jan 2000 to 18 Apr 2007

Source: Federal Reserve Board

it offshoring industry analysis, april 2007

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