key market developments in 2011: market vista briefing

Key Market Developments in 2011: Market Vista Briefing

February 16, 2012

Live Tweeting #MarketVista

Proprietary & Confidential. © 2012, Everest Global, Inc. 2

Introductions

Eric Simonson Managing Partner, Research [email protected]

Katrina Menzigian Vice President, Research [email protected]

H. Karthik Vice President, Research [email protected]

mailto:[email protected]�




Context setting

Sources for today’s webinar

Focus of this webinar Present key global services developments in 2011 and outlook for 2012

Provide perspectives on attractiveness of U.S. Tier-2/3 cities

Market Vista Service Provider

Intelligence

Location Optimization

+ Summary from a

175+ page report Fact-based

research covering global services


Highlights of today’s webinar

Audience poll

Geographic trends Tier-1 and Tier-2 city trends

New location investments are increasingly specialized

Factors influencing U.S. location strategy

City/delivery options

U.S. Tier-2/3 cities can be attractive, but have stark implications on the operating model

Outlook and extent of decline Segment performance

Outsourcing and offshoring activity declined in the second half of 2011


Presentation topics

Special topic: Perspective on U.S. Tier-2/3 cities

Wrap up and Q&A

Key market developments in Q4 2011 and yearly review

Outsourcing transactions Captives Service providers Locations


Poll Question: In comparison to 3 years ago, how mature are your organization's global sourcing efforts?

83%

9%

2%

7%

Somewhat more mature

About the same

We may be slipping...

Mature? We are babes in the woods

Source: Live polling conducted during the “Key Market Developments in 2011: Market Vista Briefing” webinar on February 16, 2012


Outsourcing transactions decreased in H2 2011 while captive activity remained steady

Index of offshore captive health

Number Captive set-ups and expansions Captive divestures

Index of outsourcing transactions

Number

890 840

943 1,036 1,024

905

H1 2009

H2 2009

H1 2010

H2 2010

H1 2011

H2 2011

17

29

35

27

46 43

2 6

3 1 0 1

H1 2009

H2 2009

H1 2010

H2 2010

H1 2011

H2 2011


192 174

48 32 28

23

187 135

35

25

52

58

100

113

156

144

226

201

H1 2011 H2 2011

Decrease in transactions in most sectors, except healthcare

BFSI

Defense

Healthcare

Telecom

MDR

Technology Government

Others1

1,024

Outsourcing transactions by vertical Number of transactions

E&U

1 Includes logistics and wholesale, services, travel and transport, media and entertainment, education, etc. Also, includes any transactions where buyer identity/industry was not disclosed

905

Growth in healthcare driven by changing regulatory environment

Significant decrease in public sector (government and defense) transactions

Financial services largely steady


Market Vista Index service providers

Market Vista Index service providers facing increasing competition but continue to dominate large deals

Distribution of Market Vista Index service providers in transactions Number

1,929 100% =

69% 78%

31% 22%

2010 2011

1,979

Other service providers

Market Vista Index service providers

Share of Market Vista Index service providers decreased in transaction volume but increased in value

Competition from specialist providers


52% 63% 58%

13%

15% 26% 20% 8%

9% 10% 6% 15%

4% 1%

2009 2010 2011

Yearly distribution of acquisitions by acquisition themes 2009-2011; Number of acquisitions

40 73 87

Service portfolio gaps

Industry-specific skills

Geography or client expansion

Industry consolidation Delivery footprint expansion

100% =

Acquisitions leveraged predominantly to build broader service portfolios and industry specific skills


Increasing focus on acquiring next generation capabilities in service provider acquisitions

EXAMPLES

BPO platform

Mobility

Business analytics

Cloud computing

Accenture-CAS AG: CRM and mobility solutions focused on the retail industry

Capgemini-Artesys: Infrastructure services to augment cloud services in Europe

ACS-CredenceHealth: Cloud-based applications for healthcare

IBM-Q1 Labs: Analytics solutions in security/ vulnerability domain

30% of M&A deals in 2011 carried some flavor of next generation services


Europe and Africa gaining share in new set-ups; Tier-2 city set-ups now larger than Tier-1

Offshore location activity across geographies

Number of service delivery centers set up Offshore location activity across Tier-1 and Tier-2 cities1

Number of service delivery centers set up

76

21

8

24

93

32

6

27

84

32

12

22

Asia Europe Africa Latin America

67 60

86

70 72 78

Tier-1 Tier-2

2011 2010 2009


Overall captive activity increased in 2011 with significant growth in engineering services/R&D

1 Indicates announcements related to actual captives set-ups only; captive expansions not included

Distribution of new captive set-ups by functions supported1

Number Primarily engineering services/R&D

Primarily other functions

24 15

27

15 23

50

2 4

5

2009 2010 2011

Majority of the engineering services/R&D captive activity in India, Rest of Asia, and CEE

41 42

82 Multiple functions including Engineering/R&D


What we expect looking forward into 2012

Increased aggressiveness in winning away renewals from incumbents 1-2 landmark captive divestitures – but not a trend Continued widening of gap between Tier 1 and Tier 2/3 service providers, making consolidation by acquisition more attractive Exchange rate concerns outweigh inflation concerns Continued increase in location activity in Central & Eastern Europe

1

2

3

4

5


Presentation topics


Wrap up and Q&A

Key market developments in Q4 2011 and Yearly review

Factors influencing U.S. location strategy

City/delivery options


Poll Question: What best describes your company’s future plan for onshore delivery centers (e.g., in the US) relative to offshore centers?

4%

0%

96%

0%

Grow onshore delivery while decreasing use of offshore delivery

Grow offshore delivery while decreasing use of onshore delivery

Grow both onshore and offshore delivery

Decrease both onshore delivery and offshore delivery

Source: Live polling conducted during the “Key Market Developments in 2011: Market Vista Briefing” webinar on February 16, 2012


Key drivers of interest in U.S. Tier-2/3 cities

Savings relative to U.S. Tier-1 cities

Sensitivity towards offshoring

Government incentives Robust physical infrastructure

Skilled talent pool

Cultural fit, time zone and proximity to client

Increasing interest in

U.S. Tier-2/3 cities


Perspectives on commonly held opinions regarding U.S. Tier-2/3 cities

Opinions regarding U.S. Tier-2/3 cities

Costs are often comparable to offshore locations when considering total cost to manage

Primarily appropriate to deliver contact center and transactional BPO work from these cities

Operating models in Tier-1 cities can be transposed onto Tier-2/3 cities

Some Tier-2/3 cities offer a quality pool of technical talent for IT, although specific business domain knowledge may not exist

Our perspective

Scale and associated operating complexities quickly constrain the potential roles for these cities

Although U.S. Tier-2/3 cities offer savings relative to Tier-1 cities, operating costs significantly higher than offshore locations


Talent-cost profile for IT skills

Wide diversity of options Experienced IT pool

20-80% of Tier-1 Niche options, non-

traditional business center Experienced IT pool

5-20% of Tier-1

Ope

ratin

g co

st p

er F

TE

Often single company towns Costs can be similar to Tier-2

due to small labor market (1-10% of Tier-1)

Accessible annual graduate pool for IT (As a percentage of pool in Tier I cities)

Tier-1

Upper Tier-2

Lower Tier-2

Tier-3

5-8%

10-15%

15-20%

Savings range

80% 40% 20% 100% 60%


Models for small scale centers (50-250 FTEs) in Tier-3 cities

Each requires a specific talent and operating model

Isolated and/or specialized center

Support unique needs (regulatory, economic development, industry skills)

Commitment to developing distinctive talent position

1

Complementary capacity

Extra capacity to balance across centers Well-defined delivery platform to create delivery

efficiency and predictability

2

Support a large center by providing targeted skills Requires clear operating and project management

model

Satellite staff augmentation center

3


Presentation topics


Wrap up and Q&A

Key market developments in Q4 2011 and Yearly review

Submit any remaining questions!


Key messages in today’s webinar

Decrease across most verticals, except healthcare

Captive set-ups increased, divestitures remain low

Outsourcing and offshoring activity declined in the second half of 2011

Growth in CEE and Africa Tier-2 city growth

New location investments are increasingly specialized

Savings versus challenges in scalability and breadth of skills

U.S. Tier-2/3 cities can be attractive, but have stark implications on the operating model


To ask a question during the Q&A session Click the question mark (Q&A) button located on right side of your screen. This opens Q&A

Be sure to keep the default set to “send to All Panelists”

Type your question in the box at the bottom of the Q&A box and click the send button

Attendees will receive an email with instructions for downloading today’s presentation

For advice or research on Market Vista, please contact: – Eric Simonson, [email protected] – Katrina Menzigian, [email protected] – H. Karthik, [email protected]

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