luxoft mexico for offsite v2
TRANSCRIPT
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DEDICATED DELIVERY CENTER IN MEXICO
October 2014
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Latin America ITO destinations
Country PopulationGDP PPP
(USD)
Consumer Price Inflation Index
(CPI)*%
IT Graduates ITO Labor Pool
Brazil 201,009,622 14,555 6,25%
Mexico 120,286,655 16,110 3,75%
Argentina 42,610,981 17,554 18,2%
Peru30,475,144 11,400 2,57%
Chile 17,216,945 21,714 4,03%
Costa Rica 4,825,144 13,431 5,14%
Panama3,689,293 18,793 2,1%
Uruguay 3,404,189 18,966 7,28%
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MEXICO OVERVIEW
Population123 mln, 11th in the world, growing ~3% annually
Capital cityMexico City, population 9 mln (Metro Area – 22 mln)
States 31 states
Economy
$1,261 bln in 201311th GDP in the world2,7% growth forecast for 2014$16,110 GDP PPP
Country Avg Salary $1,000 per month
CPI 4%
Unemployment rate 5%
OtherSecond largest electronics industry in the world
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MARKET SIZE AND DYNAMICS
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MEXICO: OUTSOURCING DESTINATION
Labor market
Total 600 000 employees working in ICT sector
160 000 employees in software development
29 000 Java specialists (LinkedIn)
Attrition rate ~ 10%
Notice period: 2 weeks
Education
121 universities with IT
~65 000 IT graduates
English proficiency is good
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GUADALAJARA – LUXOFT NEW LOCATION IN MEXICO
Emerging location with good quality of life, stable climate, good university ecosystem
Lower cost vs Mexico City, strong government support for IT industry
Most secure state in Mexico
International airport with convenient connections to US (Dallas, Houston, San Francisco, Atlanta, LA, Phoenix, etc)
Big number of good quality hotels (4,5 stars)
Location
Guadalajara
(Jalisco State)
Maturity Tier 1
City Population 1,49 m (7,8M in state)
ITO Labor Pool 15,000 (46,500 in state)
Java Identified 3,000 (9,300 in state)
IT Graduates per year 2,000 in City (18,000 in state)
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GUADALAJARA – KEY PLAYERS, GOVERNMENT SUPPORTKey players on IT market with number of employees
Tax credit, corporate tax reduction and no VAT for exported services
Companies wishing to establish innovative IT service operations in Mexico are eligible for incentives that may minimize their initial investment, thus reducing the TCO for operations in Mexico. Those who invest in Mexico’s technology industry get tax credits for R&D, a reduction of corporate taxes and no value-added tax for exported services.
IT firms established in Mexico can receive cash grants of up to 50% of the total cost of their project and tax credit of up to 30% of the total R&D expense.
Government Incentives
HP5000
TSC 2000
IBM 2000
Intel 800
Oracle 800
DELL 600
HCL 500
iTexaco 100
iGate 80
Wipro 80
Others3040
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SWOT ANALYSIS: GUADALAJARA
2,000 in IT engineering graduates per year
Number of IT & Electronics companies increased from 60 in 2014 to 650 in 2014 (Cisco, IBM, Oracle, TCS, Infosys, Wipro, etc)
150+ companies in Software & Service (up to 15,000 employees);
40+ High Tech Design Centers (Intel, Freescale, etc)
70% of Embedded Software Development in Mexico (Electronics, Automotive, Aerospace)
World class Infrastructure / Industrial Parks
Country reputation due to issues with security. Guadalajara is one of the safest cities in Mexico with crime rates compared to US cities
Total cost is perceived to be higher than in Eastern Europe
Workers can be legally fired only for certain reasons with 30days notice
Laid off workers are typically compensated with three months of severance pay in addition to 12 days salary for each year worked
Seniority level is supposed to be lower than in Russia/Ukraine
Strong government support for IT industry (incentives, IT business incubators, etc)
Developed IT education, established cooperation between universities and companies
Biggest in Mexico center for Masters and Postgraduate studies in electronics, computer sciences
Strong candidates for MD, Delivery Manager roles from other IT companies.
IT salary inflation – up to 7%
Mexico graduates 65,000 students annually in technical and engineering fields
High Competition market
Emigration to US
LOWLIGHTS
HIGHLIGHTS OPPORTUNITIES
THREATS
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Location assessment for IT services in Latin AmericaDraft report
18 September 2014
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Proposed locations for assessment
Country City Rationale for inclusion
Argentina Buenos Aires Large talent pool and sufficiently mature market for IT skills; could be important while considering domestic demand
Brazil Sao PauloLarge talent pool and availability of niche IT skills; most prominent business center in Brazil – offers access to domain skills; Could be important if demand from the Brazil market is attractive
Chile Santiago Sufficient market maturity and attractive depth of talent in niche skills; financial center of Chile offers domain skills
Mexico
MonterreyHigh maturity for offshore IT support, especially for BFSI industry; good availability of English language skills
GuadalajaraSufficient maturity of offshore IT services market; offers cost savings over Mexico City and Monterrey
Uruguay Montevideo Emerging location for offshore support to North America; availability of multiple European languages
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Entry-level talent availability | Annual employable pool for IT-ADM delivery
Santiago
SaoPaulo
BuenosAires
Guadalajara
Monterrey
Montevideo
10-12
9-11
7-8
5-6
3-5
1-3
Total annual relevant talent pool1
2014; Number in '000sNet employability2
2014; PercentageAnnual employable pool2014; Number in '000s
0.9-1.1
0.6-0.8
0.7-0.9
0.5-0.7
0.4-0.6
0.1-0.3
8-9%
7-8%
11-12%
12-13%
8-9%
11-12%
Santiago and Sao Paulo offer the largest relevant pools for IT-ADM services
Employability of IT graduates for English-language IT-ADM services delivery in Sao Paulo and Santiago is significantly lower than other locations owing primarily to much lower English language proficiency compared to the other cities. This is accentuated in Sao Paulo by the preference of talent to work in the domestic IT industry
Monterrey presents the highest net employability ratio owing to its maturity as a nearshore, English-language IT service delivery location
Market activity | Size of experienced pool and leading playersPool employed in offshore IT-ADM services delivery2014; 000’s
Key players (both service providers and GICs)
Pool employed in domestic IT-ADM services delivery2014; 000’s
Monterrey
BuenosAires
Santiago
Guadalajara
Montevideo
SaoPaulo
7-8
6-7
4-5
4-5
4-5
2-3
10-12
18-20
13-15
7-9
7-9
25-27
Accenture, CSC, Dell, Epicor Software, Hexaware, Infosys, Neoris, Softtek, TCS, Wipro, Xerox
Accenture, CSC, Dell, Epicor Software, Hexaware, Infosys, Neoris, Softtek, TCS, Wipro, Xerox
Bluesoft, Capgemini, Citigroup, CSC, Experian, Grupo Assa, HCL, HP, IBM, Oracle Corporation, Santander Bank. Softtek, Stefanini, TCS, Unisys, Wipro
Bluesoft, Capgemini, Citigroup, CSC, Experian, Grupo Assa, HCL, HP, IBM, Oracle Corporation, Santander Bank. Softtek, Stefanini, TCS, Unisys, Wipro
Belatrix, Capgemini, Chevron, Global Logic, Globant, Google, Grupo Assa, HP, IBM, Kimberly-Clark, Oracle, TCS, Three Pillar Global
Belatrix, Capgemini, Chevron, Global Logic, Globant, Google, Grupo Assa, HP, IBM, Kimberly-Clark, Oracle, TCS, Three Pillar Global
Arnaldo C. Castro, Artech, Globant, IBM, Indra, Infocorp, Netsuite, Sabre Holdings, Softtek, Sonda, TCS, Verifone
Arnaldo C. Castro, Artech, Globant, IBM, Indra, Infocorp, Netsuite, Sabre Holdings, Softtek, Sonda, TCS, Verifone
Bosch, Continental, Dell, HCL, HP, IBM, iGate, Intel, Stefanini, TCS, Xerox
Bosch, Continental, Dell, HCL, HP, IBM, iGate, Intel, Stefanini, TCS, Xerox
Alactel-Lucent, Atos Origin, BP, Capgemini, Citigroup, CSC, HCL, HP, Infosys, SAP, Softtek, TCS, Tech Mahindra, Wipro
Alactel-Lucent, Atos Origin, BP, Capgemini, Citigroup, CSC, HCL, HP, Infosys, SAP, Softtek, TCS, Tech Mahindra, Wipro
Monterrey has the largest experienced pool for offshore IT services delivery
Buenos Aires has a sizeable number of players that support the North American region. It also has the second largest domestic IT-ADM pool
Although Santiago houses more global players as compared to other locations, typical scale of operations is lower. Additionally, a significant share of the industry is focused on domestic demand
Although Sao Paulo is a mature location, most of the industry is focused on domestic (Brazilian) clients. It is not leveraged for medium/large-scale support to offshore markets
1 Includes tertiary graduate pool2 Includes net drop-off due to lack of propensity for the function and lack of employability for IT-ADMSource: Inputs from market players, recruitment firms, investment agencies; Everest Group analysis (2014)
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Market activity | Potential to achieve scale and growth objectives (1,000-1,500 FTEs in 3-5 years)
Source: Leading recruitment agencies, leading players from respective locations, Everest Group analysis (2014)
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Wage inflation and attrition ratesWage inflation2014;Percentagep.a.
CommentsAttrition2014;Percentagep.a.
Buenos Aires
Sao Paulo
Montevideo
Guadalajara
Santiago
Monterrey
24-26
12-14
8-10
7-9
9-11
8-10
22-24
14-16
10-12
8-10
11-13
7-9
Operating cost per FTE for IT-ADM services1 2014; US$ ‘000s per annum per FTE
Salaries and benefits Facilities Technology & other operating expenses
Sao Paulo Santiago Monterrey Guadalajara Buenos Aires Montevideo
59-61
44-46 42-44 40-42
27-29 27-29
11-13
6-84-6 4-6
4-6 2-4
7-9
5-75-7 4-6
4-63-5
35-41
77-83
32-38
48-5451-57
55-61
• Sao Paulo has the highest cost of operations for IT services, followed by Santiago and Monterrey
• Salaries and benefits account for almost 80% of the operating cost and are the main drivers for the differences in operating cost between locations
• Facilities cost is substantially higher in Sao Paulo compared with other locations due to high rental costs
• Technology and other operating expenses are dependent on telecom and bandwidth, attrition, training, and other miscellaneous costs. They are the highest for Sao Paulo
Operating cost for English IT-ADM services delivery
1 Reflects steady-state, market-average, annual operating costs. Includes salaries, benefits, technology, and other operating costs. Excludes SG&A and corporate overheads2 Assessment assumes average exchange rate from February 15, 2014 to August 15, 2014Source: Everest Group analysis (2014)
• Buenos Aires has the highest level of wage inflation. This is mainly due to high consumer price inflation (CPI)
• Guadalajara has seen an influx of IT vendors in the recent past which is resulting in expectations of faster wage appreciation
• Buenos Aires has the highest rate of attrition due to rapid wage inflation; professionals change jobs to ensure wage growth faster than consumer price inflation
• Montevideo has the lowest level of attrition owing to significantly lower competitive intensity; players have established small-scale operations for IT-ADM services
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Environment risksSummary of assessment
Source: Everest Group analysis (2014)
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City
Salary and benefits (in US$ per FTE per annum)1
Developer Senior Developer
Buenos Aires 14,026 24,545
Sao Paulo 29,927 47,099
Santiago 16,295 40,889
Guadalajara 19,759 33,986
Monterrey 20,747 35,685
Montevideo 14,408 26,404
1 The salary figures have been converted into US$ using the exchange rates defined on page 23 Source: Everest Group analysis (2014)
Salary and benefits across locations
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Summary of assessmentAssessment to determine the best-fit locations
1 Includes salaries, benefits, technology, and other operating costs. Excludes SG&A and corporate overheads2 Includes tertiary graduate pool for IT services (excludes candidate drop offs due to relevance, propensity, and employability)Source: Everest Group (2014)
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Summary of assessmentGuadalajara and Monterrey emerge as relatively more attractive locations; Buenos Aires presents significant environment risks
Note: Details of talent availability, market activity, operating cost and environment risks are in the following sectionsSource: Everest Group analysis (2014)
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IncentivesPage 1 of 2
1 Represents stated incentives on meeting certain minimum criteria. Negotiated incentives could vary on a case-to-case basis2 Other tax includes VAT, Service Tax, Sales Tax3 Includes city administration taxes, urban property taxes, and taxes on utilities such as electricity, gas, water, and telecommunicationSource: City Chamber of Commerce/ Economic Development Councils; Investment promotion agencies; Everest Group analysis (2014)
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IncentivesPage 2 of 2
1 Represents stated incentives on meeting certain minimum criteria. Negotiated incentives could vary on a case-to-case basis2 Other tax includes VAT, Service Tax, Sales Tax3 Includes city administration taxes, urban property taxes, and taxes on utilities such as electricity, gas, water, and telecommunicationSource: City Chamber of Commerce/ Economic Development Councils; Investment promotion agencies; Everest Group analysis (2014)
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THANK YOU
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In TotalMandatory
by LawAdditional
days per 1st year of service 10 6 4
days per 2nd year of service 13 8 5
days per 3rd year of service 16 10 6
days per 4th year of service 19 12 7
days per 5th year of service Up to 20 14 6
25% 25% -
30 15 15
+ - +
What do we offer to employees in Mexico:
Vaca- tions,
All vacation premium, % above regular salaryChristmas bonus, # of daily salariesLife & Medical Insurance
Benefits:
Gross salary expectations in Mexico:
$2 793
$4 572
$4 415
$3 933
$4 096
$3 281
$3 445
$1 041
$1 703
$1 645
$1 465
$1 526
$1 222
$1 283
$3 834
$6 275
$6 060
$5 398
$5 622
$4 504
$4 729
Regular Java
Snr Java
Snr .NET
Snr C++
Snr Analyst
Snr QA
Snr Web Designer
Me
xico
Gross Salary (exp) Payroll taxes (37,25% max)
Senior Java total costs (monthly):
Mexico Kiev SPB Krakow Bucharest Sofia
Rent 10 sq m $200 $193 $202 $182 $203 $169
Med Insurance $0 $36 $126 $78 $19 $13
Payroll taxes $1 703 $212 $545 $696 $799 $303
Gross Salary $4 572 $3 582 $3 894 $3 394 $3 511 $3 458
62%74% 67% 70%
61%
100%
100%161% 119% 108% 113% 98%
Regular Java total costs (monthly):
Mexico Kiev SPB Krakow Bucharest Sofia
Rent 10 sq m $200 $193 $202 $182 $203 $169
Med Insurance $0 $36 $100 $78 $19 $13
Payroll taxes $1 041 $169 $360 $564 $554 $303
Gross Salary $2 793 $2 719 $2 572 $2 750 $2 436 $2 560
77% 80%89%
80% 75%
100%
98%103%104% 115%100%129%
BENEFITS, GROSS SALARY AND TOTAL COST OVERVIEW
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CURRENT STATUS – FIRST DELIVERY CENTER SETUP IN PROGRESS
Team Selected, Infrastructure up
and running
Mission critical team for first client
from US is selected and relocated
from Ukraine to Guadalajara
Local admin team is hired:
Managing Director, Recruitment
Manager, IT Manager, Office
Manager
Office and IT infrastructure is
operational starting September 1
Opened delivery vacancies
(developers, QAs)
First Stage Duration: 6
months
Estimated as sufficient time to
hire, kick-off, and train local
team members using internal
capabilities
Relocated engineers’ stay may
be extender if needed
Processes and governance
model
Tailored governance model
and key processes (risk
management, delivery
management and people
management) established in
Kiev delivery center to be
transferred to Guadalajara to
sustain same high level of
service
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FIRST DELIVERY CENTER SETUP EXECUTION TIMELINE
Pilot Project Execution Timeline
JULY
Team for relocation selected
Legal entity opening
Office selection start
Legal entity ready
Office selected
Recruitment for 3 local positions started
Travel arrangements for relocated done
Set up laptops for engineers for relocation to start work immediately after relocation
Relocation of 4 engineers
Production tasks execution
Some of new engineers hired
Internal knowledge transfer
Production tasks execution
Team of 7 complete, all new engineers hired
Internal knowledge transfer
Production tasks execution
Marketing campaign launch to attract best talent for possible team extension if needed
Internal knowledge transfer
Production tasks execution
Internal knowledge transfer accomplished
Production tasks execution
Production tasks execution
Pilot project results evaluation
AUG SEPT OCT NOV DEC JAN FEB
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THANK YOU
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APPENDIX
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Salaries cost structure for Gross Salary ~ $3000
$3 000
$2 459
$2 256
$2 104
$2 299
$2 504
$186
$258
$611
$683
$1 118
$303
$541
$744
$896
$701
$496
$3 186
$3 258
$3 611
$3 683
$4 118
$3 303
Ukraine(СПД)
UK
Poland
Romania
Mexico
Bulgaria
Net Salary Employee's Taxes Employer's Taxes Total costEffective rates for employee's taxes (Employee's taxes/Gross salary, %)
0%
10%
20%
30%
10
00
12
50
15
00
17
50
20
00
22
50
25
00
27
50
30
00
32
50
35
00
37
50
40
00
42
50
45
00
47
50
50
00
52
50
55
00
57
50
60
00
62
50
65
00
67
50
70
00
Ukraine… UK Poland… Romania Mexico Bulgaria
For employee:- ISR (income tax) - progressive scale from 1,92% up to 35% for 2014 tax year.- IMSS (combined social tax) - 2,8% rate is used.For employer:- IMSS (combined social tax) - 28,25% rate is used.- INFONAVIT (housing fund) - 5%- Local Payroll Tax (Guadalajara) - 2%- SAR (pension fund) - 2%
* Ukraine: "Private entrepreneur" rates used** Poland: Intellectual Property Share Rights of 60% and Monthly Medical Care included
Highlights on Mexican salary & payroll taxes:
Effective rates for employer's taxes (Employer's taxes/Gross salary, %)
0%
10%
20%
30%
40%
10
00
12
50
15
00
17
50
20
00
22
50
25
00
27
50
30
00
32
50
35
00
37
50
40
00
42
50
45
00
47
50
50
00
52
50
55
00
57
50
60
00
62
50
65
00
67
50
70
00
Ukraine… UK Poland… Romania Mexico Bulgaria
SALARY AND PAYROLL TAXES OVERVIEW