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Offshore IT and India
François Hucher – CGEYIDATE – Nov 19th, 2003
© 2003 Cap Gemini Ernst & Young - All right reservedFH – IDATE Nov 19th, 2003
India is a large, fast-growing market for providing IT services.
More than 350.000 people currently working in IT services & outsourcing in India, expected to pass:
– 1 million before 2008– 3 millions in 2015
IT Services exports from India (USD billion):
– 4 in 1999,
– 10 in 2002,– 18 in 2005– grown by over 36% on average
“India dominates, and will continue to dominate, the offshore market, with approximately 80 percent percent of total revenue.”
- Gartner, December 2000
© 2003 Cap Gemini Ernst & Young - All right reservedFH – IDATE Nov 19th, 2003
India leads the off-shore market with a 80% market share
India exports already 4% of NA and 2% of WE IT markets
Region Total Market India's Exports Market ShareNorth America 171 7 4%Western Europe 110 2 2%Japan 35 0 1%Asia Pacific 16 1 4%Rest of the World 18 1 3%
349 10 3%
IT Services - Apr’ 02 to Mar ’03 (Figures in USD Billions)
© 2003 Cap Gemini Ernst & Young - All right reservedFH – IDATE Nov 19th, 2003
Most top companies outsource their software requirements to India…
General Motors
General Electric
United Airlines
Sears
Wal-Mart
AT&T
Marks & Spencers
Coca Cola
Pepsi
Boeing
CitiGroup
American Express
Walt Disney
Visteon
More than 300 of the Fortune 1000 companies outsource their software requirements to India…
Daimler Chrysler
Ericsson
Philips
Oracle
SAP
Integrators...
© 2003 Cap Gemini Ernst & Young - All right reservedFH – IDATE Nov 19th, 2003
Rightshore – Offshore IT services from India
IndustryPenetration of
Offshore Services (%)
High-Tech Manufacturing 21,1Communications 9,1Financial Services 7,6Services 6,0Transportation 4,8Healthcare 4,0Other Manufacturing 3,9Utilities 3,7Retail 2,2Wholesale 1,1Total 5,0
IndustryPenetration of
Offshore Services (%)
High-Tech Manufacturing 21,1Communications 9,1Financial Services 7,6Services 6,0Transportation 4,8Healthcare 4,0Other Manufacturing 3,9Utilities 3,7Retail 2,2Wholesale 1,1Total 5,0
Penetration of Offshore IT Services (Current Usage or Planned Usage) by Industry
Source: Gartner Dataquest (August 2002)
Low
HighLow High
CostMexique ?
Ireland ? Israël ?
?Singapour
?Hongrie
Inde ??Malaisie
Philippines ?
Chine ?Russie ?
Quality
• Mexico
• Ireland • Israel
• Singapore
• Hungary
• India• Malaysia
• Philippines
• China • Russia
(Source: McKinsey Quarterly, 2001)
“60% of Fortune 500 companies already work
with Indian offshore companies”
Source: Gartner Dataquest (February 2003)
“60% of Fortune 500 companies already work
with Indian offshore companies”
Source: Gartner Dataquest (February 2003)
Region Total Market India's Exports Market ShareNorth America 171,1 6,69 3,91%Western Europe 109,6 2,10 1,92%
Region Total Market India's Exports Market ShareNorth America 171,1 6,69 3,91%Western Europe 109,6 2,10 1,92%
IT Services - Apr’ 02 to Mar ’03
(Figures in USD Billions)
“40% of the annual growth in the offshore market will
come from Western Europe by 2004”
“40% of the annual growth in the offshore market will
come from Western Europe by 2004”
Growth in Indian IT Services Exports(Figures in USD Billions)
1.762.60
3.96
6.227.65
9.88
0.00
2.00
4.00
6.00
8.00
10.00
12.00
1997 1998 1999 2000 2001 2002
2006+36%CGAR
“By the end of 2004, 10% of IT resources from US IT vendors and services providers will be
provided offshore”
“By the end of 2004, 10% of IT resources from US IT vendors and services providers will be
provided offshore”
TS Packages6%
TS AD&I57%
OS AM36%
OS IM1%
Offshore IT Services
By Discipline
© 2003 Cap Gemini Ernst & Young - All right reservedFH – IDATE Nov 19th, 2003
Several factors strengthen the business case for remote services in India... Factor cost differential – Wage costs about 20% of US levels; real
estate costs about 25% of US levels
Time zone advantage – The nearly 12-hour time zone difference between US and India enables ‘follow the sun’ 24x7 coverage
Robust telecom infrastructure – India’s telecom infrastructure today is world-class and cost-competitive, with various long-distance connectivity options, high-bandwidth local loop networks and high-speed Internet access
Government incentives – The government of India is keenly promoting offshore services, by setting up technology parks and other infrastructure, speeding up investment approvals and providing attractive tax incentives
© 2003 Cap Gemini Ernst & Young - All right reservedFH – IDATE Nov 19th, 2003
…Including the size and quality of its resource pool
• Second largest pool of English-speaking professionals in the world
• Currently has 400,000 IT professionals
• Large base of graduates (16 million) and post-graduates (5 million)
• Generates 80,000 engineers each year
1707
238
110
1498
158
103
0 500 1000 1500 2000
US
India
France
CMM qualifications 2001/2002
+20% (58 level 5/6)
+50% (74 level 5/6)
© 2003 Cap Gemini Ernst & Young - All right reservedFH – IDATE Nov 19th, 2003
Nordic55
CE58
BE45
UK105
US100
France49
SE40
India23
We have to disconnect the place where we sell from the place where we deliver
Average COR per region in 2001
North America COR = base 100
© 2003 Cap Gemini Ernst & Young - All right reservedFH – IDATE Nov 19th, 2003
0
5000
10000
15000
20000
25000
IT companies Positions Pure India PlayersPeople
Multinational PlayersPeople
0
1000
2000
3000
4000
5000
6000
7000
India Other
© 2003 Cap Gemini Ernst & Young - All right reservedFH – IDATE Nov 19th, 2003
CGEY in India
Current Status Dec’ 03 Dec’ 04TS 650 700 1 500OS 350 500 1 500Total 1 000 1 200 3 000
Staff-strengthDiscipline
RegionDec’ 03
Dec’ 04
Sales
Force
North America 650 1500 10
Outsourcing Europe 300 1000
UK 150 500 2
France 100 300 2
Netherlands 50 200 1
N Europe & Asia Pacific 200 400
UK 150 200 1
Netherlands 50 100 1
AP 100 1
Central & Southern Europe 50 100 1
France
Central Europe
Italy
Iberia
Total 1 200 3 000 20
TS Packages
39%
TS AD&I27%
OS AM31%
OS IM3%
• Our Global Delivery Model, Rightshore• Our Global Network of Industrialized Centres: ASEs,
ADCs, AMSCs, IMSCs, BPOs• Our Methodology:
• End-to-End CMM Value Delivery• Single set of integrated methods, tools and standards
used across FO/BO• Remote Development with Local Execution• Local Intimate Business Know-how• From Initial Creation to Long Term Evolution• Win Centers
VISTEONVERIZONJP MORGANDELMASTOTAL
© 2003 Cap Gemini Ernst & Young - All right reservedFH – IDATE Nov 19th, 2003
Offshore AM Delivery Model
User Community
Front OfficeCGE&Y / Customer
Back OfficeCGE&Y AMSC INDIA
1s
t lev
el H
elp
D
es
k
2nd and 3rd Level Support
Front Office
Functional
Responsibilities
Back Office
Functional
Responsibilities
Common tool-sets and Process - DELIVERTM
Knowledge Base
Service Management
Quality Management
Technical Infrastructure
External Agencies
Of course, the split of responsibilities
between front and back offices may
change!
© 2003 Cap Gemini Ernst & Young - All right reservedFH – IDATE Nov 19th, 2003
1
Client’s Business Users*
Client’s HelpdeskCGE&Y Front
OfficeBack Office Mumbai
Support Team
Client’s Systems
Onsite Offshore
2 3
4
Client Front Office Back Office
Log ticket
Ticket assigned to CGE&Y
Ticket assigned to Back office
Access Client’s Applications for Problem
Resolution
Periodic face to face meetingsCGE&Y Service Delivery Manager monitoring
AM operations
*Even though the client’s business users are shown along with the client and the help desk, it must be noted that these users may be located anywhere in the
world
Establish 2-way communication with user and work
collaboratively till the ticket is closed
Manage Contingencies
Sample Workflow
3
Manage Contingencies
© 2003 Cap Gemini Ernst & Young - All right reservedFH – IDATE Nov 19th, 2003
CGE&Y Competitor Profile
CGE&Y faces competition from both local and MNC companies The top 5 local competitors include:
Tata Consultancy Services Wipro Infosys Satyam Patni Computer Systems
The MNC’s currently in the market include: Accenture IBM/PwC EDS/A.T. Kerney
In this section we will try to profile some of the above companies…
© 2003 Cap Gemini Ernst & Young - All right reservedFH – IDATE Nov 19th, 2003
TATA CONSULTANCY SERVICES (TCS)Key Highlights:
Projects for over 1000 clients in more than 55 countries
More than 100,000 person years of experience in
diverse business domains and technology areas
Major projects won:
United Utilities Water; UK 30 million Pounds
GE $120 million – largest deal in Indian IT
services history
Growth Strategy:
Price aggression
Increase in Onsite work
Geographical diversification by setting up global
development centers in Hungary, Australia, Uruguay,
Japan, Mexico, USA, UK and China
Strengths and Weaknesses:
Strengths: Giant size – over 21000 employees
Ability to cut prices and play on volumes
Weaknesses:
Dearth of value added offerings
Up to 70% of revenues come from on-site work in the US – too much reliance on one market
Expansion / Acquisition Strategy::
Takeover of CMC a local player has enhanced local presence especially in the Government sector
Company IPO expected to come through shortly – this will increase the resources available with the company for further investment / acquisitions
© 2003 Cap Gemini Ernst & Young - All right reservedFH – IDATE Nov 19th, 2003
INFOSYS TECHNOLOGIESKey Highlights:
Company’s brand name is major plus in both domestic and international market diverse business domains and technology areas
Over 10,000 IT practitioners and domain consultants and presence in 14 countries worldwide
Ranked as No. 1 among Indian IT organizations
Infosys claims 293 clients with 85% repeat business
Finacle, BankAway and PayAway – the banking products of the company, now contribute to 4% of the company’s Turnover
Growth Strategy:
Price aggression
Focus on offshore delivery model and BPO services to international clients
Partnership with leading local companies of the targeted country
Strengths and Weaknesses:
Strengths: Ability to predict and react quickly to market trends
Ability to cut prices and play on volumes
Known for reliability and fair business practice
Weaknesses: Low focus on R&D and high-end high value added
work
Too skewed in favour of the US market
Expansion / Acquisition Strategy::
Banking, FSI & Retail verticals will have more focus as per future strategy
Building up presence in Europe and Latin America
Plans to move up the value chain by building its Management Consulting practice
© 2003 Cap Gemini Ernst & Young - All right reservedFH – IDATE Nov 19th, 2003
WIPRO TECHNOLOGIESKey Highlights:
Ranked 7th among the software services companies in the world by Businessweek (2002)
30 offices worldwide, 13,000 IT practitioners and domain consultants
World's first PCMM, CMMi and CMM level 5 company
More than 300 customers across USA, Europe and Japan (50 of these are Fortune 500 companies)
Perceived as a ‘trustworthy’ and ‘fair business practices’ company
Growth Strategy:
Price aggression
Increase in Onsite work
Provide end-to-end IT solution including network, hardware/Software and SI services
Partnership with leading local companies of the targeted country for market entry.
Strengths and Weaknesses:
Strengths: Ability to predict and react quickly to market trends
Ability to cut prices and play on volumes
Availability of 13000 skilled IT resources skilled in international projects
Weaknesses: Constant Organizational Restructuring can hamper
quick decision making
APAC business has not grown as fast as it should have
Expansion / Acquisition Strategy::
Banking, FSI & Retail verticals will have more focus as per future strategy
Entered in Call Center Business through acquisition of Spectramind Ltd. - this is now one of the major thrust area
© 2003 Cap Gemini Ernst & Young - All right reservedFH – IDATE Nov 19th, 2003
Investments in the Indian IT SectorAccording to a Mckinsey Survey 80 percent of the top 40 global IT services firms have a presence in India …
Accenture: Has announced plans to invest close to $180m over the next four years towards providing Business
Process Outsourcing (BPO) service Plans to hire another 1,500 employees to make its Indian technology centre a strategic hub, and double
its Indian software and back-office staff to 2,500 within two years
EDS: Has announced plans to move about 700 jobs to India. EDS said it will spend $12 million on a new
customer call center in Mumbai, India, next year, resulting in a phased transfer of 700 jobs to that region.
IBM / IBM Global Services:
IBM Global has over 3000 professionals across 6 development centers in the country. It is aiming at adding 7000 professionals over the next 3 years
IBM Global Services in Bangalore has bagged a mammoth outsourcing project from AT&T. The work, pertaining to application development, enhancement and maintenance, has been contracted for a 10-year period. IBM will increase its workforce dedicated to this project by 250 people by the end of next year. Eventually, there could be around 5,000 people working on this project.
Deloitte Consulting Has now a 450-people centre in India, providing BPO and SAP Support services
© 2003 Cap Gemini Ernst & Young - All right reservedFH – IDATE Nov 19th, 2003
Investments in the Indian IT Sector..(contd.) Computer Science Corporation:
Is setting up two development centers in Noida and Hyderabad with manpower strengths ranging from 300-400 personnel. The company will be creating solutions for segments such as insurance, financial services, ERP, CRM, e-commerce, and databases.
CSC is also planning to acquire a company in the Southern region, to expand its operations in that market.
Cognizant: The company added more than 900 professionals to its existing staff in 2001-02. It had
plans to cross the 5000 mark by end 2002.
GE: Has announced that its fresh round of investments in the Indian market are likely to be
directed towards the InfoTech sector. Software exports from India are expected to rise to $3 billion by 2004 with software outsourcing expected to account for a third of the export targets
GE has 11,000 employees in 3 centres in India – this is to be expanded to 27,000 employees in 9 centres
In addition to the above a few others such as Perot Systems, Deloitte & Touche and Groupe Bull are either sub-contracting work to Indian companies or have formed joint ventures with local players. Valtech is subcontracting to Hexaware, Deloitte & Touche has a joint venture with Mastek, and Perot with HCL.
© 2003 Cap Gemini Ernst & Young - All right reservedFH – IDATE Nov 19th, 2003
Consequences Off shore production and maintenance for software creates a real risk of loss of skills and jobs for the most advanced countries :
whereas for manufacturing it’s generally admitted that it takes 10 years for a sub-contractor to gain full knowledge and to be able to design by himself, in the software industry, this times is probably reduced by a factor 3, because there is almost no boarder between the design and the production itself. Subcontracting the production then means exporting the know how.
IT Indian companies are now strong global players
Large (US) integrators will take advantage of the off shore IT production
Need for Europe to organize near shore in Eastern Europe