A Global Sourcing Primer for EDAs & Government...

1 © 2013 Ahilia, Inc. All Rights Reserved www.ahilia.com © 2013 Ahilia, Inc. All Rights Reserved www.ahilia.com

A Global Sourcing Primer for EDAs & Government Agencies

September 10, 2013

2 © 2013 Ahilia, Inc. All Rights Reserved www.ahilia.com

Why Should You Care?

IT Services BPO Services

– 50-100 FTE Rural Areas

– 100-200 FTE Tier 2 Cities

– Masters Education

– Undergraduate Degrees

– Technical Trade

– 100-200 FTE Rural Areas

– 200-500 FTE Tier 2 Cities

– Undergraduate Degrees

– High School Diploma

Good Job Creation


Outsourcing Industry 101

What is Domestic Sourcing? Why Now?

Site Selection

Key Takeaways for EDAs

Agenda


Outsourcing Definitions

• Global Sourcing – used to refer to trend of sending services overseas regardless of location offshore or nearshore (currently preferred term over offshoring)

• Offshoring – When a US firm outsources services to locations such as India, China, Malaysia or Russia

• Nearshoring – When a firm outsources services to a country near home such as Canada or Mexico

• Domestic Sourcing - Outsourcing services to a domestic or global provider where the work is taking place in the United States


Information Technology (IT) Business Process Outsourcing (BPO)

What is Being Outsourced?

Application Development

Application Support & Maintenance

Infrastructure Management

R&D

Software Product Development

Engineering Services

Tech Support

Human Resources

Finance and Accounting

Back Office Administration

Payment Processing

CRM

Industry Specific Functions


Cost Reduction was the Major Driver Offshore Driver

DOMINANT REASONS SECONDARY REASONS

– Lower costs

• Direct labor 75% - 90% savings

• Total project savings 20%- 50%

– Relieve internal resource constraints

– Access to variable resources

– Response to competitive pressure

– Achieve 24 x 7 operation and reduce cycle times

– Focus on competencies

– Improve service levels

– Enhance internal IT and business processes

– Gain access to offshore markets




Site Selection


Agenda


What is Domestic Sourcing?

RURALSOURCING

INSHORING HOMESHORING

ONSHORING RURALSHORING HOMESOURCING

FARMSHORING

Outsourcing (or Insourcing) to lower cost metropolitan or rural areas that can provide significant benefits over Tier 1 metropolitan cities or offshoring.


Is It Really New?

• Prior to global sourcing or offshoring, companies outsourced primarily for skills, capabilities & risk reduction

• When global sourcing took off, domestic outsourcing companies employed one of the following strategies:

– Developed an offshore option for their clients

– Focused on niche high end skills or onsite required staff augmentation

– Focused on regulated industries that put barriers to offshoring

Yes, somewhat…


Traditional Drivers for Domestic Sourcing

• Dissatisfaction

– Quality & Productivity

– Communication & Cultural issues

• Rising Costs Offshore

– Wage Rates

– Real Estate & Infrastructure

• Exchange Rate Fluctuation

– Particularly deflation of the US

Dollar against many Asian

currencies 2006-2008

• 2001/2002 .COM Bust

– 1st major wave of knowledge jobs leaving the U.S.

– 2004 Election capitalized on fear

• 2009 Recession

– More “real” fear

– More proactive/positive approach

Negatives of Offshoring

Economic Downturns


Today’s Drivers for Domestic Sourcing

General Economic Environment

Domestic Sourcing

Drivers

• High Unemployment

• Wage Deflation

• Concern over fundamental shifts in American competitiveness

• Fewer & smaller projects

• Reduced travel

• Reduced investment

• Reduced product life cycles, tighter turnaround times

• Focus on cost reduction

• New IT options (cloud, SAAS, freeware)

• New Risks

Economic Downturns

Changing Business Dynamics


More than labor arbitrage.

• Labor Arbitrage

• Pyramid Model / Specialization

• Real Estate

• Increase Onsite/Offsite Ratio

• Productivity

• Shared Resources

Direct Costs

• True Agile Teams

• Quality

• Faster

Cost Avoidance

Domestic Sourcing can for Generate Cost Savings


Other Benefits to be Reaped

Ease of Doing Business

• Cultural and Language Affinity

• Geographic Proximity

• Time Zone Advantage

Speed to Market

• Business to IT Alignment

• Proximity, leading to better feedback loops

• Understanding of U.S. Business requirements, etc.

Less Risk

• Regulatory/ Compliance

• Legal

• Political

• Vendor

• PR

Business Development Opportunities

• Government contracts

• Businesses looking for domestic options


Domestic Sourcing Strategy

Role within Global Strategy

• Complimentary capacity for nearshore/offshore

• Engagements with high % of onsite requirements

• Short engagements/ quick turnaround

Scale • 50-100 IT Rural,

100-200 Tier 2

• 100-200 BPO Rural, 200-500 Tier 2

Scope of Services

• Specialized IT, Speed to Market, High Degree Interaction, Agile

• BPO: Cultural Context, Regulated/Sensitive Industry, Transactional vs. Judgement based

• Mix of Services (IT, Call Center, Business Process)

• Mid-level to Senior IT Talent

Cost Savings 15%-30% Cost Savings to Tier 1


Agenda



Site Selection



LCD Location Selection Criteria


40% Cost of Doing Business

35% Workforce

Business & Political Environment

15%

Quality of Life

10%

Future Revenue Potential


Cost of Doing Business

• Labor Rates*

• Real Estate Costs*

• Infrastructure Costs*

• State & Local Taxes*

• Economic Incentives*

• Airport Access*

• State Debt

• Federal Funding Support



35% Workforce


15%

Quality of Life

10%



Workforce



35% Workforce


15%

Quality of Life

10%


• Nearby Colleges & Universities*

• Stability of Future Workforce*

• Skill Sets of Knowledge Workforce*

• Net Migration Potential

• Population/Scale

• Current Resource Availability

• Labor Supply Competition





35% Workforce


15% Quality of Life

10%


• Business/Government/College Consortium*

• Political Support*

• Labor Laws

• Technology & Vendor Ecosystem


Quality of Life



35% Workforce


15%

Quality of Life

10%


• Cost of Living*

• Housing

• Commute

• Crime Rates

• K-12 Schools

• Climate & Geography

• Arts & Recreation


Challenges of Domestic Sourcing

Tier 1/2 Locations

Tier 3/4 Locations

– Workforce retention

– Sustainability and fluctuation of cost savings (labor, real estate, etc.)

– Scalability especially IT

– Breadth of skill sets especially IT

– Lack of business ecosystem

– Availability of appropriate real estate


North Texas Example Communities Like Grayson Communities Like Fannin

50,000 or more 25,000 or Less

Mostly Low- to Mid-Level, Some High-Level

Mostly Low-Level, Some Mid-Level

BPO/Call Center: Up to Maximum of 300 Employees IT: 100-150 Employees (dependent on educational requirements)

BPO/Call Center: Up to maximum of 100 Employees

All levels for Call Centers and BPO, Low-Level ITO

Call Centers, Low Level BPO

– Workforce Availability – Workforce Retention – Marketing

– Workforce Skill Set – Workforce Availability – Marketing – Real Estate Availability – Business Ecosystem

Typical Population in Main Cities

Typical Skill sets Available

Typical Size Limits for an Outsourcing Firm

Typical Outsourcing Activities

Main Challenges


Agenda



Site Selection



Key Takeaways - EDA

1. Ensure close relationship b/w education, business and government agencies

2. Add labor related incentives to real estate incentives that you have (training dollars & job creation hiring)

3. Availability of real estate will be key in final decision

4. Workforce development agencies should focus on assisting with hiring & have ability to develop customized training courses

5. Think through revenue generation opportunities for companies coming in – as extra value add

6. Appoint one liaison to coordinate with companies and other agencies

25 © 2013 Ahilia, Inc. All Rights Reserved www.ahilia.com © 2012 Ahilia, Inc. All Rights Reserved www.ahilia.com

Amrita Tahiliani Joshi CEO • Ahilia Inc.

[email protected]

800.489.5197 • 530.304.9026 mobile


Thank you!

A Global Sourcing Primer for EDAs & Government...

Documents

Transcript of A Global Sourcing Primer for EDAs & Government...