neoIT 2004. All rights reserved | www.neoIT.com

Competing In A Global WorldCompeting In A Global WorldHow to Build, Launch & Sustain Your Business

Avinash VashisthaManaging PartnerneoIT

India Outsourcing Summit | October 2004

© 2004 neoIT 22

AgendaAgenda

Key Trends

Vendor Selection & Competition

Sustaining & Futurizing

Be Ready for Future

Key Take-Aways

Q&A

Agenda

© 2004 neoIT 33

The Industry TodayThe Industry Today

Globalization MaturesGlobal sourcing has transcended offshore outsourcing and is an imperative in most Global 2000 companies’ sourcing strategy

New Markets, New SuppliersNew supplier markets emerging as contenders to India and the Philippines. China and Eastern Europe gaining momentum as other markets emerge.

Risks ContinuePolitical instability keeps concerns high, creating ongoing need to address and overcome offshoring risks

Failures PublicizedOffshore failures, as a result of poor transition management, are surfacing

ControversyControversy, and the resulting media attention, surrounds offshoring sparked by election year posturing, more government-related jobs are being required to be US-based

Key Trends

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In the Client’s Mind…In the Client’s Mind…

Offshoreoutsourcing was

chosen as themost significanttrend of 2003 bythe readers of

Forbes Magazine

Offshoreoutsourcing was

chosen as themost significanttrend of 2003 bythe readers of

Forbes Magazine

! Accelerating adoption of Offshoring

! The drive to create “On-Demand” businesses

! Do more with less

! Competitive pressures

! Ensure consistent quality among global sourcing environments

! Maintain control over global sourcing operations

! Mitigate risk associated with global sourcing

Key Trends

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Significant Demand GrowthSignificant Demand Growth

Global IT services market Global BPO market

$ 505 B

$ 707 B

$ 188 B$ 216 B

$ 248 B32% Growth

33% Growth

US

D B

illio

ns

US

D B

illio

ns2003 2004 20052003 2007

Source: IDCSource: Gartner

Offshore Phenomenon

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Leading AdoptersLeading Adopters

Financial Services

Transportation/Logistics

Telecom

Manufacturing

Technology

Offshore Phenomenon

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Four Major Offshore ModelsFour Major Offshore Models

Transition TimeShort Long

Upf

ront

Inve

stm

ent

Lim

ited

Hig

h

Build Operate Transfer (BOT)

Third-Party Dedicated

Center

Joint Venture Captive

ControlLimited Full

Valu

e C

aptu

reLi

mite

dH

igh

Build Operate Transfer (BOT)

Third-Party Dedicated

Center

Joint Venture Captive

BenefitsRequirements

Market Trends

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What is Being Offshored?What is Being Offshored?

Information Technology (IT) Business Process Outsourcing (BPO)

Human ResourcesHuman ResourcesApplication DevelopmentApplication Development

Finance and AccountingFinance and Accounting

Back Office AdministrationBack Office Administration

Payment ProcessingPayment Processing

CRMCRM

Tech SupportTech Support

Application Support & Maintenance

Application Support & Maintenance

InfrastructureInfrastructure

Market Trends

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What Clients Are Asking Most …What Clients Are Asking Most …

! Where and how can I cut costs in the short term first?! How do I develop a long-term strategy?

( Country, ownership model, what processes )! How do we leverage a pilot across different business units?

! What is the next project/process to offshore?

! What supplier model is best for me?

! Are IT and BPO converging?

! How should I do my offshore governance?

! What are the best practices for building and sustaining offshoreteams?

Client Trends

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Key Supplier TrendsKey Supplier Trends

! Volume growth remains strong• Pressure on Margins (Commoditization?)• Pressure on execution• MNCs vs Pure Play • Impact of backlash and elections

! Adding new service lines• Moving up the value chain• Building deep domain knowledge• Business process outsourcing

! Increasing cost structure• Onshore presence required• BPO investments• Improving middle management

Supplier Trends

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Backlash – Actual ImpactBacklash – Actual Impact

! Clients shying away from publicity

! Some impact on new initiatives

" Evaluating Offshoring

" Waiting until elections to execute

! Service providers see little impact

" No noticeable down turn in their business

" 2 tier 1 offshore providers hit $1 B revenue mark

! Clients still driven by economics

! US Elections are planned trigger for some clients

Key Inhibitors

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AgendaAgenda

Key Trends

Vendor Selection & Competition

Sustaining & Futurizing

Be Ready for Future

Key Take-Aways

Q&A

Agenda

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Key Vendor Selection CriteriaKey Vendor Selection Criteria

0 1 2 3 4 5 6

Cultural Fit

Past Experience w ith Outsourcer

Project Management Staff

Low Cost of Implementation

Industry Expertise

Marketplace Innovation

Trusted Partner

Technology Expertise

Referencable Accounts

Low cost/Transaction

Process Expertise

Customer Service

Missing Criteria: BRAND – Translates to Trust

Sources: Gartner, neoIT

Market Trends

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Obstacles to Greater AdoptionObstacles to Greater Adoption

0 1 2 3 4 5 6

Staff Deployment Issues

Regulatory Barriers

Loss of inhouse Expertise

Legacy Systems Integration

Percieved Loss of Control

Lack of Management Support

Concerns About Data Security

Lack of Perceived Value

Dependability of Service

Sources: Gartner, neoIT

Market Trends

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The New Face of the CompetitionThe New Face of the Competition

Process Specialists/MNCsADP, Exult, FDC, Hewitt, Paychex, Convergys

IT OutsourcersIBM, EDS, CSC, ACS, Keane

ConsultantsAccenture, Deloitte,

Pure Play OffshoreWipro Spectramind, WNS, SPI, ICICI, 24/7, EXL

Offshore ITHCL, Infosys, SatyamCognizant, Wipro, Patni,Mphasis

IT / BPOIT / BPO

Net Margins at EDS, Accenture:…………………………12-15%Net Margins at Infosys, Wipro:……………………………22-25%Net Margins at ADP, FDC:………………………………. 15-17%

Net Margins at EDS, Accenture:…………………………12-15%Net Margins at Infosys, Wipro:……………………………22-25%Net Margins at ADP, FDC:………………………………. 15-17%

AND NOW NEW ONES: JV, BOT, CAPTIVE CENTERS

Market Trends

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Offshoring…A Global ApproachOffshoring…A Global Approach

Contenders

Challengers

Leaders

Offshore Destinations

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Key Nearshore/Offshore DestinationsKey Nearshore/Offshore Destinations

CHINAIT Services Exports (2003): $700MBPO Exports (2003): $210M

INDIAIT Services Exports (2003): $9.5BBPO Exports (2003): $3.1B

POLANDIT Services Exports (2003): $22 MBPO Services Exports (2003): $10M

CANADAIT Services Exports (2003): $ 8BBPO Exports (2003): $7B

MEXICOIT Services Exports (2003): $150MBPO Exports (2003): $80M

RUSSIAIT Services Exports (2003): $475M

PHILIPPINESIT Services Exports (2003): $300MBPO Exports (2003): $600M

HUNGARYIT Services Exports (2003): $22MBPO Exports (2003): $10M

CZECH REPUBLICIT Services Exports (2003): $26 MBPO Services Exports (2003): $15M

Offshore Destinations

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AgendaAgenda

Key Trends

Vendor Selection & Competition

Sustaining & Futurizing

Be Ready for Future

Key Take-Aways

Q&A

Agenda

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Aligning with Market OpportunityAligning with Market Opportunity

Aligning of services Supplier with Clients’ requirements - How? Defining Productivity Gains & Cost Savings:

! Major Parameters: Location of delivery centers, Offshore Models, Use of technology to automate, Sharing risk & rewards, Quality and Resources rigor, Focused Transition and Change Management.

! Help clients move from cost-savings to gaining business value" Business value-based relationships enjoy longevity" Customers would look for mutual gain sharing with their service

providers Business Transformation:

! Major Parameters: In-house domain expertise, Good governance model and skills, Strong project and partner management skills, Ability to identify and measure performance gains.

! Demonstrate leadership in measuring and evaluating performance gains" Key emerging market need over the next 2 years" Good governance is a must for the health of the engagement

Sustaining Factors

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Aligning with Market Opportunity (contd.)Aligning with Market Opportunity (contd.)

Corporate Vision:

! Major Parameters: Future vision of aligning own strategies with Clients’ global strategies, End-to-end service offerings, Creeping up on the value chain.

! Identify the services adoption curve on a client-by-client basis" Cost savings to transformation

! Address cross-functional and core industry-specific market needs" Key differentiator over the specialized service providers

Sustaining Factors

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Analyzing Future NeedsAnalyzing Future Needs

What Clients Value in Outsourcing Relationships

Provisioning of best of breed technology

Short implementation/transition period

Trusted, strategic relationship

Expertise within your industry

Enable future business strategies

Meets guarantees and SLAs

Responsiveness and customer service

0% 20% 40% 60% 80% 100%

% of respondents rating number one

Source: IDC , Microsoft Seminar

The Future

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neoIT Commoditization IndexneoIT Commoditization Index

012345

Customer Quality Sensitivity

Strategic Impact

Value to CustomerBarriers to Entry

Customer Sw itching Costs

CALL CENTER, DATA ENTRY WATCH OUT!

The Future

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Moving Up The Value ChainMoving Up The Value Chain

Strategic Impact

Valu

e

Rules-based Processing

Problem Solving/Decision Making

Customer Contact Full Process Outsourcing

Multiple Process Outsourcing

Transactional Data Entry

OUT-TASKING

BPO / IT

TRANSFORMATIONAL

Data Entry

The Future

Application Support

Technical Support

Customer Contact / Hardware & Installation Support

Maintenance

Product Development & Testing

Design & Integration

IT BPO

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Gaining Market ShareGaining Market Share

How can the suppliers win new Clients and retain them?

Opportunity Assessment & Engaging Clients! Supplier teams should be capable and aggressive to engage CXOs and

Operation Heads and quickly grasp the Clients’ needs and requirements

Global Delivery Model! Leveraging the best of talent pool and infrastructure! Giving client the choice to choose and helping the client service various

geographies in shorter times ! Ability to provide globally integrated solutions

Scalable Business Platform! Think global! Look at opportunities from a global scale of delivery! Integrate and keep building on the competencies

Futurizing Factors

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Gaining Market Share (contd.)Gaining Market Share (contd.)

Process Innovation! Emphasis must on well defined processes and continuous improvement in all

dimensions of the business! Think and implement on how the total cost of ownership for the client can be

driven down through process optimization & productivity enhancements

Flexible Delivery Systems! Re-defining, re-designing and re-architecting delivery systems and processes

to align with the changing market environment and client requirements! Execution excellence – deliver as promise – first time, every time.

Innovative Business Contracts! Increase Clients’ interest with innovative contracting ! Focus on SLAs and engagement governance & communication structure! Look at various engagement models! Be willing to share risks and of course the rewards

Futurizing Factors

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Gaining Market Share (contd.)Gaining Market Share (contd.)

Differentiation! Suppliers should develop key differentiators for themselves in the market to

have the requisite attention from the Clients! Develop new service lines keeping in line with the dynamics of the market

Partnership Approach! Suppliers need to be sensitive and a partner to the clients’ needs – customize

yourself rather than trying to change the requirements to suit one’s methodologies and processes

! Clients should perceive the supplier to be a proactive business partner

Futurizing

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AgendaAgenda

Key Trends

Vendor Selection & Competition

Sustaining & Futurizing

Be Ready for Future

Key Take-Aways

Q&A

Agenda

© 2004 neoIT 2828

Client Buying HabitsClient Buying Habits

% of Budget Spent on Offshore

Impo

rtan

ce

Cost Savings

Access to Top Talent

Focus on Compliance

Risk Diversification

Time to Market

Focus on Core

Quality Improvement

2004 2009 2014

ROI measured

in Offshore

terms

ROI ROI measured measured

in in Offshore Offshore

termsterms

$1B deals

become common

$1B $1B deals deals

become become commoncommon

India’s Cost

Advantage at 25%

India’s India’s Cost Cost

Advantage Advantage at 25%at 25%

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Changing Domestic EconomicsChanging Domestic Economics

Need for S

caleSupplier Margins

2004 2009 2014

Charge Rates will experience modest growth

$7,500 p.a.

$13,500 p.a.

$20,000 p.a.$12,500 p.a.

$22,400 p.a.$33,500 p.a.

$35,000 p.a.$62,700 p.a. $93,700 p.a.

A very different industry landscape

Salaries

Sr. Manager

Project Manager

Programmer

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AgendaAgenda

Key Trends

Vendor Selection & Competition

Sustaining & Futurizing

Be Ready for Future

Key Take-Aways

Q&A

Agenda

© 2004 neoIT 3131

Key Take AwaysKey Take Aways

11Global Sourcing is going through a maturation process….a process not without its challenges

12 Client demand remains high, openness to emerging markets

13Competition among countries will become intense, Philippines, China, Russia, Brazil, Vietnam are poised for growth

14Clients would be looking for a proactive business partner who would share their strategies and vision

154

Be Ready for Future - various rules and regulations will need to be complied with, New taxes will definitely come up, competitionwill continue to grow

Take Aways

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QuestionsQuestions

Questions

© 2004 neoIT 3333

Contact InformationContact Information

Avinash VashisthaManaging Partner

avinash@neoIT.com

(925) 355 0557

+91 98 450 30405

Allisson ButlerMarketing Director

allisson@neoIT.com

(925) 355 0557

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San Ramon, CA 94583 USA

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Upper Palace OrchardsBangalore - 560 080 India

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