Destinations Compendium 2011

International Financial Outsourcing Center

To Combine the Global Resources and Facilitate the

2011 the West Lake, Enlightenment and DiscussionDiscovery, Transformation, Reaction, Share

Integration & Improvement of Global Service Capability

For Your Attention

Sponsors:

Ministry of Commerce of the People’s Republic of China

Ministry of Industry and Information Technology of the People’s Republic of China

Ministry of Education of the People’s Republic of China

Host City :

Hangzhou People’s Government

Official Promotion:

Hangzhou Municipal Foreign Trade & Economic Cooperation Bureau

Contact: Tel-8610 85863613 Fax-8610 59081093 [email protected] Planner & Organizer: Great-Idea Business International Outsourcing Promotion Center


For more details, please click: http://www.great-idea.com.cn/hangzhou/hhtz.htm

http://www.great-idea.com.cn/hangzhou/

International Outsourcing Business Development Summit

Date: October 24-26, 2011

Venue: Zhejiang Narada Grand Hotel, China

Demonstration City of ChinasourcingHangzhou

Hangzhou is defined as the “China Service Outsourcing Demonstration City” in February 2009. Hangzhou is also

one of the 21 software industry base cities in mainland China. It has currently formed the several industries including

telecommunication, software, integrated circuit, digital TV, animation games and E-commerce.

The revenue of software business in Hangzhou was achieved at 47 billion RMB in 2009, the software export revenue reached at

460million USD. There were total 112 enterprises passed CMMCMI, ISO27001 certification. There were 20 IT software enterprises

have list on public market, two companies ranked at Top 10 of self-brand software products, total 15 enterprises have list at the

key software enterprises name list of the national strategic planning.

In order to accelerate the development of outsourcing industry, Hangzhou Municipal Government set up the leading team

to draw up the development plan, issue the supporting policy to make the rapid development of outsourcing industry in

Hangzhou. The total delivered amount of offshore outsourcing business reached at 919mllion US Dollars, risen to 352%

compared to the same period of last year (2008).

Hangzhou government has put more focus on the financial service outsourcing that is considered as the medium and high end

outsourcing industry, Hangzhou now is creating to become the financial delivery center.

Hangzhou, ChinaA City of Financial Delivery Center


To Combine the Global Resources and Facilitate the

2011 the West Lake, Enlightenment and DiscussionDiscovery, Transformation, Reaction, Share

Integration & Improvement of Global Service Capability

For Your Attention

Sponsors:

Ministry of Commerce of the People’s Republic of China

Ministry of Industry and Information Technology of the People’s Republic of China

Ministry of Education of the People’s Republic of China

Host City :

Hangzhou People’s Government

Official Promotion:

Hangzhou Municipal Foreign Trade & Economic Cooperation Bureau

Contact: Tel-8610 85863613 Fax-8610 59081093 [email protected] Planner & Organizer: Great-Idea Business International Outsourcing Promotion Center


For more details, please click: http://www.great-idea.com.cn/hangzhou/hhtz.htm

http://www.great-idea.com.cn/hangzhou/

International Outsourcing Business Development Summit

Date: October 24-26, 2011

Venue: Zhejiang Narada Grand Hotel, China

Demonstration City of ChinasourcingHangzhou

Hangzhou is defined as the “China Service Outsourcing Demonstration City” in February 2009. Hangzhou is also

one of the 21 software industry base cities in mainland China. It has currently formed the several industries including

telecommunication, software, integrated circuit, digital TV, animation games and E-commerce.

The revenue of software business in Hangzhou was achieved at 47 billion RMB in 2009, the software export revenue reached at

460million USD. There were total 112 enterprises passed CMMCMI, ISO27001 certification. There were 20 IT software enterprises

have list on public market, two companies ranked at Top 10 of self-brand software products, total 15 enterprises have list at the

key software enterprises name list of the national strategic planning.

In order to accelerate the development of outsourcing industry, Hangzhou Municipal Government set up the leading team

to draw up the development plan, issue the supporting policy to make the rapid development of outsourcing industry in

Hangzhou. The total delivered amount of offshore outsourcing business reached at 919mllion US Dollars, risen to 352%

compared to the same period of last year (2008).

Hangzhou government has put more focus on the financial service outsourcing that is considered as the medium and high end

outsourcing industry, Hangzhou now is creating to become the financial delivery center.

Hangzhou, ChinaA City of Financial Delivery Center

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webiNarS

Global Services’ web-based seminars aim to impart useful information related to outsourcing industry in the form of presentations and discus-sions by industry specialists.

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T he services industry has earned the reputation of being a very respectable, environment-friendly, and economically rewarding industry amongst its many other advantages. It is no wonder that this has set off a race of sorts between countries and various cities.

For buyers of services, the question ‘which place to go’ has always been crucial. The decision has direct impact on costs saved, capacity/ scale added, risks managed, and ultimately the over-all value maximized by the enterprise. What makes this game interesting is that these parameters are dynamic; sometimes they change within a year, yet in other cases, it takes years for a location to gain a pixel worth of attention on the map.

Studies on locations are therefore very interesting and useful because they embody the net result of actions taken to develop a location and results obtained from these actions. This leads to the constant shifting of the order or a re-ordering of the ranks of cities that attract work in global services.

Ranking of cities is becoming not only increasingly difficult but also progressively untenable in presenting a holistic view of how cities develop. Not everything can be shrunk into a number, as they say. Hence, we decided to do away with the practice of ranking cities to create the Top 100 Outsourcing Cities list and instead created a list of 100 cities that represent a threshold in service delivery.

Our research partner for this year’s study is NeoGroup, the premier sourcing advisory firm that has been tracking globalization in services delivery and competitiveness of service locations for more than a decade. NeoGroup’s annual study on city competitiveness provides the main research input into this year’s Global Services Destinations Compendium.

As usual, the Global Services Destinations Compendium is an attempt to bring together the myriad dynamics of outsourcing locations in one place-complete with research, data, and expert opinions. At the most granular level, we look at cities and how they compare with each other. More importantly, we look at how upwardly dynamic cities are compared to previous years. Credit is due to the cities that are featured in this issue for their sustained efforts at developing the outsourcing industry.

Welcome to the Global Services Destinations Compendium 2011!

Global City Competitiveness: Summarizing the DynamicsED Nair, Editor

[email protected]

EDIt

oR

’S n

ot

E

True Public Private Partnership

CMMI and SPOT Certi�cations

Central Location

Reliable Infrastructure

Investor Friendly

Committed to Investors’ Success

Educated Human Resources

THE TOP 100 CITIES

2012 Top 100 Global Services Destinations 12Key Insights 14

Methodology & Coverage 16

Global Cities Coverage 17

Country Snapshot:

APAC 18

EMEA 19

Latin America 20

City Profile:

Dalian 21

Bogota 22

Cairo 23

11

REGIONAL DYNAMICS

Asia 30

Europe 40

Middle East & Africa 45

Latin America 50

North America 59

C o N T E N T S

29

EXPERTS

The Case for Nearshoring: Why and How the New Normal will shift Sourcing Dynamics 70by Anupam Govil, Partner with Avasant and President of Avasense

Global Supply Risk Management: Monitoring and Managing Global Sourcing & Services outsourcing Risks 76by Atul Vashistha, Chairman & CEo, Neo Group Inc.

Latin America: De-risking is Becoming Ever More Critical 86by Benigno (Beni) Lopez, Chief Globalization officer, Softtek

Destination Strategy - What Makes/Breaks It? 90by Deepali Sathe, Project Manager, ValueNotes Sourcing Practice

Compete or Cooperate? Bridging the Near shore- offshore Divide 94by Lalit Dhingra, President, NIIT Technologies Inc.

Choosing the Right offshoring Destination 96by LN Balaji, President of ITC Infotech

Does Captive offshoring Still Make Sense? 100by Nigel Hughes, Compass Management Consulting

Africa Rising – outsourcing Juggernaut set Sails 103by Dr. P.K. Mukherji, President & Managing Partner, Avasant

Africa : A Ripe Terrain for Impact Sourcing 108by Pumela Salela, BPo Consultant

Business Transformation and the Expansion into Asia 114by Sudhir Narang, Managing Director, BT India

Location Strategy For Indian Delivery Centers 117by Viral Thakker, Executive Director, Head – Shared Services and outsourcing Advisory KPMG in India and Jehil Thakkar, Executive Director Head – Global Location and Expansion Services Advisory, KPMG in India

69

the top 100 cities

n 2012 Top 100 Global Services Destinations ............. 12n Key Insights ............................................................ 14n Methodology & Coverage ........................................ 16n Global Cities Coverage ............................................ 17Country Snapshot :n APAC ...................................................................... 18n EMEA ..................................................................... 19n Latin America .......................................................... 20City Profile :n Dalian ..................................................................... 21n Bogota .................................................................... 22n Cairo ....................................................................... 23

byNeo Group &

Global Services

12

http://microsites.globalservicesmedia.com/destinations2011 Destinations Compendium 2011

E EX RP T S

2012 Top 100Global Services DestinationsKey Topics covered

• Detailedprofilesof100citiesacrossAsiaPacific,Europe,MiddleEast,andAfrica,andCentralandLatinAmerica

• Keyoutsourcingservicesfromeachcity• Currentandfutureattractivenessofcities• Established, emerging, and nascent locations by outsourcing service

functions• Dataonannualgraduatepool,ITandBPOworkforce,industrysize,attrition

etcforeachcity• Recommendationsonlocationstrategyandevaluation

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13

2012 Top 100Global Services Destinations

Organizations continue to adopt outsourcing as a business strategy andaneffectiveoptimizationandtransformationlevertohelpthemmitigatethe current financial and competitive challenges. As a consequence ofincreased adoption of outsourcing, the global sourcing landscape has

beenundergoingchanges andmanyglobal locationsare evolving to serve specificneedsoforganizationsthatembarkontheirglobalizationjourneyorevolveasmatureglobalizers.

Global sourcing is mainstream. While cost containment will continue to be animportantfactorintheglobalsourcingdecisionsoforganizations,otherfactorssuchasaccesstoaglobaltalentpool,newmarketentry,andgeographicriskdiversifica-tionhavebecomeincreasinglyimportant.Thecitiescoveredinthisreportarebynomeansanexhaustivesetofpotentialdestinations.Newdestinationsareconstantlyemerging in the global marketplace. This report attempts to provide its readers aview of the changing landscape across the more established as well as emergingdestinations.Wehopethisreportwillprovideyouwithinsightsasyouconsiderandevaluateoptionsaspartofyourorganization’slocationstrategy.

This reportanalyzesamixofestablishedaswellasemergingandnascentout-sourcingdestinations.Thereportcoversover100citiesacross50countries.Whiletraditionalandpreferredoutsourcingdestinationshavebeenthefocusofattentionforoveradecade, this reportprovidesaperspectiveofmanyother locations thatpossess a strongpotential to emergeas successful global sourcingdestinations infuture.

The complete report will be available in November 2011 at www.neogroup.com and www.globalservicesmedia.com

TheTop100Cities

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14

KEy INSIghTS

City, not Country:Locationassessmentbasedoncountryselectionisagoodstartingpoint,butcannotbethebasisforanorganizationtosetupoperations.Certainmacrofac-torssuchascurrencyandriskperceptionarethesameacrossthecountry.However,sev-eralimportantcriteriaforlocationassessmentsuchasqualityandavailabilityoflabor,taxesandotherincentivescanvarysignificantlyacrosscitieswithinthesamecountry.Assessingorganizationaldeterminantsandmappingthemagainstmarketdeterminants,atacitylevelwouldbetherecommendedapproach.Countrybasedassessments,oftentendtooverlookorganizationspecificrequirements.

The Changing Landscape: Global outsourcing destinations can be categorized asestablished, emerging, and nascent, based on the maturity of locations. While estab-lished locationshave inherent challengesofhigher costs and sustainability, they arestill themostoptimalfit formatureandadvancedglobalizationactivities.Tier-IIandTier-III global cities are gaining increased attention where organizations are keen onleveraging an early mover advantage. With the migration of talent becoming a com-monglobalphenomenon,suchlowcostcitiesarewellplacedtooffertheircompetitiveadvantages.

Expansion of global Sourcing:Severalfactorsareresultingintheexpansionoftheglobal sourcing landscape. IT and BPO service providers are expanding their globaldeliverycapabilitiesbeyondtheestablishedhubssuchasBangalore,Manila,Warsaw,Shanghai,etcinordertoaccessnewsourcesoftalent,overcomethefightfortalentinestablishedlocations,preservetheirmarginsbygoingtolowercostlocationsaswellashavethefirstmoveradvantageandbetheemployerofchoice.Marginpreservation,are-lookatcorecompetence,gaininganearlymoveradvantage,revenuepreservation,mul-ti-lingualrequirementstoaddressglobalmarketsarefewdriversadoptedbymaturedglobalizers that continue to expand theglobal sourcing landscape.This expansion is

15


15takingplacenotonlyincitiesinnewergeographiesbutalsoinTier-IIcitiesincountriessuchasIndia,China,Philippines,andPoland.Governmentsandlocaladministrationsarealsowooinginvestorsviaincentivesaswellasthroughthedevelopmentofbusinessandhuman resource infrastructure topromote their locations.Finally, as establisheddestinations evolve in terms of service maturity and complexity of services offered,newercitieswillemergetofillinthevoidandbecomeattractivefromacostandcapa-bilityperspectiveforlesscomplexskills.

Scale vs. Niche:Animportantconsiderationforcompaniesestablishingtheirdeliverycenters isalsotoconsidertheirheadcountrequirements.Thechoiceofacityforset-tingupalargedeliverycenterwithheadcountinthousandsisfundamentallydifferentfromarequirementforresourceheadcountofafewhundredorless.Fewcountriesandspecifically,fewcitiesofferaviableopportunitytoscaleoperations.Citiesinpopulouscountries such as Brazil, China, India, Poland or the Philippines stand out for suchrequirements.Evenwithinthesecountries,scalabilityissuesvarybycity.Whileestab-lishedcitiessuchasSaoPaulo,ManilaorWarsawmayoffer limitedscalability foracompanyintoday’senvironment,emergingcitiesinthesecountriessuchasCampinas,Cebu,ŁódorPoznamaybemoreviablealternatives.While‘nascent’citieswithlimitedactivity look attractive, companies should consider the potential supply shocks thatmay resultwith rapid, large scale expansionand increasedwage andcostpressures.Formanymaturedglobalizersthattargetglobalmarkets,multilingualrequirementsandoffshoringadvancedandcoreactivitiesofbusinessfunctionshavebecomekeyrequire-mentstosustaincompetitiveadvantage.Suchorganizationshaveauniquerequirementofcombinationofscaleandnicheskillswhichmostlycanbesupportedbyestablishedandmaturedoutsourcingdestinations.Leadingproductdevelopmentfirmsandprofes-sionalservicesfirmsaregoodexamplesofsuchmaturedglobalizers.

Role of government Support and Incentives:ThesuccessoftheITandBPOsectorsinemploymentgenerationintheeconomy,increasedstandardsofliving,contributionto the region’s exports,GDPgrowth as well as a diversification to a serviceorientedeconomy is abundantly clear. Success stories of countries such as India, China, andPhilippineshavemadegovernmentsandlocaladministrationinotherregionsrealizethetremendouspotentialandaccompanyingbenefits.Inordertoweanpotentialinves-tors,incentivesintheformofcorporateandincometaxholidays,subsidizedorfreelandgrants,lowercustomsandexportduties,fast-track,singlewindowregulatoryclearancesaswellasincentivesfortrainingandrecruitmentareprovided.Whilethenatureandbasketofincentivesofferedvariesacrosscities,itisacommonthemethatrunsacrossthecitiesthatwehavecoveredinthisreport.Companiesthatareearlyorfirstmoversare the biggest beneficiaries of government incentives, as the local administration iskeentodevelopaninitialsetofsuccessstoriesthatcanbeusedtoeffectivelymarkettheregiontoattractfurtherinvestmentinfuture.TheroleofgovernmentinidentifyingtheICTsectorasastrategicgrowthareaandchannelizingplanningeffortsarecriticalsuccessfactorsforalocation’sattractiveness.

TheTop100Cities

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Location Factors Key Parameters

Macro-Economic

Attractiveness

FDI, inflation rate, GDP growth rate and contribution to

servicesectors

FinancialAttractiveness Real estate rent, support cost, corporate tax rates, labor

cost,wagesinflation,costtostartbusiness,taxincentives,

travelcost

GeopoliticalAttractiveness Political stability, natural disaster, terrorism, rapes rate,

CityMurderrateetc

IndustryMaturity Sizeofindustry,presenceofmajorIT&BPOcompanies,

multilingual capability, key services, industry specific

servicesandfocus

HumanResource

Attractiveness

Size of workforce, university graduates output, attrition

rate,scalability,sustainability,languageproficiency

InfrastructureAttractiveness Number of ISPs, personnel computers, Internet users,

FixedInternetsubscribers,numberofITparksandSEZs,

airlineconnectivity,roadinfrastructure,powersupply

BusinessEnvironment

Attractiveness

ProceduresRequired toStart aBusiness,TimeRequired

to Start a Business, Procedures Required to Register a

Property,TimeRequiredtoRegisteraProperty,Procedures

RequiredtoEnforceaContract,TimeRequiredtoEnforce

aContract,Lodgingavailability,HotelRoomOccupancy

Rates, Cultural compatibility for expats, Cost of Living,

Risk&safety forexpats,EnvironmentalPollutionlevels,

Easeoftravelsuchasfrequencyofflightandtraveltimes

toU.S,Europe,Australia,Japanetc

RiskOverview Security, Political, Government, Legal & regulatory,

Macroeconomic,Foreigntrade&payments,Financial,Tax

policy,Labormarket,Infrastructure

MeThodology & coverageData for this report was collected using a combination of primary and secondary

research.NeoGroupcontactedoutsourcingindustryassociationsfromvariouscountries,softwaretechnologyparks,investmentagencies,aswellasserviceprovidersacross50countriescoveredinthisreport.

The data gathered was qualitatively analyzed using Neo Advisory’s proprietarylocation assessment framework. Leveraging our experience on location assessmentengagements by working with our clients, the research focuses broadly on eightcategoriesthatarecriticaltobeanalyzedwhilechoosingalocation.

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GlobalCitiesCoverageAPAC: EMEA: AMERICA:

1. BacolodCity 2. Bangalore 3. Bangkok 4. Beijing 5. Bhubaneswar 6. Chandigarh 7. Chengdu 8. Chennai 9. Coimbatore10. Colombo11. Dalian12. Davao13. DelhiNCR14. Guangzhou15. Hangzhou16. Hanoi17. HoChiMinhCity18. Hyderabad19. Jaipur20. Jakarta21. Jinan22. JohorCyberPort23. Kabul24. KlangValley25. Kolkata26. MetroCebu27. MetroManila28. Mumbai29. Nanjing30. PasigCity31. PenangCybercity32. Pune33. Shanghai34. Shenzhen35. Thiruvananthapuram36. Xian

1. Alexandria 2. Amman 3. Belgrade 4. Bratislava 5. Brno 6. Bucharest 7. Budapest 8. Cairo 9. CapeTown10. Casablanca11. Dubai12. Dublin13. Durban14. Irbid15. Jerusalem16. Johannesburg17. Kharkov18. Kiev19. Kosice20. Krakow21. Ljubljana22. Lodz23. Lusaka24. Lviv25. Minsk26. Moscow27. Nairobi28. NizhniyNovgorod29. Novosibirsk30. PortLouis31. Poznan32. Prague33. Riga34. Sofia35. St.Petersburg36. Tallinn37. Valletta38. Vilnius39. Warsaw

1. Barranquilla 2. Brasília 3. BuenosAires 4. Calgary 5. Cali 6. Campinas 7. Cordoba 8. Curitiba 9. Guadalajara10. GuatemalaCity11. Kingston12. Lima13. Managua14. Medellin15. MexicoCity16. Monterrey17. Montevideo18. Queretaro19. RioDeJaneiro20. SanJose21. SanPedrodeSula22. SanSalvador23. Santiago24. SaoPaulo25. Toronto26. Valparaíso

Thefollowingisthelistofcitiescoveredinthisreportunderrespectiveregions:

TheTop100Cities 17

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Citiesinthisregioncontinuetoofferthehighestcostsavingamongalltheoutsourcingdestinationscoveredinthisreport.TheaverageITOandBPOsalariesinAPACcitiesaremuchlowercomparedtowagesinLatinAmericaandEMEAregion.Theuniversitiesandcollegesgeneratea large,qualified labor force that ishighlyscalable tomeet thedemands of the industry. The skill sets of the labor pool available in the region arewellsuitedtosupportBPOandITOservicesincludingknowledgeservices.Oneofthebarriers is theculturalandtimezone differencewiththewesterncountries.

TheUnitedStates,Western Europe, United Kingdom,and Japan are the key demand markets. TheUnitedStatesaccounts for approximately 70percent of the total outsourcing revenueof the regionwhile Chinese cities suchasDalian,Beijing, and Shanghaifocus on the Japanese marketduetothelingual capability andproximity. It is estimatedthat around 60 percent ofthe Chinese o u t s o u r c i n grevenue is from the Japanesemarket. While the region’s focushas been on the U.S. market, thesuppliers in the regionaregraduallydiversifyingtheirrisk by focusing on otherdemand markets such as continental EuropeandUnitedKingdom.This has been evident in thechanging revenue mix of the regionoverthelastfewyears.

TheAPACoutsourcingbusinessisdominatedmainlybybanking,financialservices,insurance(BFSI),andtelecommunicationsectors.ItisalsoforecastthattheBPOmarketsizeinAsiaPacificwillreach17.47billionbyendof2015withagrowthrateof15%intheemergingcountriessuchasIndia,China,andSouthKorea.

APAcCountry Snapshot :

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TheEMEAregionhasseenasurgeinoutsourcingactivitytractioninthelastfewyears.This traction is attributed to multiple reasons. Cultural and geographic proximity toEuropeanmarkets,availabilityofrelatively lowcostskilledworkforceinregionslikeEasternEurope,Russia,andNorthAfrica,andmostimportantly,asizeableworkforcethatcanmeetandsupportthemulti-lingualrequirementsofglobalorganizationsarethekeydriversforoutsourcingtractionintheregion.

Theregionhasahighlyefficientschoolsystemthataddsthousandsofskilledlaboreveryyeartoitsworkforce.Focusonadvancedscienceandengineering,specificallyinRussiaandEasternEuropehasledtothecreationofglobalcentersofengineeringandtechnologyexcellenceinthisregion.Theyhaveahugetechnicalpotentialbecauseoftheirlevelofwesternworldcomprehensionbolsteredbytheireducationalsystem.

Middle East has been a source of attraction for the outsourcing industry in therecent past. North African locations like Casablanca and Cairo offer excellent multi-lingualskillsatlowcost.NorthandEastCoastAfricahavegoodtelecommunicationsconnectivityandthusmoretractionisseenintheseregionswithinAfrica.

MENAregionisexpectedtowitnessaCAGRof8%duringtheforecastperiodof2009-2016;evenUAEoutsourcingmarketwillrecordaCAGRof10%duringthesameperiod.

eMeACountry Snapshot :

TheTop100Cities 19

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PresenceofhugeSpanishspeakingpopulationintheU.S.andLatinAmericahasledto the growthofCentral andLatam region’soutsourcing industry.With sizeable andmoderatelyscalablebi-lingualpopulationalongwithskillsetstosupportfewEuropeanlanguages,theCentralandLatamregionhascapturedaprominentspaceintheglobaloutsourcinglandscape.Positionedinasimilartimezoneandgeographicallyclosetothe

U.S.markethasmadeCentralandLatamregionthemostfavorednearshoredestinationfortheU.S.CentralandLatamregionisuniqueintermsofitsculturalorientation.BeingclosetotheU.S.andwithlargehistoricEuropeansettlements,theregionisculturallyorientedtoboththedemandmarkets.

Similar time zone is another advantage that cities in Central and Latin Americapossessintheglobaloutsourcingmarket.Duetogeographicproximity, travel timetoCentralandLatinAmericancitiesfromtheU.S.isverylesswhencomparedtooffshorelocations.OneofthemainadvantagesofCentralandLatinAmericaistheabilitytoofferreal-timeservices.

Outsourcing inLatinAmerica is the fastest growing region in theworld.TheBPOmarket size in Latin America is forecasted to reach US$ 18 billion by 2012, whichcontributestoabout4%oftheglobalBPOmarket.

Latin America

Country Snapshot :

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Dalian

Country China

Population 6.2 Million

Annual Graduate Pool 94,500

IT Labor Pool Size 95,700

BPO Labor Pool Size 38,500

Key Services

Call Center (Japanese, Korean, Chinese), Embedded Software, Engineering Services, F&A BPO, IT Services, Systems Integration, Technical Helpdesk

Current Attractiveness

Future Attractiveness

Dalian is known as the ‘Model City’ of Chi-na, and a showcase of how China is at-tempting to transform from being just a

low cost producer to a high technology, knowledge based economy. Located in the North Eastern corner of China, its geographical proximity to Japan and cul-tural affinity have resulted in the city cornering most of the Japanese market for outsourcing. 80 percent of Dalian’s software exports are destined to Japan. Hav-ing cornered this market, Dalian in the past few years has been looking to the West, primarily the U.S. and European markets to make inroads in the outsourcing sector.

The city’s combined IT and BPO projected rev-enue in 2010 was US 3.9 billion, with exports of US 842 million, accounting for one-third of the country’s outsourcing revenue. It is anticipated that both the IT and BPO industry in the city will grow at over 35 percent annually for the next three years.

Dalian is home to approximately 300 scientific research institutions that produce 94,500 graduates and 25,000 technical graduates annually with an ad-ditional 8,600 students with reasonable Japanese-lan-guage skills. Currently, the city employs approximate-ly 95, 700 in the IT industry. The Dalian Institute of Foreign Languages provides training in English, Japanese, Korean and other foreign languages to ca-ter to the requirements of the call center industry. Neusoft Institute of Information Technology is one of China’s largest IT institutes. Despite the presence of these and other institutes, Dalian faces challenges in access to labor supply due to the rapid growth it is witnessing.

The Top 100 Cities

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Bogota

Country Colombia

Population 7.8 Million




Key ServicesContact Center (Spanish, Limited English), IT Services



Baogotá, considered a rising star in Latin Amer-ica for services offshoring is the commercial and cultural capital of Colombia. Once per-

ceived to be unsafe, the country has, in recent years transformed itself as one of the best locations to do business in Latin America, ranking higher than coun-tries such as Brazil, Chile, and Mexico.

Bogotá has a good educational system that produc-es qualified talent to meet the demands of the grow-ing industry for various business activities related to offshore services. The city is home to more than 107 higher educational institutions that produce ap-proximately 67,000 graduates every year, of which, 17,000 are technical graduates. At present, the BPO and IT industry in the city has a combined work-force of 50,000, of which approximately 80 percent is employed in servicing the domestic market and 20 percent services the export oriented markets, primar-ily across Latin America and Spain followed by the United States.

80 percent of Colombia’s contact center indus-try is located in Bogotá and generates 60 percent of the overall revenue. Bogotá’s outsourcing revenue in 2010 was about USD 582.162 Million, of which 82 Million is from exports.

Bogotá is well suited for setting up contact center operations to service the Spanish speaking markets in the United States, Spain, and Latin America.

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Cairo

The city of Cairo is the educational hub of Egypt as well as for MENA (Middle East and North Africa) region. The government is ea-

ger to attract and support foreign investments to de-velop the ICT sector and provides several incentives to investors. Incentives include beneficial purchase options for municipally owned land and tax exemp-tions to companies setting up operations.

The recent event in Egypt doesn’t stop the growth of outsourcing industry in Cairo. Example: - Teleper-formance has no intention to reduce its investment in the country; instead the company increases its man-power from 1,100 in January 2011 to 1,700 in May 2011.

Cairo serves not only the Middle East and Afri-can markets but is increasingly becoming a hub for serving the IT and BPO requirements for European countries such as Spain, United Kingdom, etc. A key enabler is the availability of a multi-lingual skilled workforce fluent in Arabic, English, Spanish, Ger-man, and French. It is estimated that the IT and BPO sectors employ 40,000 people at present.

Cairo international airport is the second busiest airport in Africa with air connectivity to various parts of the world. The government is investing heavily to upgrade the existing telecommunication systems and power supply to keep pace with the growing demand.

The Smart Village, a public-private investment partnership was set up in 2001 to attract investment and serve as a cluster for IT and business services. Several multinationals have already set up their cap-tives and global delivery centers in the Smart Village.

Country Egypt

Population 17 Million




Key Services

Embedded Software , IT Services, Medical Transcription, Multilingual Call Center, Product Development, Software Testing



The government is also developing a BPO Park at Maadi in the south-east of Cairo, which is going to be operationally ready 2012.

Application development, testing and technical support, product development, contact center ser-vices, and medical transcription are the main services being outsourced from Cairo.

Cairo is well positioned to grow as an important global sourcing destination for serving the MENA as well as European and U.S. markets.

Cit

y P

rofi

le

The Top 100 Cities 23

COUNTRY-IN-FOCUSEnsuring Global VisibilityA special feature for countries to showcase their uniqueness

There are numerous outsourcing destinations that exist as great alternatives to India and China.

Inviting Countries to showcase capabilities that accentuate their uniqueness.

For more information write to [email protected]

Examples of Country-in-focus featureEgypt Philippines Jordan

JORDAN

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www.globalservicesmedia.com DestinationsCompendium2011

• True Public-private partner-ship: A model that has been proven to be a success; The Government and the private sector have committed to developing the required infra-structure, attractive incen-tives and training initiatives to ensure a constant supply of skilled manpower

• A central location to support a regional hub and spoken delivery model; with many businesses looking to expand beyond the traditional markets, Jordan offers a unique market to tap to the growing MENA region. At a short flying distance from the GCC countries, North Africa, Central Asia, and Europe, Jordan provides an easily accessible location from which to support multiple regions

• Jordanian companies now have CMMI and SPOT certifi-cations; Certificates that are the best internationally and are considered an asset to any company

• A young, growing, and educated talent pool providing a good source of man power

• Investor-friendly regula-tions that do not require local business partners, Jordan does not have any foreign owner-ship/repatriations restrictions or localization policies thus giving flexibility

Why Jordan?• Jordan also possesses a modern and progressive society. Jordan is known for its economic and political stability, and for a multi-cultural society, marking it as an attractive destination for foreign nationals to work and reside

• Two cities; Amman and Irbid have emerged as the outsourcing Cities due to the strong infrastructure and talented workforce:

• Business Park Development Area in Amman-Dabouq:

with high quality residential developments, and a vast array of dining entertainment and leisure opportunities for residents, workers, visitors and tourists

• Irbid Development Area: Located in Jordan’s fertile north adjacent to the kingdom’s leading scientific institutions and one of the Middle East’s foremost ICT and health care universities, and stretched over a 3.2 km2 area, 20Km east of Irbid city and 80km north of the Jordanian capital Amman

Located in an outstanding city location on Amman’s main corridor with quick access to all city amenities, Business Park Development Area is destined to become a sustainable and enduring mixed-use city district that will provide future growth and development for Amman and Jordan. It offers international standard office environments

• Time Zone: 2-3 hours ahead of Greenwich timing in Winter and Summer times respectively. Countries with-in one time zone include those in Eastern Europe and GCC countries• Population: 6.5 Million• For more information on Jordan's country profile please log on to http://tiny.cc/0ptth

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Stable environment, trade linkageS & agreementS• Sound macroeconomic management, prudent fis-cal and monetary policies and sustained structural reforms including legislative, regulatory, and judicial reforms have posi-tioned Jordan as an ideal base for export-led growth to region-al and international markets• The Kingdom consistently ranks among the safest loca-tions for business in the world and among Arab nations, in par-ticular• Jordan is committed to freedom of expression and choice. Measured by the Annual Freedom House Survey, Jordan ranks fourth in the region• An array of international trade agreements for foreign direct investment and export:• USA-JUSFTA: Has been in force since 2001. It was the first free trade agreement negoti-ated by the US with an Arab country, and the fourth with any country in the world • GAFTA: Establishment of the Arab free trade zone by January 2005 • Jordan –EU Association Agree-ment: Came into force in 2002, the agreement aims at creating a free trade agreement by end of 2010• Singapore: Signed in May 2004; The agreement aims at the gradual elimination of cus-tom duties over a period of 10 years

• Roads: Jordan has a well developed road network allow-ing quick access to all its terri-tory• Electric Energy: Reliable and competitively priced, electric-ity in Jordan is generated by the Jordanian Electric Power Company (JEPCO). Government direction is also geared towards increasing the use of renewable energy sources

education & Workforce• Named as the MENA region’s top performer in the field of edu-cation reform, Jordan has been

pushing towards attaining highest international standards of quality• Jordan has a literacy rate of 91%• 70% of the population age demographic is under the age of 30, denoting a youthful pop-ulation, ideally suited for ITO and BPO jobs• Females comprise 51% in under graduate studies• 26 state and private accred-ited universities• Over 40 institutions produc-ing highly skilled technicians

• European Free Trade Association: Entered into force in January 2002, it aims at setting up a fully operational free trade area over a period of 120 years• AGADIR: Entered into force on July 6 2006, the agreement allows for diagonal accumula-tion of origin amongst its mem-ber countries• Joining the GCC council membership is in negotiation phase amongst others

general infraStructure• Three Airports: Queen Alia International Airport (Amman) which was recently expanded to serve 9 million passengers.

King Hussein International Airport (Aqaba) and Amman Civil Airport at Marka for mostly domestic and nearby interna-tional routes• Seaport: The Gulf of Aqaba on the Red Sea is deep water harbor which offers facilities for general cargo, containerized cargo and specialized cargo• Railroad: There is a new rail-way master plan to improve and increase the existing 620 km long rail network

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• Today, more than 29,000 for-eign students are enrolled in Jordanian Universities• Areas of study with the high-est enrollment include Business Administration, Engineering, Computer Sciences, Humanities, Education and Teacher Training, and Medical Services• Jordan’s workforce is regard-ed as one of the most qualified, competitive and productive in the region• Jordan’s labor rates are con-siderably cheaper than those in other countries in the Middle East• Labor force specialties include: information technol-ogy, engineering services, travel and tourism, textile production, natural resource extraction, pharmaceuticals and light man-ufacturing

commitment to inveStorS’ SucceSS

• Jordan Investment Board: A government institution committed to working with the private sector to promote Jordan for its unique and busi-ness friendly environment and diverse investment opportuni-ties. The JIB presents state of the art services for facilitating reg-istration and licensing proce-dures for projects, and offers all possible simplified procedures for investment• Development and Free Zones Commission: An ambi-


tious initiative led by Majesty King Abdullah was launched, creating development zones across the Kingdom that pro-vide investors with a globally competitive combination of location, infrastructure, and services and labor. The DFZC’s vision supported by a highly qualified team that works in partnership with the develop-ment zones master developers; charged with managing the buildings, development and operation of the zones. To date, six development zones are currently operational, offering diversified investment opportu-nities that build on each zone’s competitive advantage• benefits to foreign inves-tors: • Foreign ownership 100%• Foreign employment • One Stop Shop: One-Stop Shop services to streamline and ease the process of estab-lishing an operation within the Business Park. Investors will be able to avail of these fast track facilities for all services ranging from Registration to Licensing, Visas and Customs formalities• Tax and free related incen-tives and exemptions • Exemption from sales tax and custom duties

• As a result, Foreign Direct Investment (FDI) surged from USD 937 million in 2004 to around USD 2.4 billion in 2009ict• In response to a challenge put forward by His Majesty in 1999, the efforts were direct-ed at devising a comprehen-sive framework for Jordan’s ICT sector, which resulted in many strategies

• The National ICT strategy serves 2 basic goals. First, it identifies the ICT sub-sectors best-suited for growth given the environment in Jordan. Thus, the strategy challenge to which the private sector in the country must respond. Second, it defines actions the govern-ment must take to do its part to facilitate ICT sector growth• As a result of implement-ing these strategies, annual ICT sector revenues increased by an average of 25% yea-on-year over the past few years and generated income repre-senting approximately 14% of the country’s GDP, adding over 15,000 jobs directly to the economy and more than 80,000 jobs overall whether direct, indirect or induced• Jordanian telecoms have invested over USD 400 million in recent years in a number of technology solutions designed to make Jordan more acces-sible to the rest of the world • Opportunities in Jordan’s tel-ecom revenue reached USD 3.1 billion, up from USD 673 million in 2001

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outSourcing:

Jordan specialties in outsourcing lies in:

buSineSS ProceSS outSourcing (bPo): • BPO requires expertise in key business functions like finance and accounting, human resources, claims processing, and customer relationship manager

• With its higher literacy rate, lower cost, and highly trainable ICT savvy workforce, Jordan is ideally suited to provide such services

• Jordan’s familarity with the American, British, Asian, as well as Middle East business practices positions it well to serve all continents

• Global service providers have been active in Jordan and are using it as a base to serve its regional as well as global clients

• Sectors with good potential for outsourcing business processes to Jordan include banking, insurance, healthcare, telecom, hospitality and technology

information technology outSourcing (ito): • Jordan enjoys a high level of ICT penetration rate and a large number of ICT graduates with a strong industry focused skills

• In fact Jordan has been a source of IT talent for major local and multinational companies in the Middle East and is widely recognized as possessing the strongest ICT workforce in the region

• Alongside lower costs, western style legal system, strong IPR laws and a business friendly climate, Jordan has been positioned as an important IT outsourcing destination

• Many multinationals as well as local firms have capitalized ion Jordan’s rich source of talent and aptitude for sophisticated IT skills by establishing outsourcing operations

• Current capabilities in Jordan range from outsourced software development and testing to remote infrastructure management to providing technical assistance on sophisticate products

• Leading tech companies such as Cisco, Microsoft, Oracle, HP, Google and others have established centers of excellence in Jordan to tap into the country’s ICT advantage

knoWledge ProceSS outSourcing (kPo): • Knowledge based services require qualified labor force with specific expertise, advance knowledge, analytical interpretation, and technical skills

• Jordan with its vast skilled labor pool will provide quick time to market solutions for any organization and guarantees a continuous flow of support that will ensure continuous success for all current and future business

• Some of the key KPO services that can be delivered from Jordan include financial analytics, technical research, Middle East specific market and business research functions to name the least

Jordan believeS itS outSourcing StrengthS lie in:• financial services: Jordan’s banking and financial industry system is among the strongest and most developed among all Middle East emerging markets. Internationally recognized firms have emerged in Jordan to provide specialized F&A services for regional and global companies• engineering services: Jordan produces high caliber engineering talent by virtue of its highly recognized and prestigious educational system• healthcare and pharmaceuticals: The Jordanian government is committed to promoting the life-sciences industry as one of the new growth areas in the country• information and communications technology: Jordan’s vibrant ICT sector is the result of a fully liberalized market and a thriving private sector. The ICT industry has increasingly become the engine of growth for Jordan’s economy• energy and renewable energy: Jordan is ripe to emerge as a Clean Technology hub within the MENA region. Strong solar irradiance, robust electric infrastructure, abundant engineering talent, and moderate labor costs are particularly conducive to growth in the solarcontact:• For more information and statistics : Int@j: Tel: +962 6 5152322, [email protected], www.intaj.net• For more information and statistics on Jordan's outsourcing profile please log on to http://tiny.cc/tvuus

Shared ServiceS center: • With its strategic location as a gateway into the MENA region, its good international connectivity, lower costs, and world class infrastructure, Jordan can be the ideal destination for shared services centers

• As a BPO hub for MENA region, Jordan can be the decisive choice for establishing regional headquarters and shared services infrastructure

• A supportive government and best in class incentives offer an ideal launch pad for multinationals that can leverage Jordan’s strong workforce and cost to their advantage to further their global diversification strategy

contact centerS: • Jordan has a natural affinity to become a strong contact center outsourcing hub owing to a highly service oriented economy, a competitive cost structure, a young workforce and familiarity with both the Western and Regional cultures

• With a relatively neutral English and Arabic accents, Jordan is fast emerging as the most viable contact center destination in the region

• Several outsourcing providers operate out of Jordan, offering services to the US, UK and the Middle East ranging from customer support, pre sales and loyalty management to technical and helpdesk support

• Besides Amman a new contact center hub is emerging in Irbid to service growing demand for cost effective and talented agents

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• For more information and statistics on Jordan's country profile, please log on to http://tiny.cc/0ptth

regional dynamics

n AsiA 30

n EuropE 40

n MiddlE EAst & AfricA 45

n lAtin AMEricA 50

n north AMEricA 59

30


Asia - Balancing the Weight of the Western World

Sourabh Chandra Pushp

The dynamics between variousAsian outsourcing locations

could best be characterized as the warforBPOdestinations.ApartfromIndia,which has major scale in both IT andBPO, therestofAsia ismoreofaBPOstory.

The outlook for Asia/Pacific's BPOmarket remains positive, with growthin 2011 expected to be 17.9 percentin terms of U.S. Dollars. According tothe latest Gartner research, the world-wide BPO market is forecast to growby 6.3 per cent globally and 17.9 percent in the Asia-Pacific during theyear 2011. The study titled, MarketOverview: BPO Service Providers inCountry Marketplaces in Asia-Pacificand Japan,2010-2011, states that theBPOindustrywillgrowto$1.69billionby2012and$2.47billionby2014.

HKarthik, researchvice-presidentatEverestResearch,said: "Emergingmar-ketsarefaringfarbetterand,generally,

multinational companies now look toBPOfarmoreasameanstoreducecostsfor business operations. The outlookfor Asia/Pacific's BPO market remainspositive,withgrowthin2011expectedto be 17.9 percent in terms of U.S.Dollars.”

Thepresenceofmultiplecityoptionswith significantly different character-istics drives complexity in locationselection decisions in Asia. There is asignificant diversity in the evaluationof the top Asian players. India, withits early-mover advantage, is able to

30

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provide manpower for all type of off-shoringactivities.ThePhilippines'longestablished traditionofproviding lead-ing call-center support continues to bestrong. China provides competitivelypricedhigh-endanalyticsandengineer-ing,whileMalaysiaattracts ITservicesoffshoring.

CompaniesinJapanandSouthKoreaare looking at China to offshore theirIT/BPO processes-while operations inSingapore are considering their neigh-boring Malaysia as an attractive alter-native. Australian companies are mov-ing their IT/BPO processes within theregiontoIndianandPhilippines.

SakshiGarg,SeniorResearchAnalyst,EverestGroup,adds,“Indiahasretainedits’positionas the leadingglobalshor-ingdestinationwitha55percentshareofglobalITOandBPOmarketin2010.Early-moveradvantageintheoutsourc-ingindustryandcriticalmasshasmadeIndiathemostattractivegloballocationfor companies looking at outsourcing.”Shefurtheradds,“Thereareanumberofconsiderationsintermsofidentifyingaparticularcountryasa favorableout-sourcing destination, besides, the veryobvious cost related advantages, someof the other considerations include:availability of skilled manpower,

“ “ “ The potential demand for Chinese services is very strong due to three important factors besides simple labor arbitrage: risk diversification across multiple low-cost locations, China’s potential labor pool, and the attractiveness of China as a huge de-mand source for global products and services.

— Aparup Sengupta CEO & MD, Aegis.

Even companies in developing countries are looking to outsource BPO work. There is also a lot of de-mand for re-engineering processes with efficiency becoming the norm. The emergence of newer verticals will also be growth drivers.

— Som Mittal President, NASSCOM

Virtualisation, consolidation, and managed services that focus on ROI in the short term will drive opportu-nities in the market. Emerging Asian enterprises across multiple industries will continue to accelerate services spending in their efforts to challenge existing global MNCs.

— Roopa Kudva MD and CEO, CRISIL

32


competitiveness of suppliers/serviceproviders,languageproficiency,govern-ment support, educational system andinfrastructure.”

In another report on BPO trendsin the Asia-Pacific region, excludingJapan, research house IDC forecaststhemarket torise toUS$15billionby2011, recording a compound annualgrowth rate (CAGR) of 16 percent. Insupport to this, research firm Ovum,predicts- Asia-Pacific's BPO marketwill reach revenues of US$17.47 bil-lion in 2015, a CAGR of 9.3 per centfrom the US$11.18 billion it hit in2010,predictsOvum.

IT Spend IS GrowInG AcroSS The reGIon

The market in Asia for IT purchasesisgrowingconsiderably.Researchfirm,Forrester expects growth to accelerateover the next few years. According toForrester, the Asia Pacific economiesmay not have the fastest growth innominal GDP in 2011, but overall, ITpurchases in Asia will grow by 8% in2011and9%in2012withJapan’sslow-ergrowthdragging the regionalgrowthratedown.Intermsofthefastest-grow-ing countries in the top 15 IT markets(in local currencies), Brazil and Chinawillhavethefastestgrowthat15%and

33


12%, respectively. India scores next ataround 9%. Asian economies occupyfourofthetopfivefastest-growingecon-omiesinrelationtoITspend.

chIneSe drAGon vS. IndIAn BpoIndiahas retained itspositionas the

leadingglobalshoringdestinationwitha 55 per cent share of global ITO and

BPOmarketin2010.Indiawithitsfirst-mover advantage and deep skill baseremainstheunquestionedleaderintheAsian-regional dynamics. The fact thatIndia has a vast workforce and talentpoolthatiseagertowalktheextramile,hasmade themapowerfuloutsourcing

destination. While the cost advantageis unparalleled, India has the world’slargestpoolof employable talent, serv-icedeliveryinfrastructureacrossmulti-ple geographically dispersed locationswithin the country, and a supportivepolicyregime.

China, India's immediate neighborand major competitor in the region,viewsIndianprovidergrowthasamajorthreat diplomatically. Contrary to itsearlier positioning as a competitor toIndia,Chinaisnowhailedasbeingsup-plementary to India. China rules themanufacturing outsourcing space andis undoubtedly leagues ahead of anyother nation but, when the conversa-tion turns to service outsourcing Indiacertainlyisreckonedtheleader.Infact,the Indian growth rate in the sourcingspace is expected to surpass China by2015significantly.

There is significant buzz in the mar-ket thatChinahas thepotential toalso

“ On the supply side, China faces many seri-ous challenges such as Intellectual Property (IP) and data security concerns and the em-ployability of the workforce, which threaten fundamental growth. The Chinese govern-ment and suppliers are implementing new measures, however, to address these con-cerns.

— Liu Jiren, Chairman and CEO, Neusoft Group

34


become a leading sourcing destinationforservices.AlthoughtheBPOindustryin China is yet to attain the maturitywitnessed in India, there is more thanenough reason to believe the Chinesedragon is inching towards that desiredlevel of maturity and it surely poses asignificantthreattotheIndiansuprem-acy. 2009-10 data reflects a growth of21%intheChineseoutsourcingindus-trywithavalueof$23.6billion.WhileIndia still remains the most preferredoutsourcing destination for companiesin the West, the scenario is differentin the Asia-Pacific region. Most com-panies in these regions prefer to sendtheir work to China primarily due tolow employee costs. Hence, there isno doubt that China is fast emerg-ing as a major outsourcing destinationworldwide.

Aegis-CEO,AparupSenguptaisoftheviewthatChinawillovercomeIndiaasan appealing destination for non-voice

BPOservices.Accordingtohim,agen-eration of English-speaking Chinesewill surface in four years from now,as they have really toiled hard duringthelastonedecadetoprogressonthis.Although Aegis does not have a pres-enceinChinatillnow,thecompanyiscurrentlyconsideringsettingupcentersinthatcountry.

India has been a pioneer in provid-ing outsourcing solutions and a rangeof outsourcing services to countriesacross theglobe.Outsourcing to Indiacan help achieve all the above statedbenefits. The kind of trust and faiththatcompaniesenjoywithIndianpro-viders is a gradual process; to breakthis faith is the real challenge forChina.Followingaresomeoftheprom-inent reasons why companies choosetooutsourcetoIndiaandmaybewhatChinaneedstoconcentrateoninaddi-tion to creating a favorable marketenvironment.

“ Forecasts indicate that most economies will experience a decline in GDP growth next year, with countries in Western Europe and North America growing at the slowest rates and the Asia-Pacific region continuing to outperform all others. Despite the global setback, howev-er, spending on IT software and services next year is set to increase over levels recorded in 2010.

— Blanca Trevino, CEO, Softtek

35


IndIA AdvAnTAGe conTInueS• Cost-Effective Services: The number

one reason global organizations out-sourcetoIndiaistheircost-effectiveservices. Outsourcing to India canhelpyousavemorethanhalfofyouroperatingcosts.Havingalargetechni-cally skilled labor pool has enabledIndia to provide cost-effective serv-ices without compromising on qual-ity.OutsourcingtoIndiacanhelpyousave on your operating costs whileincreasing your productivity, qual-ity and efficiency. Replacing Indiandominance in the IT services spaceseemstobeunthinkable.

• high-Quality Services: OutsourcingtoIndiaisnotjustacostsavingplay,it'stransformedintoanallroundsat-isfying experience that saves moneyand makes the process more robustandstandardized.Qualityandprocessexcellence initiatives likeSixSigma,Lean, and others have been embed-ded in the offerings by all promi-nent Indian providers. India hasproveditistechnicallysuperiorwhencompared tootheroffshorecountriesprovidingoutsourcingsolutions.TheChineseproposetomoveinthesamedirection, but it's a path the Indianshavepioneered.

• Other advantages: Vast talent pool,scale, language, process maturity,governmentstability,goodandqual-ityexcellencecertification.

The phIlIppIneSThe Philippines has become one of

the most preferred offshore destina-tion for call center outsourcing, spe-cializing in customer support services.LikeIndians,Filipinosalsohaveahighlevel of English proficiency and strongcustomer orientation. The Philippineshavenotbeenfueledonlybytraditional

low-value-added call centers, but byhigher-end outsourcing. Even thoughcall centers still dominate the sector,thePhilippineshasstartedcapitalizingonitsnon-voiceprocesses.

TAkInG AdvAnTAGe of The phIlIppIneS

ManycitiesinthePhilippinesinclud-ingManilaandCebuhavetheinfrastruc-ture, the talent, and the governmentsupport needed to maintain successfulcall centers. In addition, the caliber ofpeople and the level of languageprofi-ciencyinthesepartsofthePhilippinesareequal ifnotsuperior tomostof thecurrentoffshorelocations.

36


The Philippines are a prime loca-tionforBPOservicesbecausetheworkcan be spread around smaller cities invarious provinces around the countrywhich are extremely inexpensive intermsofbothhumancapitalandinfra-structure.BothManilaandCebuaretoptier cities forBPOand softwaredevel-opment,butitisstilltheearlystageoftheindustry.

Theoffshoreoutsourcing industry inthePhilippines isnowestimated tobegrowing at about 30% and will reach$25 billion in 2012. Initially the focuswasoncallcentersandlowvalueaddedBPO,howevergrowthoverthelastfewyears has centered on higher valueactivities such as web design, softwaredevelopment,animation,legalservices,medicaltranscriptionetc..Whilevoice-based services constitute a bulk of theBPO market currently, non-voice andback-officeprocessescontribute90%tothefuturemarketopportunity.

AccordingtoMarifeZamora,ManagingDirector -Asia Pacific, Convergys, “AstheBPOmarketevolves,expect90%offuture Philippines-BPO opportunity toderive from non-voice BPO functions.BPO revenue in the Philippines hasgrown to over $8 billion, almost 50%overthelastfouryears,withprojectionsshowing them overtaking India as theBPO leader sometime within the next18months.”

whAT MAkeS The phIlIppIneS The preferred Bpo deSTInATIon?

First, there is great language advan-tage. A huge chunk of the Philippinepopulation is literate in English. Theeducation system, public and private,usestheEnglishlanguageasamediumof instruction. Filipinos, even whenuntrained,haveagoodgraspofthelan-guage.Moreover,moreFilipinoscanbeeasilytrainedtospeakwithanAmericanaccentoranyaccent theclientprefers.

“ Success in voice-based BPO services has made the Philippines the second larg-est low-cost BPO destination after India. Clients are now saying that there are cer-tain kinds of processes they want done out of the Philippines and some that they want back in India.

— Keshav R. Murugesh, CEO, WNS

37


Most Filipinos can commu-nicate well, written or oral,intheEnglishlanguage,andcanbetrainedtodobetter.

ThePhilippinesalsohasavast human resource talentpool that can be tapped forvariousservices.Asidefromthe widely growing numberof qualified call centeragents,a lotofFilipinosarealready skilled and trainedortrainabletoprovidemedi-cal transcription services,legal services,SEOandwebdevelopment services, soft-ware development, virtualassistance, and other such services.ThereisstillawidelyuntappedpooloftalentsinthePhilippineswhichcanbeutilizedviaoutsourcing.

Another important edge of thePhilippines in terms of outsourcing isthe country and its people’s familiar-ityandaffinityforAmerican(US)lawsandculture.TheFilipinos,mosthavingrelativesorfriendsbasedintheUS,andbeing exposed to US mass media for alongtime,areverymuchwell-versedinUS laws, situations, environment, andculture.

ThePhilippines,comparativelyspeak-ing, offers affordable human resourcesandoffice space.Furthermore, thecostofoperationsinthePhilippinesisverymuch affordable and well within the

range of its closest competitors in theBPO industry. Aside from the capitalMetroManila,manyothercities in thecountry such as Davao City, Baguio,andCebuofferavastpooloftalent,andaffordableofficespace.

Finally,thegovernmentisverymuchsupportive is providing infrastruc-ture and money to developing humanresources through education and train-ing. There is also focus on improvingtelecommunications infrastructure inordertoencouragebusinessestoinvestinthecountry’sBPOindustry.

Success in voice-based BPO serviceshasmadethePhilippinesthesecondlarg-estlow-costBPOdestinationafterIndia.A number of companies are alreadyleveraging the Philippines for a wide

38

India Market EstimatesAccordingtodatareleasedbyNASSCOM,Indian-IT/BPOsectorisestimatedto

aggregaterevenuesofUSD88.1billioninFY2011,withtheITsoftwareandserv-icessector(excludinghardware)accountingforUSD76.1billionofrevenues.AsaproportionofnationalGDP,thesectorrevenueshavegrownfrom1.2percentinFY1998toanestimated6.4percentinFY2011.

Withinexports,ITServicessegmentwasthefastestgrowingsegment,growingby22.7percentoverFY2010,andaggregatingexportrevenuesofUSD33.5bil-lion,accountingfor57percentoftotalexports.

SpeakingatNASSCOM-BPOSummit2011,SomMittal,President-NASSCOM,said“domesticBPOsegmentgrewby14percent toreachUSD14.1billioninFY2011.TheyearalsowitnessedthenextphaseofBPOsectorevolution-BPO3.0-characterisedbygreaterbreadthanddepthofservices.”

According to CRISIL's Roopa Kudva, “Indian software product segment isestimatedtogrowby14percenttoreach157billion,fueledbyreplacementofin-housesoftwareapplications.GovernmentsectorisakeycatalystforincreasedIT adoption- through sectors reforms that encourage IT acceptance, NationaleGovernanceProgrammes(NeGP) ,andtheUniqueIdentificationDevelopmentAuthorityofIndia(UIDAI).ITservicesisexpectedtogrowbyabout3.5percentin2011and4.5percentin2012.”

array of non-voicefunctions though thescaleof operations islow. Moreover, thePhilippine govern-menthasbeenencour-aging the growth ofthe BPO industry byoffering fiscal andnon-fiscal incentivesto attract more for-eigninvestment.

While India haslong been the preferred location for Information Technology Outsourcing (ITO),thePhilippines'richpooloflow-cost,English-speaking,accountingandbusinesssupporttalenthasmadeitthepreferreddestinationforBPOandwillsoonbetheworldwideleaderinBPO.GS


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Europe: Niche Capabilities Driving DemandSmita Vasudevan

Even in the post recession phase, when cost saving is a major pri-ority for enterprises in deciding

where to outsource, Europe has retained its position in the global outsourcing mar-ket with some distinct advantages. Eastern Europe has emerged as a strong competi-tor to low cost destinations like India and Philippines, with its ability to offer niche capabilities and when it comes to high-end, sophisticated application develop-ment and IT projects, Europe is still seen as the best bet. The advantage here is not

much in terms of cost but in the innova-tion and quality of services that is brought to the table.

neArShorInG opporTunITyOver the last few years, there has been

a visible shortage of skills in the Western Europe, while Eastern Europe has wit-nessed a significant growth in its tal-ent pool even through the recession. For instance, according to service provider, Luxoft, Romania has seen a 12 per cent growth in the experienced IT professionals

Europe certainly can’t compete with offshore destinations like and India and Philippines on the cost front, but when it comes to innovation and high-end technology solutions, it is very often seen as the best bet.

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employed at companies offering IT out-sourcing services. This justifies why serv-ices and facilities are increasingly moving towards the East. Moreover European enterprises are prefering to keep work closer to home rather than sending it to far off destinations. The cultural compat-ibility and similar time zones make near-shoring to Eastern Europe a convenient option. The region is thus very often seen as a favored nearshore option for most Western European countries and the US.

MAjor STrenGThS ThAT defIne europe Talent Pool

Europe has a vast talent pool, engi-neering expertise, and high standard of education. Dmitry Loschinin, President and CEO, says “Confidence is quickly rebuilding and more and more compa-nies are turning to Eastern Europe in

particular for technology services exper-tise. Reason: The region’s talent pool has never been stronger.” Multilingual Skills

Multiple language capabilities differ-entiate the European market from most other destinations. There is probably no other such destination that can support six to seven languages at one place. This has enabled the growth of BPO opera-tions and has attracted numerous service providers to the region.Stringent Data Protection Laws

Marriot says “privacy legislation and alignment with legal system give high confidence in most parts of EU.”Cultural Affinity

Eastern Europe offers a culture fit to enterprises in the nearby countries and the US, with advantages, such as language compatibility, less travel time, similar time zones and other cultural similarities.

NearshoriNg TreNd driviNg The europeaN MarkeT

“Each year we analyze 78 countries and we take top 30 of them to do a deep-dive analysis. This year, 13 countries were from the EMEA. So there are lots of opportunities in Europe for services to move within the region. Much of the work is being nearshored from UK or US, says, Ian Marriot, Research Vice President, Gartner.

“From an operational perspective, Eastern European countries maintain modest time zone differences to the U.S. and other Western European countries, making it easier to work on projects during traditional business hours. Additionally, Eastern European technology providers must abide by strict data protection policies as directed by the Data Protection Act, greatly reducing potential complications from a compliance perspective” says Dmitry Loschinin, President and CEO, Luxoft.

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key TrendS for 2011• Nearshoring interest is high in Europe-

demand coming mainly from Western Europe.

• It is the preferred place for high end IT solutions and niche capabilities.

• Global service providers are expand-ing operations in emerging locations like Serbia.

• Indian service providers particularly are looking at ramping up Europe business and building delivery capa-bilities in Europe itself.

• IT talent pool in the Eastern Europe is expanding significantly and is suf-ficient to satisfy demand. Therefore, factors such as attrition, wage increas-es are not yet matters of major concern.

• Cloud computing is on the uptake and being a developed market, skills in this area are available.

ITo or Bpo-whIch IS hoTTer?• According to Forrester report Market

Overview: European IT Infrastructure Outsourcing (2011), cloud-based serv-ices are dominating the infrastructure outsourcing market. As concerns over security issues prevail, private dedi-cated clouds and hybrid solutions are being offered by service providers. Forrester expects that resistance will change as more business professionals push for the flexible capabilities that cloud enables.

• Western Europe and UK are gradually, yet confidently gaining the dominant share in the global ITO market, catch-ing up with the United States. The Forrester report states that Ukraine is the lowest cost nearshore ITO destina-tion. The IT Sourcing Europe Survey discovered these countries as the most attractive locations for the outsourced

europeaN ecoNoMy

Countries are in a recovery phase. Private demand is expected to continue to strengthen in the core euro area and the Nordic countries, while remaining weak in Greece, Ireland, Portugal and Spain. The Greek and Portuguese economies are projected to be in recession this year. Growth in emerging Europe is expected to be stronger, at 4.3 percent in 2011 and 2012, after 4.2 percent in 2010. The recovery is set to broaden as domestic demand takes over as the main pillar of growth and all countries post positive growth for the first time since the 2008–09 crisis.

Large differences in cyclical positions, capital inflows, current account balances, and inflationary pressures remain.

Source: IMF report titled Regional Economic Outlook: Europe—Strengthening the Recovery (2011)

Source: IMF report Regional Economic Outlook: Europe—Strengthening the Recovery (2011)

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nearshore IT development- Ukraine, Poland, Romania, Hungary, Belarus and the Russian Federation.

• The BPO space is seeing lot of momen-tum in both voice and non-voice oper-ations. Driven by multilingual capa-bilities, call center activities are on the rise. Other BPO processes like F&A are also seeing lot of activity. Hungary, Romania, Slovenia are the major markets for voice operations, while Poland is the most desired loca-tion in the non-voice space.

opporTunITIeS Emerging locations in Europe are cap-

turing lot of attention from service pro-viders in different parts of the world. Good infrastructure, abundant labor, lan-guage capabilities and huge unexplored resources make these locations attractive investment options. Sitel has expanded its European operations by opening a new call center location in Serbia. Indian service providers are also targeting the

market for establishing a nearshore pres-ence. Mphasis, which has set up opera-tions in Poland this year, is one of them. Gopinathan Padmanabhan, Head Global delivery Unit, Mphasis, commented about the move in one of its recent press releases, “Poland offers ability to service clients in most continental European lan-guages and is well connected with other Western European business centers. The availability of talent, language skills and an established business infrastructure in Poland made it a natural choice for us.”

Easter Europe will hold its position as the most attractive location for sophis-ticated IT solutions.“In the next couple of years demand is likely to increase with countries coming out of debt cri-sis. Eastern Europe will continue to see demand for high order IT skills and niche capabilities, though the overall scale of operations would be lower than that in India and Philippines” says, Salil Dani, Research Director, Global Sourcing, Everest Group.

key couNTries raTed oN a 5-poiNT scale

Source: Forrester report, European IT Outsourcing Intelligence Report 2010

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chAllenGeS• DDifferent locations within Europe

have specific characteristics, advan-tages and limitations. So, service pro-viders will have to employ a combina-tion of strategies to expand within the region.

• There exist difficulties in scaling up. The operations in many of the top locations are much lower in scale compared to that of destinations like

K e y C o u n t r y P r o f i l e s

uKraine• Most attractive destination for nearshore software development. • Low IT salaries, Strong R&D, high tech education, innovation and abundance

of IT resources. • Ukraine can offer Western European enterprises a cost saving of 40-60 per cent

on their inhouse IT spending.

Poland• Demonstrates maturity of BPO markets.• The place for Business analytics, HRO, multilingual contact center operations

and F&A. • Krakow, Poland’s second largest city, is in the Tholons’ List of Top 50 Global

Emerging Outsourcing Cities.

Hungary• Attractive location for outsourced nearshore IT development.• Mature BPO market with strong focus on HRO. • The country's capital, Budapest, specializes in software development and test-

ing and is 7th of 25 safest cities for offshore/nearshore outsourcing.

russia• ITO market value higher than other three countries.• Russia is in Gartner’s List of Top 30 Outsourcing locations.• Specialized skills in engineering design and R&D services.

Source: Forrester report, European IT Outsourcing Intelligence Report 2010

India and Philippines. “The provid-ers tend to be of a smaller scale, and can put together large teams slower than competitors from other locations. However, for traditional R&D projects that's not a problem, as big teams are rarely needed” says, General Manager, Andrei Pronin, Auriga.

• Currency fluctuations and uncertainty in the economic outlook is posing another challenge. GS


Middle East & Africa:Offering Advantages Beyond Low Cost

Smita Vasudevan

With a fast growing local marketand huge untapped potential,

the Middle East presents an attrac-tive opportunity as an outsourcinghub as well as a nearshore destina-tion. Foreign language skills, relativelycheapworkforce, strongeducation sys-tem,highinternetpenetrationaresomeof the major factors that have addedto its attractiveness. The region haswitnessed significant changes over theyearsandhasbeensuccessfulinestab-lishing a solid infrastructure and busi-nessenvironment.Serviceprovidersare

increasinglyeyingtheMEAregionasatargetspotandinvestmentsarecominginfromallcorners.

MEA Countries like Egypt, UAE andJordanhavecomeoutaspowerfulcom-petitorsontheglobaloutsourcingscene.AT Kearny Index has been rankingEgypt amongst the top 50 outsourcingcountries, for some consecutive yearsnow.ThisyearEgyptranks4thandUAEcomes 15th. Jordon is another regionthat is rapidly gaining popularity. Itscity Amman is expected to emerge asa major outsourcing hub. All these are

Middle East and Africa is relatively new to the global sourcing industry, but it has gradually made a place for itself. The region shows great potential for future growth and offers attractive opportunities to explore.

45

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clear indications that the Middle Eastmarkethasemerged.

econoMIc ouTlookMEAhadsurvivedthepreviousreces-

sion relatively unscathed than mostotherpartsoftheworld.Theyear2010saw the region heading to an impres-siverecovery.Buttheeconomicoutlookfor 2011 is quite challenging. There isuncertaintyasa resultofsociopoliticalunrest, and oil importing countries aregoing to have a tough time due to therising fuel and commodity prices. Theestimated growth for these countriesthisyearisonlyaround2percent,whiletheoilexportingcountriesareexpectedto grow at a faster rate by around 5percent.

proGreSS SnApShoTcountrieslikeEgypt,Jordan,UAEand

South Africa have been doing excep-tionally well in the recent years andcapturedsignificantattention.Egypthasbeen able to do many things the right

Drivers Restraints

1.Increased Gov-ernment Focus

Uncertain Political Envi-ronment

2.More Investments by MNCs

Data Security & Integrity Concerns

3.Vast Pool of Talent Relative Newcomer to the industry

4.Infrastructure De-velopments

Competition from Low-cost Countries

Source: Frost & Sullivan

Prospects for the MENA RegionMENA 2009 2010 2011Real GDP growth 2.8 3.6 4.5Exports (change %) -9.5 2.6 5.2Imports (change %) 1.2 4.9 6.6Source: Wikipedia

Year 2011: Comparison over 2010

Economic outlook is challenging.Until late 2010, the MENA regionwas on track for recovery. Growthhad accelerated from 2.1 percent in2009 to 3.9 percent in 2010. Butsocialunrestandsurgingcommodityprices changed the outlook in 2011,improving prospects for oil export-ers and diminishing them for oilimporters.

The Middle East markets lost$112.39 B in capitalization duringfirst eight months of 2011 due touncertain global economic outlook,USandEuropedebtcrises.

Source: IMF

way. The country has a well estab-lished education system and has beenable to generate awareness about itsoutsourcing sector with the help of asolid promotion strategy and focusedagencies. The UAE offers a great busi-nessenvironment,crimeprotectionandstrong multilingual capabilities as aresult of its geographical placement.South Africa has been gaining morepopularityintheBPOspace,bothvoiceandnon-voiceprocesses.Thecountry'shuge English speaking population is

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what gives it an edge. Numerous BPOserviceprovidershavesetupoperationshereintherecentpast.

Frost & Sullivan report, Middle EastOutsourcing Value Proposition (2011),statesthattheglobaloutsourcingindus-try is estimated to reachawhopping$500Bby2016,andtheMENAregionis

Proprietary & Confidential. © 2011, Everest Global, Inc. 2

Offshore Destinations in Middle East and AfricaKey countries

Tunisia Turkey

Egypt

Kenya

South Africa

Key functions English language voice

support

Finance and accounting

Key source market UK

Mauritius Key functions Primarily French voice

support

Telecom and BFSI BPO


Continental Europe

Key functions Primarily English

language voice support

Banking and financial

services back-office


Key functions Primarily French

language voice

IT support

Key source market France

Continental Europe

Key functions Primarily French

language voice

IT support


Continental Europe

Key functions Primarily German language

BPO

IT support

Key source market Germany

Continental Europe

Key functions IT support

Multi-lingual BPO


Continental Europe

15

30

8 25

10

1

10

Size of offshore industry

(FTEs ‘000)

Source: Everest Group analysis

ThE DESTINATION LANDSCAPE

Source: Everest report, Overview of Offshore Destinations in Middle East and Africa (2011)

expected to hold only a minute shareof thiswith anestimated shareof$2.6B. But experts believe that the marketholds huge potential for future growthand some of its major locations areexpected to grow at a much faster ratethanleadingdestinationslikeIndiaandPhilippines.

48


MAjor ServIceS And clIenTS• ProminentservicesrenderedhereincludeCRMServices/callcenters,ITserv-

ices,Finance&Accounting,HROandprocurement.• Other specialist services include legal services, transcription, data analytics,

R&D,businessintelligenceandanimation.• France,CentralEuropeformsthemajormarketsfortheseservices.

opporTunITIeS wIThInMiddleEastandAfricaisrelativelynewtotheoutsourcingindustry.Butexperts

believe that the market holds value elements and unexplored resources, that ifusedwellcanhelpitgrabamajorchunkoftheglobaloutsourcingpie.

COMPARISON Of TOP MEA DESTINATIONS WITh INDIA AND PhILIPPINES

Source: Frost & Sullivan report Middle East Outsourcing Value Proposition (2011)11

Diverse Destinations

•Legend: •Poo

r

•Good

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Masood Ahmed, Director, Middle East and Central Asia Department, International Monetary Fund states in a research paper titled Regional Economic Outlook: Middle East and Central Asia, “The solution for Middle East lies in creating more employment by allowing small businesses to develop and offering young graduates the right kind of skill sets that will prepare them to take up private sector jobs.” The Middle east is a land of diversities and there is the need to identify and develop specific niche areas of expertize within specific regions.

Lindsey McDonald, Consultant, Frost & Sullivan believes that there need to be more awareness about the outsourcing sector in the region and the value proposition should go beyond the traditional cost saving objective. She adds, “Countries like UAE and Jordan need to ensure that they show the value of stability and their services are not cheap but cost effective and there is high level of service quality.” Egypt and South Africa have been able to do this to some extent and the rest of the emerging countries will have to follow suit.

Brian Humphries, senior vice president, Growth Markets Organization, HP, states in its press release about the company's recent expansion in Africa, “The move will support the development of a strong information technology industry, which will underpin sustainable economic growth, helping to create employment, stability and life-changing opportunities across the continent.”

ExPErt ViEwS

key STrenGThS & opporTunITIeS for MeA• TheregionwithitsEnglishlanguage

profiency, multingual skills, similartime zones and regional proximity,offersagoodnearshoringopportunityforEurope.

• MEAisanattractivespotforenterpris-esthatwishtodiversifytheiroffshoreoperationstoplacesotherthanIndia.

• The region is diverse and offersdistinct advantages that go beyond

low costs. This includes relative-ly cheaper workforce, foreign lan-guage skills and favorable businessenvironment.

• Considerablesupportbythenationalandregionalgovernmentstodevelopand strengthen the outsourcing sec-tor.Morefocusedagenciesarecom-ing up and promotional strategiesarebeingplannedtoexplorethefullpotentialofthisregion.

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chAllenGeS• Sociopolitical unrest in some parts and uncertain economic outlook have

dampenedgrowthtosomeextent.• AsMEAisdiverse,developmentshavebeenfragmentedandlimitedmainly

tospecificcountriesandregions.Forinstance,ifEgypthasdonewellwithitspromotionstrategyandcreatingawareness,othercountriesstilllagbehindinthisareaGS

fuTure TrendS

• Regions like Tunisia and Morocco will be exhibiting strong outsourcingelements

• Countries, suchas Iraq, Iran andOmangoing toprovidemoreoutsourcingservices

• FrenchspeakingNorthAfricancountrieswillbeseeinglotofdevelopment

• IncreaseddemandforemergingmarketswithinAfrica

recoMMendATIonS

• Developskillsthataresuitableforprivatesectorjobs

• Createnicheareasofexpertize

• Strongfocusonqualityofservice

• Ensurethatservicesarenotjustcheapbutcosteffective

• Create more awareness about the outsourcing sector in different regionswithinMEA

Source: Frost & Sullivan


Smriti Sharma

Recent times have witnessed thisregiondrawaceplayersoftheoutsourc-ingworld-AmericanExpress,GeneralMotors, Intel, Genpact, Sitel, Wipro,Citibank and more. Business processoutsourcing(BPO),sharedservicecent-ers(SSC),callcenters,offshoredeliverycentershavegrownsignificantly in theregion. For example, Wipro currentlydelivers finance and accounting serv-ices to the largest beverage companyinLatinAmerica froma service centerin Curitiba, Brazil. For years, TCS hadhad significant presence in Uruguay.Similarly, many of the global leadershave presence in countries like ChileandColombia.

Still, many potential areas beyondcallcentersandIThavebeenuntapped.

AreaslikeHRO,FAOandprocurementoutsourcing have still not started tomakebestuseoftheavailableresources.

Don Berryman, general manager ofAmericas at Sitel articulated, “In thepast few years, Sitel has experiencedgreat growth in Brazil, Nicaragua andPanama. Additionally, Sitel has cul-tivated aggressive development withour English-speaking agents in Bogota,Colombia. We have seen the Braziliandomestic market growing rapidly, andbusiness opportunities are expandingby20-25%ayear. Infact,Sitelopeneda state-of-the-art facility located in thecityofSaoPauloinJanuary2011,dou-blingourcapacity inBrazil,andbring-ingSitel’stotalemployeecountinLatinAmericatoover11,000.”

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Latin America It's Not All About Proximity

52


The cAllInG cArd of lATIn AMerIcA:

JuanDiaz,consultingmanager,WiproConsultingServices,authoroftherecentreport (by Wipro Consulting Services)titled Latin America- A New WorldOption for Offshoring said, “When cli-ents look at Latin America they lookfor Spanish language skills, geographi-cal proximity, and also cost effective-ness.Forexample, ifyou lookat Indiawhich is the most developed sector inoutsourcing or shared services, thereisa lotofwage inflationgoingon,andinflation is on the rise every year. In

thatcomparison,LatinAmericaismorestable. If you look at long term in thatcase, it is going to be probably samecost for some years and these are thekind of things companies are lookingat. So, probably if you have the samecost, ifyouhavethesametalentandittakes you the same to go from Europeto India or from Europe to go to LatinAmerica, then Latin America is also agoodoption.”

Thislocationprovidesgoodlanguageskills. Especially, in terms of Spanishand Portuguese it becomes a potentforce as you think about the Spanish

““The biggest advantage for our clients is convenient travel time and time zone alignment. It takes a full day to travel to the Philippines or India, and clients are forced to work a night shift to align with the North American workday. So, call cen-ters and business functions requiring work to be completed during US business hours lend themselves to a working loca-tion in this general time zone.”

— Don Berryman, general manager of Americas at Sitel

““If we take an overall assessment where you just mix what you have in terms of talent, what you have in terms of cost, infrastructure, countries been stable. If you take all that and mix it, then I'll say Co-lombia and Brazil are best options. Brazil is the best option because it is where the biggest market is and most developed, next to Mex-ico in the region. And Colombia is the one as it is the cheapest one and most business friendly and it is here where all the big players are actually going because there is huge potential there.”

— Juan Diaz, consulting manager, Wipro Consulting Services, author of report (by Wipro Consulting Services) titled Latin

America- A New World Option for Offshoring

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populationintheUS.Thereisprobablynootherregionintheworldthatoffersthe combination of language skills atscalepluscostsavings.

Offshoring Opportunities AmidEconomicTurbulence,TheA.T.KearneyGlobal Services Locations Index 2011highlights,“WithagrowingSpanish-speaking population in the UnitedStates and English proficiencycontinuing to grow inLatin America, cus-tomer services activi-ties will naturallyincrease.Thisregionpresentsakaleidoscopeofskillset.”

H.Karthik,vicepresi-dent,

EverestGroup, stated, “In addi-tion,toLatinAmericabeingaregiontoservetheUS,italsooffersafairlysignif-icant domestic or regional opportunityespeciallyinlargecountrieslikeBrazilandArgentinawherethedomesticmar-ket is also fairly large. Our estimatesuggests that between 60-70 percent oftheworkintheregionisfocusedontheregionitselfand30-40percentisfocusedon offshore, primarily the US. So, thedomestic market is a large opportu-nity. Domestic business opportunities:If you are to look at large global com-panies,theyalsoseedomesticbusiness

opportunitiesinLatinAmerica.Thisisirrespectiveofoutsourcing.”

The same time zone with US andCanadaisalsoanaddedadvantage.

Berryman expressed, “The biggestadvantage for our clients is conven-ient travel time and time zone align-ment.Ittakesafulldaytotraveltothe

Philippines or India, and clients areforced to work a night shift to alignwith the North American

workday.So,callcentersand business functions

requiring work to be com-pleted during US business hours

lend themselvesto a working

location inthisgeneral

timezone.”

chAllenGeSTheEconomicIntelligenceUnitstates,

“The concern with a lack of creativityis particularly acute in Asia and LatinAmerica,indicatingafeelingthatwork-ers in these regions, in particular, areconditioned to think in straight lines,and are less able to adapt to changingcircumstances.”

SpeakingofhowGenpact'sclientfeelsabout their chosen locations -Juarez,MexicoandGuatemala,MaryKorthuis,vice president and operations lead,Mexico and Guatemala, Genpact said,“Drugcartel-relatedviolenceandrelated

54


media stories has caused concern withsomecustomersandtheirownsecurityorganizations have limited/eliminatedtheir travel to Juarez. Other customersare fine and continue to travel in andout with no concern. Besides the cityissues, customers are pleased with thenearshorelocation;easyaccessformailpickup/dropoff;facilityliterallywith-ina“stone’s throw” from theUS;easyhiring of English speaking resourceswhogobackandforthacrosstheborderthemselves so they are integrated intoUSculture.TechnologyisallintheUS,soforallintensivepurposes–on-shorefunctionalityatnear-shoreprices.”

Berrymanenunciated,“Sitelisalwayson the lookout for oversaturation ina market where we are competing forresourceswithourcompetitorsorlocalproviders. However, an interestingdevelopment is surfacing where ourclients desire to enter markets that wesee as slightly oversaturated. This maybe happening because of regional pro-motion directly to our clients or eventhelossofexpertisewithinthecontactcenter industry. The key is creating agreat work environment and offeringincentives like continuing educationto become the most desirable place towork in these areas. But, at the sametime, you need to consider other mar-kets so you don’t saturate an area. Weworkwithourclientstoprovideanhon-estassessmentofthesituation.”

Potential entrants to Latin Americashouldconsiderthefollowing:• Rather than a company-by country

approach,companiesshouldadoptaregional, networked approach. Theyneedtocapture therightskill in therightcities.

• Differentiated advantages shouldencapsulate cultural similarities andthe physical proximity part. Theseadvantages should be promotedaggressively on how they can trans-lateintorealbusinessvalue.Berryman added, “You must remem-

ber this is not a domestic US location.There are many cultural and sociologi-cal similaritiesbut theystilldon’thavethe infrastructure of the typical U.S.location. So customers will not havethe sameexperience theywouldwithaUS call center. Expectations have to be

55


alignedtotheuniquenessoftheenviron-ment,similartowhenwedevelopedourpresenceinthePhilippinesorIndia.”

He added, “Agents and front linesupervisors are the foundation of ourbusiness and Sitel always builds ouroperations from the ground up. Wehave an outstanding real estate groupatSitel,andtheydoagreat jobofana-lyzing these locations and markets. Insomecases,wearelookingatthequal-ity of people, quality of education andthe support in the call center. Othertimes,Sitel looksat theroleofgovern-ment to see if they are active in termsof subsidies, credits or opportunitiesfor jobtraininginpreparationforposi-tionsinanewcallcenter.Sitelbelievesit’snot just thequantityandqualityofthepeople;it’salsotheparticipationofthegovernmentonalocalandnationallevel that can elevate a destination’scapabilities.”

Focusontheservicesthatarebestpro-vided in this regionandalsocarveoutnewnichesthatmaydowell.Competevigorously in the local market and theglobal service delivery playing fieldsto mitigate risk and enhance economicbenefit.

Diaz stated, “I would recommend acompany that is looking at setting uptheir operations is that they need tohavelocalsupport.Astheyaretheoneswhoareoperatinginthislocation,theyare theoneswhoknow the region and

theyare theoneswhoknowwhicharethecountriesthatbringthebestbenefitdependingonwhatyouwanttodo.”

counTry ScorecArdThe A.T. Kearney Global Services

Locations Index states, “Brazil excelsin IT and is a strong platform locationforsoftwaredevel-opers and sys-tem integrators.Mexico is becom-ingamorepromi-nentBPOlocation,as it supports USwith both Englishand Spanish.Meanwhile Chilehas emerged as aniche destinationfor R&D and ana-lytics,whileCosta Rica andArgentinacontinuetogrowtheiroffshoreservicespresencedespitefacingsomedeclineincost-competitiveness.”

Thereport,ANewWorldOption forOffshoring,statesWiprohasdevelopeda ranking methodology to help organi-zationsdecidewhichofthesecountrieswould offer the greatest benefits basedontheirneedsandpriorities.Therank-ing method is based on three primarybusiness criteria, each composed of agroupof key factorsnamely cost effec-tiveness,talentandresourceavailabilityandbusinesscatalyst.

56


here is the combined score (5= Best Ranking)

1. Colombia: Ranking: 3.34Negative publicity about guerrilla, drug cartels and high crime rates has

slowed investments by corporations. However, during Alvaro Uribe’s presi-dential period, security and crime rates have improved significantly. Today,countrieslikeBrazilandMexicoarerankedasevenmoredangerousandriskylocations.Withagoodcombinationof lowcost, talentpoolandgovernmentsupport,ColombiaisbecomingamongthebestoptionsinLatinAmerica,espe-ciallyinCallCenters.ThenumberoflocalandforeignBPOsuppliersoperatinginColombiaandthesignificantgrowththesectorhashadinthelastcoupleofyears,showthecountryisgainingtheconfidenceofforeigncompanies.

2. Brazil: Ranking: 3.08Largestcallcentersindustryintheregion.Verystrongtelecomnetwork(150

millionmobilephonesinoperationand50%ofhouseholdslinkedtobroad-bandbytheendof2011.

3. Chile: Ranking 2.98Chile is rankedasoneof thebestSpanish-speakingdelivery locations. It’s

pushingtogrowinthesectorbycoveringoperationsasanoffshoringlocationforcompaniesinSpain.

4. Argentina: Ranking: 2.91Inflationin2009was13%anditispredictedthatArgentinawillsufferhigh-

erinflationincreasesin2010,whichaddsanadditionalriskwhenoffshoringtothislocation.Itiskeythattheseprojectionsareassumedinthebusinessmodeltoensurebenefitsrealizationinthelongterm.

5. Mexico: Ranking: 2.70BiggestcallcenterindustryintheregionafterBrazil.ProximitytoUSattracts

UScustomers.GS

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LocationstrategiesmustplaceahighpriorityinidentifyingmarketsaturationasLatinAmericaisnotonelocation,butseveraluniquecountries.

Buyers need to keep in mind that there are significant differences acrossthe region in termsofcostand laborpool.Forexample,betweenBrazilandArgentina, Brazil is almost 40 – 50 percent more expensive than Argentina.Thereiscostdissimilarityacrosstheregion,thisissomethingcompaniesneedtokeepinmindwhilezeroinguponlocations.

Also, therearesignificantvariations in thescaleof talentpool inskillsandlanguage capabilities across the region. For example, countries like ArgentinaandBrazilsupportlargescale,butcountrieslikeColombia,CostaRicacanonlysupport small scale centers. Also, in terms of scale there are contrasts, BrazilhasfairlyevolvedintermsofITskillssuchasSAPbutcountrieslikeCostaRicaismore favorable for contact centerwork inSpanishandEnglish.Differencesinlanguageskills-BrazilismoresuitedforPortuguesework;Argentina,Chile,MexicoaremoreontheSpanishside.Broadly,alllocationsoffersomeadvan-tages,therearedifferencesacrosstheregionbothacrosscountriesandcitiesinthecountries,whichcompaniesneedtokeepinknowledge.

Karthiksaid,“Mostcountriesinthisregionhaveissuesoffluctuatingcurren-cy.Forexample,inrecentmonths,BrazilianandChileancurrencyarebecominglesscompetitive,whileArgentineancurrencyisbecomingmorecompetitive.”

Diazadded,“Buyersneedtohaveaclearoverviewofwheretheywanttogettoandwhateachofthosecountriesofferstothem.Itcomestowhattheywanttodointhecountry;ifyouwanttodojustplaincallcenters,thenjustgoforacheaplocationandifyouwanttogofurtherandintooperationsacrossalltheUSandotherplacesandcompanyprocesseslikeprocurement,thenyouneedtobeverycarefulwhereyousetupthoseoperations.Theyneedtotalktothelocalpeople.Companiesarealreadyoperatinghereandtheyhavedonetheirhomework.”

ReCommendationS foR buyeRS

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Servicesprovidersshouldapproachthisas an integral component of their globalstrategy.Inotherwords,thinkaboutwhatcomplementary roles that Latin Americaor the cities/countries in Latin Americacanplaytotheirnetworkofexistingcent-ers. For example: Are you thinking ofLatin America as a location to do verynicheworkfocusedontheUSmarket,orareyouthinkingaboutLatinAmericaasalocationtogetcertainskills?

Karthikstated,“Overall,thestrategyonhowLatinAmericafitsintheglobalplayneedstobeveryclearandtherearelotsofdifferencesacrossthecitiesandcountriessopeopleneedtobeveryclearonhowtheyneedtouseLatinAmerica.Ifyouarethinkingofitonboththegroundsofdomesticopportunityandoffshoreopportunity,thensomeofthelargercoun-triesaremorefavorabletolocatein.Also,intermsofstrategies,acquisitioncanbeapowerfulmodeofentry.”

DonBerryman,generalmanagerofAmericasatSitelstatesquestionsserviceproviders should be cautious and ask before approaching the Latin Americanmarket:

• WhatkindofbusinessamIplanningtoputinLatinAmerica?

• WhatkindofagentsamIlookingfor?

• Istheresupportintermsofworkers,educationlevel,serviceorsalesexperi-enceandEnglishspeakingskills?

• Howwillthislocationbenefitmyoverallgloballocationstrategy?

Failing to answer these questions is a common mistake that outsourcingproviders have made in new markets. Added Don, “Also, there are countriesinCentral andSouthAmerica thatmightnotmake goodcall center locationsbecause they don’t have the workforce in place, so service providers need tocarefullyassesswhatkindofbusinesstheywanttoputinthere,whatkindofworkexperience the localpeoplehave, andcan thebusinessmodel sustain alongperiodoftimetobeaviableinvestment.”

TalkingaboutthemajorchallengesGenpactisfacing,Korthuisshared,“Themainchallengeisthedrugcartel-relatedviolenceandtherelatedmediastories.That said, this violence has not disrupted our operations there at all and weensurethatouremployeesaresafeatalltimes.”

ReCommendationS foR SeRviCeS PRovideRS


North AmericaThe Closer the Better,

but the World is flat

Smriti Sharma

The economy of United States indi-catedsomesignsofgrowthinthethirdand fourth quarters of 2010. However,the second quarter of 2011 again pre-sentedamixedpicture.

UnitedStates is the largestandmostestablished market for both IT servicesandBPOandwillremainsointhefore-seeable future. In 2010, US accountedfor 63 percent of global IT offshoreoutsource spending, down somewhatfrom pre-crisis levels of approximately67 percent. The main obstacle that USneeds to combat is anti-outsourcingsentiments.

Though US President Barack Obamagave his word to stop American jobsfrom being outsourced to India, Indiancompanies got active in ramping uptheirAmericanworkforce.Forexample,Infosys plans to hire 1,500 workers in

theUS,Aegis–oneofthelargestIndianemployer in US - recently announcedthat they intend to create more than4,000 jobs in the US over the nexttwo years, and this message resonatesstronglywiththeirUSbasedclients.

huGe GrowTh proSpecTSOnshoring in North America offers

the advantages of proximity, culturalaffinity,time-zonealignment,relativelylower cost, fast & simple visa attain-ment, ease of software and hardwareprocurement,and the legaland IPpro-tectionprovidedbyNAFTAtreaty.

EstebanHerrera,chiefoperatingoffic-er, HfS Research articulated, “NorthAmerica has not historically been alow cost location. But the weak dol-lar,therecession,andthematurityandreliability of its telecommunications

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infrastructurehavemadeitcosteffectivetolocatemajorcentersinrelativelylow-costplacesliketheDakotas,Tennessee,Idaho, etc. In addition, struggling stateeconomies like Michigan have ledlocal governments to offer hard-to-beatincentives.”

Formostoftheserviceproviders,thismarket generates the largest percent-age of revenue. Thus, when more than50 percent of revenue is produced bya geography, it is essential to have apresence in that geography. Also, youneed tobe closer to the client location

to comprehend what are the dynamicsaffectinghisbusiness.

Aegis Limited has a strong philoso-phy- 'Wewanttobewhereourclientswant us to be.' Highlighting this phi-losophy, Sandip Sen, president, CLM,Aegis Limited elucidated, “If we comeacrossagoodclientthatwantsustobeinanygeographyandifthebusinessisviable, we will consider it. We like toadaptquicklytotheneedsandrequire-mentsofeachclientandgrowwiththembyco-creatingvalueandleveragingourstrategicpartnershipwiththem.”

“Knowledge of the US healthcare system and the business environment contributed to the decision to choose this des-tination. It provides opportunities for outsourcing with a skilled labor force and in-depth technical expertise. Each lo-cation has its own advantages. While India offers high qual-ity skilled work force, the US provides the opportunity and the capacity.”

— Tony Mira CEO, Ajuba Solutions India Pvt. Ltd.

“Canada is a very important destination for us because unlike the US, Canada has been relatively untouched by the recession. Tal-ent tanks are very solid here, economy is booming because of its mining wealth, it is rich in natural resources, it has also done a bet-ter job of managing its economy than US has done. A lot of CRM companies have insourced captive centers in Canada. So, the op-portunity lies for us in managing these captives. I am not saying we will go and ask for offshoring, instead we will say from captive give it to us, outsource it to us we will do it from Canada.”

— Partha De Sarkar, global chief executive officer, hGS

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* The Global Talent Index Report: TheOutlookof2015,writtenbyTheEconomicIntelligenceUnit reported,“TheUS is thestellarGlobalTalentIndexperformer,rank-ingfirstin2011and2015.TheUSleadisalmost one full point (on a 1-10 scale) inboth years over the next best performers.The country’s foremost strengths are theexcellenceofitsuniversities,thehighover-all quality of its existing workforce and ameritocraticenvironmentthatisrelativelyunencumberedbyrestrictivelaborregulation.”

Snapshots from the report a)73percentofrespondentsareconfidentthattheirbusinesswillbeableto

attractandretainthetalentitneedsoverthenexttwoyears.b)27percentofrespondentsarenotsatisfiedwiththequalityof newhires

overthetwoyears.Thereportalsostated,“Canada–burstsintoeighthpositionin2015,risingby

sixplaces,thelargestjumpintheindex.Thisimprovementispropelledbythedemographicgrowthrateofitsworkingpopulation,togetherwithaprospectivesurgeinemploymentandamarkedimprovementintechnicalskills,bothresult-inglargelyfromtheboominthecountry’soilindustry.”* The AT Kearney Global Services Location Index, 2011 states US leads in

peopleskillsandavailability.* GartnerestimatesthatNorthAmerica'sBPOmarketwillgrow3.8percentin

2011.* Another forecast made by Technavio analyst states that the Data Center

Outsourcing market in North America will grow at a CAGR of 12 percentovertheperiod2010–2014.Thereportenumerates,“Oneofthekeyfactorscontributing to this market growth is the increasing need to reduce datacenter capital and operational costs. The Data Center Outsourcing marketinNorthAmericahas alsobeenwitnessing increasing adoptionofprivatecloud-baseddatacenteroutsourcing.However,thegrowingnumberofend-users'concernsfordatacentersecuritycouldposeachallengetothegrowthof this market.” HP, IBM, CSC and Dell are key vendors dominating thismarketspace.

* Canadian outsourcing industry continues to grow in 2011 after an overallpositiveyear in2010.BPOregisteredayear-on-year (YOY)growthof2.25percentwhereashostingservicesgrewby8.75percent.TheCORE(CentreforOutsourcingResearch&Education)MonitorGovernancereport,a jointresearch effort with industry experts, IDC Canada and CORE in the lastquarterof2010hadestimatedayearendgrowthof3.8percentascomparedto2.1percent in2009.2011 isexpected tobeagoodyear foroutsourcingin Canada with estimated increase of 4-5 percent predicts IDC and MeritOutsourcingAdvisorsexpect.

word of thE wiSE

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A weak dollar and lower labor costsare conjoining to increase the attrac-tiveness of low cost North Americanlocations for global sourcing. Leadingoffshore service providers have beenbolstering their onshore presence. Forexample, HGS, a provider of outsourc-ing solutions has acquired 100 percentof the common stock of Canada- based

Customer Relationship Managementcompany–On-LineSupportInc.(OLS)-at an enterprise value of C$74.85M inanallcashdeal.AjubaSolutions IndiaPvt. Ltd. is constantly hiring peopleandopeningadditionallocations.Also,astheindustryismovingtowardscon-solidation the company is looking toacquirenewbusinessesintheregion.

ParthaDeSarkar,globalchiefexecu-tive officer, HGS, shared, “Canada isa very important destination for usbecauseunliketheUS,Canadahasbeen

relatively untouched by the recession.Talent tanks are very solid here, econ-omy is booming because of its miningwealth,itisrichinnaturalresources,ithas also done a better job of managingitseconomythanUShasdone.AlotofCRMcompanieshaveinsourcedcaptivecenters in Canada. So, the opportunitylies for us in managing these captives.

I amnotsayingwewillgoandask foroffshoring, instead we will say fromcaptivegive it tous,outsource it touswewilldoitfromCanada.”

Speakingaboutwhybuyersandserv-ice providers opt for this market, H.Karthik, Vice President, Everest Groupelucidated,“Therearecertainprocesseswhose nature necessitates onshore ordeliverybasedoutofNorthAmerica.Itis also the language skills and culturalaffinities that come in. For example, ifyouaredoingmortgageforeclosurethan

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all the interactions required with thecustomerstoarriveattheforeclosureofthedealaredoneoutofNorthAmerica.Itmayneedfourorfiveinteractionsperday to arrive at a foreclosure. This isverydifficulttodofromoffshoregeogra-phy.Evenfromatime-zoneperspectivethere are certain process that requiresa time-zone delivery. Also, it makessense from a political perspective tokeep some of your workforce in NorthAmerica.”

HealthcareisahugesectorinUSwiththepresenceofalargenumberofpeoplewho understand the healthcare systemthat is unique across each of the 50states in the country. Tony Mira CEO,Ajuba Solutions India Pvt. Ltd. articu-lated,“Inthenextcoupleofyearswiththenewhealthcareregulation,thereare

going to be 30M more people havinginsurance accessing hospitals and doc-tors.Thiswillputanenormousamountof pressure on the system to avail out-sourcingservices fromcompaniessuchas MiraMed who have the expertise inthe sector. The healthcare system willlook towards companies who will beable to process the claims efficientlyfrompeoplewhohaveinsurance.”

“Knowledge of the US healthcaresystem and the business environmentcontributed to the decision to choosethis destination. It provides opportu-nities for outsourcing with a skilledlabor force and in-depth technicalexpertise. Each location has its ownadvantages. While India offers highqualityskilledworkforce,theUSpro-vides the opportunity and the capac-ity,”Miraadded.

eMerGInG TrendS1. IDC's survey result shows that

while 70 percent expect no change,a net 6 percent of Canadian compa-nies plan on spending more money onoutsourcing. The study pointed, “Theaverage lengthof aCanadianoutsourc-ing contract has come down from 7years in 2001 to a less than 5 years in2010. This is especially true for thenewdealsthattendtobeaveraging4.1yearsfocusedon1to2towers.Eventhelargercontracts(C$100Morgreater)thattendtohavelongerdurationsaregetting

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hinduja global soluTions Fromasituationwherewehad100percentrevenuefromUS,

wehavereachedasituationwhereour60percentrevenueisgen-erated fromhere.Wehavesecuredour revenue fromothermar-ketsaswell.'

ParthaDeSarkar,globalchiefexecutiveofficer,HGS,addressed,“Thisregionisnotverycostcompetitive,sounlesswehavetherightpricepointsorcostpointsthemargintendstobeverylow.Itisaveryfracturedmarketwithtoomanyplayers,soyourabil-itytochargeapremiumonyourpricingisalsoverylowunlessyouhaveatruedifferentiator.Thatisthereasonwhywehavetobeverycarefulonwhatweareinvesting,howmuchweareinvesting,whereweareinvestingandwhatisthereturnoncapitalemployed.Fromamarketperspective,becauseof theuncer-tainties in the last threeyearsoneneeds todiversify the revenuedependenceinUS,whichiswhatwehavedonebymakingacquisitionsinUKandCanada.”ajuba soluTions

TonyMiraCEO,AjubaSolutionsIndiaPvt.Ltd.stateda) Healthcare regulation has led to changes in the healthcareprocesses in thecountry.Companiesarenot surehow thenewregulationsaregoingtoevolveandoperateandhencetheywillhavetoadapttothenewtrendsinthehealthcaresector.b) With more and more EMR and automation happening notonlyisalotofsophisticationrequiredfromtheoutsourcingcom-panies,hospitalsanddoctors,italsorequiresahugeamountofinvestment.

c)Automationandsophisticationofthehealthcaresectorwillmakeitdifficultforcompanies tosurviveas itwill requireenormousamountof technicalexpertise.

d)ThereisalsoahighcostforentrytothesectorcomparedtoearliersituationsanThelio healThcare soluTions

VishSivaswamy,head,globalpractices,AnthelioHealthcareSolutionsenumerateda)Understandingthecomplextechnologies,processesandregu-

lationsofthehealthcareindustry.b) Educate and convince the healthcare provider community

aboutoffshoring.c)Re-Engineering the processes that are currently prevalent

for standardization.Thiswillhelpprocess repeatability forscale.

d)ExpandingthelargertalentpoolinIndiaforthespecificIndustry-induct-ingcliniciansintotechnologyisnewandchallenging.

e)Makingsureofthesecurityofdataandinformationwhenaccessedbylargenumberofoffshoreresourcesandtherisksofbreaches.

ChallEngES: from thE horSE'S mouth

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shorter.Agreaterproportion(18outof22)ofthelargedealshavebeenrenego-tiations,renewalsandextensions. TheaverageTotalContractValueorTCVhasdecreasedfrom$100Min2001tounder$40Mfor2011.”

2. Anandan Jayaraman, chief prod-uct and marketing officer, Connectivanoted,“NorthAmericahaswitnessedachangeintermsoftheextendtowhichservices are being outsourced. Forexample, earlier they would outsourcemaybe a part of their operations -suchas analytics- and they would do mostof thework themselves.However,nowtheyaremoreopentooutsourcinglargefunctions. Also,pricingischangingtopayforperformance.”

3. Karthik predicts that there willbe modest growth in this region froma service delivery perspective. OverallgrowthinNorthAmericawillnotover-shadowgrowthinoffshoremarket,butitisgoingbemodestgrowthinsomeareaslike contact centers, industry specificworkthatrequiresanonshorepresence.

4.There iscertainamountofprotec-tionistpressuretokeepjobsinAmerica.

5.“SomeoftheIndianfirmshavealsobeen victims of trying to do to manythingstoofarandhavesufferedinqual-ity.SomeofthesejobshavegivenIndiabadname,”opinedParthaDeSarkar.

6.SomesmallerdestinationssuchasCosta Rica, El Salvador, Jamaica areemerging.

EstebanHerrera,chiefoperatingoffic-

er, HfS Research recommends, “Most

buyerssettingupshopinNorthAmerica

will be native to North America—the

economicsdon’t supportoutsourcing in

thereversedirection(yet)–sotheywill

be very familiar with the environment,

regulations, culture and labor dynam-

ics. The key is to remember that nearer

is not always better. There is no bigger

or more qualified labor pool for appli-

cation development and maintenance

thaninIndia,period.Whilebuyersmay

havetoenduresomeculturalandopera-

tional challenges, if they need scalable

ADM talent, there’snowhereelse to go.

Contactcenters,ontheotherhand,have

proventobequitecosteffectiveinNorth

America.A lotofBPOcanbenefit from

proximity and cultural understanding

as well. We always recommend buyers

makeadispassionate,non-patrioticbusi-

nessdecision:WherecanIbestfindand

securethetalentIneedatthemostcom-

petitiveprice?”

rECommEndationS for BuyErS

reGIon SpecIAlIzATIonSVoice-based processes, some niche

industry specific process that requireregulatory approvals, constant interac-tionwith thecustomers -Forexample,mortgage, aerospace & defense, energy,insurance, healthcare- CRL will con-tinue to grow, Contact Center, SOXaccounting.

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“Anything that can be home-sourcedand takes advantage of superior tel-ecomandotherinfrastructureisalikelygrowth area. Some new areas of scopethatrequireproximityand/orareviewedasveryhigh risk todeliver fromadis-tancecangaintractionoverthenextfewmonths and years. The conditions forResearchandDevelopmentoutsourcingare very favorable right now,” sharedHerrera.

employersandwillhiremainlyfromthecommunity.Forexample,ElSalvador–thereasonwhythisregionispopularisthat it is close to the Mexican border,thusofferingSpanishlanguagesupport.

Mira spoke about Ajuba SolutionschosenlocationsinNorthAmerica:

Michigan • Affected by the economy and the

automotiveindustry

counTry ScorecArd In a bid to cut costs, many of the

centersarebeing located in the remoteareas.Intheserurallocations,callcent-ers would typically be single largest

• Quality of workforce - motivatedandcommitted

• Highunemploymentratethrough-outthestate

Charlotte• High level of expertise specifi-

cally in the areas of finance andhealthcare

• Growingdestinationwiththepres-enceof a largenumberof compa-nies-migratingtheirheadquarterstothecity

• It is also an attractive destinationforverylargeUScompanies

United States• Thecountryprovides tremendous

opportunities for entrepreneursandbusinessmentoexpand,growandcreatenewbusinesses

• Healthcare is abigpartof theUSeconomy and infrastructure. Thesector is also rapidly changingandgrowing.Thisprovidesoppor-tunities for entrepreneurs whounderstandthesectorandwantto

provide services catering to thissector

• Aegis'onshoreandnearshoreloca-tions in the US, Costa Rica andArgentina offer benefits such asan enhanced end user experience,complementary time zones, goodinfrastructureandastrongculturalaffinity. More than 60 percent oftheir revenue comes from the cli-ents based in America. They arewitnessinganincreseddemandforclientengagementstobeperformedonshoreandnearshore,alongwithtraditionalfocusonreducedcosts.

• TheircentersintheAmericaspro-videarangeofservicesencompass-ing theentirecustomer lifecycle–acquisition, retention, customercare, upselling, back-office opera-tions,andcollections.GS

Introducing The World's Foremost

Expert On Outsourcing

Vox Artis, a Latin phrase that literally means voice of the expert, is a resource of cutting-edge insights by experts in global sourcing of bussines and technology, the resource is intended to be a knowledge repository and is oriented to help practitioners make actionable decisions. The voice of experts is delivered on various subjects and in multiple formats such as e-book, PDF, microsite, webinars, web-casts, expert round tables and more.

An initiative by

For queries, write to us at [email protected]

experts speak

n The Case for Nearshoring: Why and How the New Normal will shift Sourcing Dynam-ics 70

by Anupam Govil, Partner with Avasant and Presi-dent of Avasensen Global Supply Risk Management: Monitoring

and Managing Global Sourcing & Services Outsourcing Risks 76

by Atul Vashistha, Chairman & CEO, Neo Group Inc.n Latin America: De-risking is Becoming Ever

More Critical 86by Benigno (Beni) Lopez, Chief Globalization Officer, Softtekn Destination Strategy - What Makes/Breaks

It? 90by Deepali Sathe, Project Manager, ValueNotes Sourcing Practicen Compete or Cooperate? Bridging the Near

shore- Offshore Divide 94by Lalit Dhingra, President, NIIT Technologies Inc.

n Choosing the Right Offshoring Destina-tion 96

by LN Balaji, President of ITC Infotechn Does Captive Offshoring Still Make

Sense? 100by Nigel Hughes, Compass Management Consultingn Africa Rising – Outsourcing Juggernaut set

Sails 103by Dr. P.K. Mukherji, President & Managing Partner, Avasantn Africa : A Ripe Terrain for Impact Sourc-

ing 108by Pumela Salela, BPO Consultantn Business Transformation and the Expansion

into Asia 114by Sudhir Narang, Managing Director, BT Indian Location Strategy For Indian Delivery Cen-

ters 117by Viral Thakker, Executive Director, Head – Shared Services and Outsourcing Advisory KPMG in India and Jehil Thakkar, Executive Director Head – Global Location and Expansion Services Advisory, KPMG in India

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Anupam govilPartner with Avasant and

President of Avasense

The Case for Nearshoring: Why and How the New Normal will

shift Sourcing Dynamics

Over the last decade, organi-zations have realized that outsourcing delivers more than cost savings –it enables

agile and competitive businesses that can take on new market challenges. Many have used outsourcing effectively and cre-ated significant long term value for them-selves. But as Dr Howard Rubin, who coined the term Technology Economy, famously states –“the only thing about the future is that it’s not what it used to be”. Times have changed and with the econo-my still plodding along on half throttle, it is clear that the fluctuating business and market conditions will become the new normal. Businesses that survive will lever-age outsourcing to provide the operational flexibility that constantly changing mar-ket conditions demand. Businesses that thrive will be the ones that master the Technology Economy by spending wise-ly in solutions that further multiply the impact of outsourcing.

The supplier landscape has also under-gone significant shifts, with the rise of new

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destinations, rapid vendor consolidation, evolution of cloud based services and pro-liferation of more transformative sourc-ing models. As executives grapple with a myriad of priorities and a complex web of options, finding the sourcing equilibrium is becoming increasingly important. In this piece we take a look at how changed Sourcing Dynamics will impact the case for Nearshoring.

BAlAncInG The porTfolIo: AddInG neArShore To The SourcInG MIx

Services Globalization has been in a constant state of evolution, resulting in ever changing opportunities and chal-lenges for organizations. The elements of a sourcing strategy created few years ago may continue to be valid but the order of importance of each element may no longer be as pertinent. Companies have to recalibrate their sourcing strategy to adapt to these operating conditions and market changes. This is having a major impact on

how different sourcing destinations are develop-ing. For instance, recent-ly Philippines overtook India as the largest pro-vider nation of voice based services. Despite being a later entrant in the call center market, Philippines has grown faster in the last 5 years due to superior quality of

service and competitive costs. While India faced labor tightening and rising salaries, the Philippines strengthened its position due to an inherent affinity towards voice based services and more stable workforce. But another important factor played a key role – companies began diversifying their sourcing portfolio, allocating their out-sourcing assets between different geogra-phies to match the right skills to the right location. Philippines offered a great option to clients seeking locations that could offer the scale of India at similar costs.

In recent years many new Nearshore options have emerged that are now fol-lowing the maturity curve of India and the Philippines. These nearshore geogra-phies offer not just cost savings and qual-ity of service but also address some of the gaps of mature offshore locations such as language availability, time zone proxim-ity and cultural affinity. Nearshore loca-tions like Colombia, Dominican Republic, Jamaica, Costa Rica and further south such

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as Chile, Argentina and Uruguay present viable alternatives for a balanced sourc-ing portfolio. Mature services buyers are expanding their presence in this region to diversify their resource base and reduce outsourcing risks.

conSolIdATIon And expAnSIon of The neArShore lAndScApe

All aspects of global sourcing have wit-nessed rapid transformation in a span of few years. From newer engagement models to advanced technologies to more innovative service providers – recent developments have changed the game significantly. The transformation has hap-pened at both the macro as well as micro environment level. Some geographies have saturated while newer locations have emerged. Service providers have been on a consolidation spree (Igate acquiring Patni; Xerox acquiring ACS; Dell acquir-ing Perot Systems, Atos Origin acquiring Siemens IT Services, Cap Gemini acquir-ing CPM Braxis etc.) resulting in new sup-plier market dynamics. Service providers from established locations are moving into the nearshore market not just to expand their portfolio but to cater to a rising demand of Spanish/Bi-lingual services as well as time-zone sensitive services such as Agile computing. Countries such as Argentina and Uruguay also have a strong affinity with Europe. They are serving Europe not just in Spanish but in Italian, German, French and other languages as

well. With the rapid rise of IT and BPO service delivery capacity in Latin America, Nearshoring has become a very viable option, blending the advantage of prox-imity with the maturity of more estab-lished locations. Accenture for instance has set up delivery locations both in Brazil and Argentina. Indian outsourcing giant Tata now has presence in 14 countries in Latin America, with centers in Brazil, Uruguay, Mexico and Chile to serve its clients with local and global IT resources. There were 14 M&A transactions involv-ing Latin American targets in 2010, a sub-stantial increase compared to just three Latin American acquisitions in all of 2009. Private equity firms are also investing aggressively in the region now, with Apax Partners last year agreeing to pay about $1 billion for Tivit, a Brazilian IT outsourcing company. Many U.S. players, including HP, Accenture and Unisys, are increas-ing their presence in Brazil in particular, a growing center for BPO and IT services. These players are not only bringing their specialized practices and service delivery maturity to this region, but also acting as a reservoir of talent for other companies to offer more value-added services to their global clients.

IncreASInG AdopTIon of cloud BASed BuSIneSS ServIceS

Organizations are starting to give cloud computing the respect it deserves. Though we do not expect that cloud will replace

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traditional IT anytime soon, we strong-ly believe that organizations will start deploying cloud as an integral component of their service delivery mix. However, the promise of cloud based business services is like a double edged sword. It can be a ray of sunshine for cash-strapped businesses wishing to scale their infrastructure while reducing capex. Yet, if not done right or for the wrong reasons, this can literally cloud an IT organization’s future. Sourcing IT services on a subscription basis requires reliable communication and security infra-structure. As organizations evaluate cloud based solutions, factors such as customer usability, security, uptime, response time (latency) and scalability will become the main determinants for decision making. While most cloud service providers pitch their utopian vision of plug-n-play and homogeneity, each organization will have to look at cloud based solutions contextu-ally and develop an adoption roadmap to suit their technology DNA and business objectives. Nearshoring will play a key role in the growth of Cloud based Business services (or Business Process as a Service). The demand for real time support, low latency and higher security will favor nearshore locations. Locating data cent-ers that house the application and data servers in farshore locations would not satisfy the QoS and Service Level require-ments of Cloud users. Many Telecom and Infrastructure providers are already set-ting up large Data and Cloud computing

centers across the Caribbean, Central and Latin America to serve regional and North American markets. Cloud comput-ing in many ways will change not only the IT operating model, but also signifi-cantly impact the service delivery market. Mature providers are already reposition-ing their services and embedding compo-nents of Cloud services within their deliv-ery matrix. Its not a surprise that most of these firms are also expanding their nearshore footprint to offset their farshore “disadvantage”.

offShore fATIGue, neArShore fAScInATIon

Most Sourcing executives who have spent significant amount of time and effort on managing offshore vendors and sourcing programs will admit to offshore fatigue. While the benefits of Offshoring outweigh the costs of higher management

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bandwidth required, there is an increas-ing fascination towards finding a compa-rable nearshore alternative. Not only is there erosion of offshore savings due to high travel and communication costs, but mature offshore locations are also witness-ing rising wages and attrition, resulting in lower cost differential between Offshore and Nearshore providers. The business case for outsourcing closer to shore has never been stronger. Between the emer-gence of new nearshore service providers and expansion of global players, there is now a much wider array of options. Buyers visiting major nearshore destina-tions such as Colombia, Costa Rica and Chile have not only been pleasantly sur-prised by the capabilities available, but also enthralled by the natural beauty of these countries. When 24 hour plane jour-neys can be substituted by a half a day round of golf, nearshore starts looking a lot more attractive as a complete package. The proximity of a Nearshore location also has the benefit of making vendor manage-ment and governance easier. It is simpler to manage providers in similar time zones, reducing governance costs and resulting in better managed engagements. While process rigor and service delivery meth-ods with many nearshore providers may not yet be at the same level as mature off-shore providers, that is offset by the ability to manage contracts in a real time mode. Businesses are also expanding into Latin American markets to capture its growing

middle class and this provides another impetus to outsource to the region. Our final section describes this new vector that is going to make Nearshoring even more compelling.

The rISe of The MulTIlATInAS – why ITS noT juST ABouT coSTS AnyMore

According to a recent study released by Inter-American Development Bank (IDB), the amount of foreign direct investment within Latin America and the growth of middle class has created a new breed of aggressive multinational companies endemic to the region. These are being classified as the “Multilatinas”. These companies have borrowed a page from the Multinational companies (MNCs) and leveraged the cultural and historical famil-iarity within the region to create scalable business models. A combination of eco-nomic reform, advances in technology, improved education, comparatively low costs and increased management sophis-tication is driving these new generation of companies. Though Latin America's total population is just 43 percent of China's (560 million, compared with 1.33 billion), the region's combined Gross Domestic Product (GDP) equals China's (about $4.2 trillion in 2008). As the American and European economies struggle to get out of recessionary pressures, the burgeon-ing buying power of Latin America is a counterbalance to the drop in demand in

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Western markets. American and global companies are expanding into the region in larger numbers and along with that they are also outsourcing to the region. Multilatinas are embracing outsourcing aggressively and in many cases structur-ing strategic ventures to capture these opportunities as well. According to the COO of TCS, which has probably the larg-est footprint in the region, the primary rea-son for their growing Latin American pres-ence is that many of these Multilatinas are expanding their global presence, resulting in an increase in IT spend. While the IT phenomenon in India that created the $60 Billion outsourcing industry in the coun-try was largely driven by export markets, in Latin America its the reverse. Most large Latin American outsourcing firms have started with local and regional markets and only started diversifying globally in the last decade. Hence the outsourcing cul-ture in these providers has had to adjust to the demands of Western (North American and European) markets. However Latin American providers bring some unique attributes and expertise that their offshore brethren perhaps cannot mimic. Brazil possesses considerable expertise in the financial services industry and its banking sector is known for the sophistication of its transactional efficiency. The vast major-ity of bank checks in Brazil are cleared

electronically the same-day, while in the US it takes one week on average and the country also has the world’s largest ATM network. This domain expertise is being leveraged by many global banks that out-source their IT to Brazil.

concluSIonA perfect confluence of factors ranging

from economic uncertainty to emergence of alternative sourcing models and matur-ing of new destinations is ushering in a new era of global sourcing. As companies re-prioritize and re-align their operating structures based on this new business real-ity, the importance of having a balanced sourcing portfolio becomes increasingly important. With the changing dynamics in the sourcing landscape and increasing maturity, the nearshore market will become attractive not just for businesses seeking to outsource, but also for service providers from established destinations seeking to diversify. Nearshoring may not be a complete replacement for offshoring but will become an integral part of the sourcing mix. The business model that car-ried many companies into the new millen-nium is obsolete and the only way to navi-gate the coming decades would be by staying lean, flexible and willing to go where you've never gone before. One of those places may just be Nearshore. GS

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Global Supply Risk Management:Monitoring and Managing Global

Sourcing & Services Outsourcing Risks

InTroducTIon: STATe of The ouTSourcInG world

Today, outsourcing has become a main-stay of corporations. It is mainstream, it is global and it is rapidly changing. This dynamic has a huge impact on the competi-tiveness of global corporations. Yet, global sourcing is not what it was even a few years ago. Its complexity has risen manifold. It embraces multiple locations and multiple processes as companies seek, presumably, to optimize the gains from outsourcing and offshoring. This rise in use of outsourcing has been dramatic, exponentially raising the potential for outsourcing corporations and for nations seeking to provide the services. But it also has raised risks and brought on newer, and varied, risks, many of which are not fully assessed by risk managers. According to Gartner, the top 30 outsourc-ing destinations are emerging markets that bring varied and often high risks.

Over the past year, in particular, many of these risks have been brought to light by global events. Take the geo-political situation in Egypt that led to an unprec-edented nine-day Internet shutdown; or

Chairman & CEO, Neo Group Inc.

Atul Vashistha

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the recent hurricane and floods in the USA that caused disruptions in operations from the south to the north-east. These two situ-ations, in sharply contrasting locations – one, an emerging outsourcing hub and the other one of the world’s most industrialized nations – represent, probably, the worst nightmares of operations and outsourcing managers. But they are, by no means, the only possible doomsday scenarios. There are many other time bombs ticking away all the time, arising from the unique character of each country and city, endemic risks from financial turmoil such as the one in Greece and Portugal, policy-driven dynamics and even supplier-specific vulnerabilities.

Still, the higher risks are no reason for companies to turn the clock back on out-sourcing or give up on further gains. The need of the hour, instead, is a proactive, and effective, risk-monitoring mechanism and strategy. This paper evaluates ways to monitor, predict and manage Global Sourcing & Outsourcing risks. In this paper, we assess the causes and the consequences of these risks, before presenting a model risk-management system that can monitor the risks, predict possible future occurrences of these risks and pro-actively manage them, ensuring buyers and suppliers can sustain, and even further, the gains from outsourc-ing and offshoring.

The new rISkSA decade ago, global sourcing was rela-

tively limited. This was true in more ways

than one. At the turn of this century, fewer corporations outsourced, corporations out-sourced fewer services and fewer coun-tries or markets provided these services. Consequently, risks were limited, and tend-ed to focus mostly on supplier quality and service-level issues. So much so, an out-sourcing manager could conceivably run his entire program on a few Excel sheets, without losing too much sleep. Today, any manager who attempts anything like that is not fulfilling their fiduciary responsibility and placing their programs at great risk.

Today, offshoring is a business impera-tive. In fact, corporations are constantly evaluating different parts of their business that can be sliced and diced to be performed elsewhere, expectedly at lower cost while strengthening their competitive position in the marketplace. Consequently, compa-nies have begun to farm out complex, and even critical, processes to multiple locations across the world because of the growing maturity of the outsourcing world, and the emerging capabilities and capacities.

To imagine this complexity, think of a corporation’s outsourcing operation as a giant jigsaw puzzle whose pieces are being ordered from different parts of the world, to be finally assembled, perhaps, at its head-quarters. Each piece of the puzzle is impor-tant, and has to be ordered to precise specifi-cations; and all the pieces then need to come back in good time, and to exact standards, for managers to put the puzzle together. In this situation, what would happen if

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one piece is lost because of a typhoon in Manila? Or another is delayed by a flood in Mumbai? Or another is caught up by expiring tax incentives in Brazil? Or sud-denly one piece costs far more to produce on account of wage inflation in Bogota or policy U-turn in Russia? And, worse, what happens when multiple things go wrong? Would one be able to address these better if they had a fair warning? Knew how peers were responding!

Such is the complexity of global sourcing today. At any given time, hundreds of thou-sands of global corporations have numerous such jigsaw puzzles flung over 50+ countries across the world. Even if only a few go awry, there is a huge cost to pay. Companies just cannot afford to let anything go wrong. Yet many outsourcing managers do not fully assess the risks involved, or prepare for the worst, though the numbers of those using risk management tools are rising. Last year’s Excellence in Risk Management Survey found that the number of firms utilizing enterprise risk management programs had tripled from 2009!

The unITy And dIverSITy of rISkSEven given the complexity of modern

corporations, and their sourcing processes, it must seem puzzling to comprehend why outsourcing risks have grown dramatically. The simple answer is: geography and scale. It is the unity that binds all outsourcing risks, while the diversity of the risks comes from the unique vulnerabilities of each location

and the scale at which it is being performed. When companies first started outsourcing, most of the work was discrete and project based. Now, a significant majority of the work is management of ongoing projects and processes. In the past, any disruption in supplier operations delayed a project, while today, it can bring production lines to a stand still, delay billing or collection, thus revenues and even delay financial filings.

A decade ago, there were far fewer coun-tries to which corporations farmed out any work. Most tasks and processes were performed in-house. This was on account of several reasons. Technology, which magically enables offshoring, limited the tasks that could be outsourced; and fewer nations had the necessary skill sets and capacities to deliver. Today, both factors have dramatically changed and capital-ism’s animal forces are discovering scores of nations ready to provide a variety of outsourced services.

Among other things, the rapid march of globalization over the past two decades spread knowledge. This helped create newer markets with an impressive array of skills and resources, not to mention an immense hunger for economic growth. Over the past decade, at least, outsourcing has been one of the biggest drivers of growth in emerg-ing economies. Even giant nations such as China and India lean heavily on outsourc-ing to create jobs and to drive domestic growth. Consequently, almost all the so-called emerging nations fancy themselves as

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an emerging hub or spoke, for outsourced services.

Latin America is a large emerging out-sourcing hub whose proximity to devel-oped North American markets has proved a boon. Eastern European countries, espe-cially after the financial re-alignment fol-lowing the 2008 financial crisis, have the twin advantage of lower costs and affinity to developed European markets. Egypt, the gateway to Africa, had risen promisingly, and would remain an attractive market, if its internal strife is swiftly resolved. These ‘me-too’ nations, coupled with global corpo-rations’ insatiable appetite for outsourcing, have succeeded beyond the most optimistic estimates. As a consequence, outsourcing has a global footprint that is far and wide, with over 50 countries providing some kind of services. This geographic sprawl along with scale is responsible for the higher risks.

Geographic risks, of course, don’t mean only natural disasters. They mean much more – geopolitics, regional politics, regional financial policy, local (city- or region-specif-ic) culture and politics and several others. It might be useful to categorize the risks, along with the most relevant examples, as follows:• Natural disasters: Japan tsunami-

earthquake• Seasonal (and predictable) natural

disasters: Monsoon floods in Mumbai, typhoon season in Manila

• Terror attacks: Unpredictable but sev-eral countries could be vulnerable, with India and Pakistan near the top

• Industry inflation: Wage inflation in India, Brazil and Czech Republic

• City- or region-specific risks: Hyderabad on account of agitation for separate state-hood for Telengana

• Financial risks: China for its currency risks; Greece for its bankrupt economy; Europe overall because of the euro’s vulnerability; and Bangalore for inflation and quality of life

• Legal/policy risks: Almost all emerging markets and some developed ones, too, on account of opposition to immigration and outsourcing

• Vendor risks: India’s fraud-hit Satyam Computers is the most egregious exam-ple of how a vendor’s collapse can ruin the best plans. But almost every ven-dor has a level of risk that needs to be assessed

A pArAdIGM for rISk-MonITorInGTime was when outsourcers needed to

consider mostly service-level risks. Can the vendor deliver? Can the vendor deliver on time? Is their quality adequate?

The good news is that these risks are now readily assessed with the Capability Maturity Model and the like. The bad news, as we saw above, is that there are far graver risks involved that eventually impact ongo-ing service delivery, even if a provider has the highest CMM rating. How is one to evaluate these ongoing risks? Could some-body, or a theoretical model, have seen the India software tax export regime expiring?

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Or provided a few days notice of weather? Could somebody have predicted the cur-rency inflation or wage inflation?

None of these specific events could have been predicted with any accuracy. However, each of these could have been anticipated. Let’s see why.

Egypt has been a dictatorship for decades, and the Egyptian Movement for Change, the fountainhead of protest against the Hosni Mubarak regime, was started in 2003. Besides, Egypt’s geographical location –situ-ated in a region of harsh, Islamic dictator-ships with Israel as neighbor – brought more than average risks. Meanwhile, India’s ris-ing economy, its challenging poverty levels, coupled with populist actions and need for increased government revenues, indicated that there would be a move to extract more revenues from the thriving services exports sector. It is conceivable, therefore, that com-panies that sourced products and services

to these regions should have been not only aware of the risks but also pro-actively monitored those closely to pick up early warning signals, and even set up appropri-ate redundancies.

The fact is: the worst of risks can be fully assessed well ahead of time, avoiding serv-ice disruptions, financial losses and poten-tially brand dilution. Using qualitative inputs, expert assessments and quantita-tive methods, we propose a comprehensive risk-monitoring model focusing on serv-ices outsourcing. The goal of the model is to help managers pro-actively respond to risks that could interrupt operations or increase the cost of ongoing operations.

To start with, we propose that risks be, broadly, categorized as

• Country Risks• City Risks• Supplier RisksRisk categories at these levels include

Figure 1: a compre-

hensive risk model at a

glanceNegligible Risk Low Risk Modetate Risk High Risk Extreme Risk

Country Risk Macro- Economic Financial Business Infrastructure

Geo- Political Legal Scalability Quality of Life

City Risk Macro-Economic Financial Business Infrastructure

Geo-Political Legal Scalability Quality of Life

Supplier Risk Financial Clients People Alliances

Service Capability Governance Infrastructure Thought Leadership

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Country Model: We then identified risk segments and risk parameters that impact on operations risk. We have been able to build a model using 25 risk segments and 250+ risk parameters in eight catego-ries (macro-economic, financial, business, infrastructure, geopolitics, legal, scalability and quality of life). Some of the parameters are:

• Inflation• Currency• Fiscal deficit• GDP growth• Forex reserves• Tele-density• Stock market performance

City Model: Similarly, for each city, it is possible to create a comparable risk model, using parameters that uniquely contribute to the strengths and weaknesses of the cit-ies. Some criteria are:

• City budget deficit• Rental rates• Space availability• Local taxes• Lodging costs• Industry size• Attrition• Pool of graduates• Existing and planned SEZs• Educational institutes• Attrition rates• Wage inflation

Figure 2: a deep dive into sample risk categories For countries

Risk Category

Risk Segment

Risk Parameter

Geopolitical Risk

Political Risk

Counry Risk monitored across

Political StabilityCrime Rate Earthquake/Tremor

Volcano Eruption

n 8 Risk Categorisn 32 Risk Segmentsn 250 + Risk Parameters

n Inflation raten Rental ratesn Space surlplus/defcitn Lodging costsn Outsourcing industry sizen Attrition, Graduate pool

n Salary Growth raten Existing and upcoming SEZsn ITO and BPO Salary Levels n Fresher n Manager n Lead

Average Government Tenure Kidnapping & Ransom

EventsTsunami/Hurricanes/Typho

onNo. of Political Party

Rape Rate

Terrorism Floods

DroughtSocial Unrest/Striks

Corruption Level: State/City

Social/Security Risk

Country Level Data Points & Trends

Natural Disaster Risk

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Supplier Model: Finally, we created a model to assess supplier risk, again using 250+ parameters across eight cate-gories (financials, clients, people, alliances, services capability, corporate governance, infrastructure, thought leadership). Some important parameters are as follows:

• Operating model capability• Onsite-offshore composition• Human resources• Quality certifications• Infrastructure• Profitability and key financial ratios• Client composition

We then created a Web-based propri-etary analytical engine that can continu-ously collect data and constantly monitor risks at the three levels (Country, City and Supplier) - individually and collectively - and deliver a holistic report to managers. This model’s analytical engine dynami-cally evaluates 500+ criteria and delivers a rating that can be compared across 50+ countries, 100+ cities and 500+ suppliers, helping critical risk monitoring. The model also has a built-in predictive engine that picks up early warning signals, enabling prompt action to avert potential service disruptions and much more.

Figure 3: a risk management process

Data is continuously collected across the various parameters at the Country, City and Supplier levels and analyzed using a proprietary Analytical Engine, which can continuously collect data and constant-ly monitor risks at the three levels. The

various risks are then identified and cat-egorized using a robust Risk Assessment model. Then, the built-in Predictive Engine that predicts risk trends, picks up early warning signals, enabling prompt action to avert potential service disruptions and

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much more. Finally holistic risk reports are available in real-time to Global outsourc-ing and risk managers through the web. This model thereby dynamically evaluates 500+ criteria and delivers ratings that can be compared across 50+ countries, 100+ cities and 500+ suppliers, helping critical decision-making.

Over the past two years, we have used this model in the real world to encour-aging results. In one case, this model

helped pick up early warning signals on a policy decision in India - termination of the Software Technology Parks of India (STPI) scheme, which offered tax breaks. Based on our recommendations, one of our clients, a leading semiconductor com-pany proactively renegotiated, ahead of the policy announcement, a deal with a partner to locate in a SEZ, helping it real-ize an annual savings of approximately eleven percent.

Figure 4: sample analYsis

Samples analysis and reports are below:

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Here are a few other examples of how the model’s real-time alerts on a variety of parameters performed:

• In Q2 2010, this model picked up signs of likely escalating attrition levels in the subsequent two quarters in Shanghai. Following this alert, our client began a “proactive” employee retention strategy with suppliers, mitigating potential quality of serv-ice issues arising from higher attri-tion levels.

• In Pune, India, the analytical engine seized on a growing number of vio-lent attacks against women, follow-ing which companies were encour-aged to beef up security for women employees working night shifts.

• In another case, when a global sup-plier’s quarterly results indicated declining profitability, the model helped outsourcing managers pro-actively engage with the supplier on its cost-cutting measures and lower their impact on its own assigned team and operations.

• In India, we were closely follow-ing the government actions on the “STPI” law and predicted it not being extended. Prior to this happen-ing, an alert to a client focused them on renewing a contract but moving operations to the SEZ zone and thus

eventually realizing an eleven plus percent tax benefit amounting to over $3 Million a year in savings.

concluSIonFirms leveraging global services and

offshore outsourcing need a risk manage-ment system to ensure stability of opera-tions and avoid significant disruptions. While a lot of data is available publicly, it needs to be aggregated and analyzed on a regular basis to yield pro-active and rapid risk mitigation.

It is also important for the risk manage-ment system to not just be focused on supplier related risk but be focused on “Supply Risks”. Supply risk management is a much broader concept that includes location-based risk in addition to sup-plier based risk. So, the levels that need to be included in a supply risk manage-ment program include Country, City and Supplier.

Supply risk monitoring is not an activ-ity to be just undertaken during sourc-ing or at periodic intervals. Risks do not wait for monthly or quarterly governance meetings. A program like this, needs to be ongoing and real-time.

Companies are encouraged to setup their own programs or look to programs like the Neo Group’s - Global Supply Risk MonitorSM (GSRMSM). GS

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For queries, write to us at [email protected]

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Benigno (Beni) Lopez

Chief Globalization Officer, Softtek

Latin America: De-risking is Becoming Ever More Critical

The current market scenario of Latin America is growth – all over! More specifically, Brazil continues to have a very

dynamic market because of all of the vis-ibility the country is attracting.• Although recent potential challenges related to the foreign exchange rate in Brazil will probably bring some level of volatility, in general, the environment is very optimis-tic. The same applies to Mexico. Despite the challenges we see in the media related to security issues, we still see a lot of interest in both foreign direct investment as well as Mexican domestic demand. The only ques-tion mark I have in terms of Latin American growth right now is Argentina. Argentina is somewhat challenged due to risk of high inflation. However, due to the fact that it is an election year and candidates will not want the peso devalued, we don’t expect too much turmoil.• As for the rest of Latin America as a destination for global services, our position remains the same in terms of the 4 main countries from where we deliver. These countries continue to be: Mexico, where we

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are headquartered, Costa Rica, where we are focused in R&D for high tech compa-nies, Argentina, which, ultimately continues to be promising given the aforementioned caveat of inflation, and Brazil. Brazil features a huge in-country domestic demand, and a great talent pool to draw from –but without much surplus. Our global delivery cent-er in Brazil is growing, as is the demand from many domes-tic companies as well as for many MNCs, aug-menting their strat-egy with a Brazilian component. Brazil, moreover, works seamlessly with our delivery centers in the US and Mexico – and the on-ground expertise we have there is necessary to address local needs related to taxes and regulations.• The calling card of Latin America is still risk diversification. Although we’ve been preaching the same message for 15 years, there is still a big market segment that is just now embarking on this strategy. De-risking is becoming ever more critical, as risk becomes a key factors driving company value. As buyers begin to do their home-work looking for a risk mitigation alterna-tive, what they’re finding in some cases – to their pleasant surprise – is a very dynamic, strong talent pool in Latin America.

poInTerS BuyerS need To keep In knowledGe

You cannot treat Latin America as one singular region but rather as complemen-tary and diverse entities. Buyers must try to match their strategic goals to each coun-try’s strengths in the region. We still see some companies that view Latin America

as one region, but companies are increasingly committed

to more due diligence on the specific con-

texts of each coun-try. Buyers must develop local con-tacts and coordi-nate with them to get the most up-

to-date and factual information about

each country’s realities as is possible. The value

of these local contacts cannot be underestimated. If buyers do not have local contacts, they might try reaching out to global suppliers for advice, on a national context they may not know well.• With respect to Mexico specifically – buy-ers need to do more due diligence beyond what the media portrays. They need to understand that coverage of violence is also a reflection of a media’s business objectives. As such, one must really separate myths from realities. Additionally, just like Latin America is not one entity, Mexico is com-prised of many different cities and regions,

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all with their own political, economic, cul-tural and business landscape. Thus, one cannot treat Mexico as a single city or region either. Each region has different strengths and weaknesses, and you must find some-one trusted to shed light on any grey areas in question.• In terms of Costa Rica, it’s really a scale issue. Buyers must make sure to plan what they want to achieve in Costa Rica in such a way that they are not planning for a huge presence. This is because the demographics in Costa Rica are simply not present in the

same quantity as in countries like Mexico or Brazil.• Finally, it’s a good point to remember that generally, in the Latin American context, elec-tion years mean that govern-ment officials face uncertainty in terms of the long term viabil-ity of some programs. Thus, new programs may need to wait until elected leaders draft and execute their own agen-das. It’s likely that during elec-tion years, one cannot expect much decided support from governments.• Make sure you do consider the locals. Most offshore-cen-tric providers are focusing on domestic markets across Latin America, and not that much on global delivery from the region. Those that are beginning to offer

services from Latin America to the U.S., still have a learning curve to master because they are not used to operating in an environment where cost is not the primary lever, as it is in India. As I already commented, each country has different regulations, governments, char-acteristics, laws, culture, and putting all the pieces together means that local understand-ing is key to getting the most out of each country or city’s potential. Finally, the coun-try strategy must consider the issue of scale, and influence the decision making progress early on. It possible to make adjustments to

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strategy, but it’s very expensive to relocate a center, so starting with an understanding of scale and how to achieve it is a key factor where experienced vendors and advisors can provide hands on validation on setting operations in the region.

ServIce provIderS ApproAch To The MArkeT

The best approach is to remember the tried and true saying, “You must walk before you run.” Providers need to under-stand that each country in Latin America deserves and demands its own strategy. If a provider is thinking of setting up a delivery center for the U.S., it needs to think of lan-guage offerings, complexity and scalability. For example, in Brazil, tax implications have a large-scale effect on cost that one must keep in mind and account for.

IMporTAnT dIfferenTIATorS ThAT help delIver BuSIneSS vAlue In ThIS reGIon

With regards to Nearshore, the most important asset is experience. In addition to experience, it helps to have a well-defined business strategy that focuses on local knowledge and knowledge of your client’s major markets and operating cul-ture. For instance, not only is it important to know the ins and outs of the economic, political, cultural, technological and busi-ness landscape in Mexico, but it is equal-ly as important to have the same knowl-edge in the U.S. for a U.S.-based client, and so forth. In this sense, the most important attributes to help deliver busi-ness value in the region are: experience, local knowledge and buyer market understanding. GS

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Destination Strategy - What Makes/Breaks It?

the news about most of the offshor-ing deals that have gone kaput have probably not even seen the light of day. Sceptics in the buyer

organisation would have voiced their “I told you so” opinion, and vendors would have put this down as another lesson learnt. Every unshared experience is only likely to give way to similar instances of failed deals between the buyers and vendors, eventually contributing to the notion of the difficulty of outsourcing. A failed out-sourcing transaction is the result of many issues and a number of them have their roots in an ill-informed decision on destination. This article puts into perspective the importance of an edu-cated location strategy.

The uSuAl SuSpecTS of A Broken deAlSome of the usual suspects blamed for the failure of an offshoring deal include –

Change ‘mis-management’ - It is impera-tive that a company prepares its employ-ees for the changes that are expected once the decision to offshore has been taken. The importance of clarity in communica-tion, cultural sensitivity, understanding

Project Manager, ValueNotes Sourcing Practice

Deepali Sathe

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certain inherent nuanc-es cannot be stressed enough when making the transition.

Communication dis-parity - Something as simple as saying “yes”, when employees of an Asian service provider mean “maybe/maybe not” has been a source of great consternation for companies in the US and UK. While service providers are doing their bit to overcome this issue, efforts from buyers are equally vital.

Ambiguous deliverables - Lack of clar-ity on deliverables is the single largest reason for deals to fall through. This has its roots in lack of communication, pre-conceived assumptions and lack of pre-deal preparedness.

When Everdream, based in the United States, outsourced its help desk to Costa Rica, it did not take long for customers to start complaining. The service provider was selected post a process that invited bids, and opted for the one that appeared most balanced - in terms of costs sav-ings and risk management. The company states that initial efforts and training went through smoothly. However, within a few weeks of going live, customer satisfac-tion plummeted. In hindsight, the reasons cited were accent issues, poor telecom infrastructure, non-resolution of customer

problems, differences in companies’ phi-losophy, among others.

While each of the earlier reasons cited by Everdream is valid, the inherent source of problem seems to be lack of insights into the destination strategy. Why did accent issues and poor telecom connec-tions have to be ‘revelations’ post the deal? Considering this was a voice-based serv-ice, where end users would need technical support - language capabilities with neu-tral accent and good telecom infrastruc-ture appear to be the natural filters. Even a basic destination analysis would have brought out these issues.

BehInd The SceneS – The reAl ISSueCompanies typically decide to outsource to achieve certain benefits such as cost arbitrage, talent pool, and risk manage-ment, among others. Destination strat-egy is one of the many governing factors that eventually contribute to the overall

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success of a deal. Companies must focus on these dynamics rather than the out-come to ensure success.

The ABIlITy To ScAle up IS The reSulT of SuSTAIned efforTS -For a company that is looking to offshore as a long term strategy, the ability to scale up is an important decision making input. People resources and infrastructure, the two primary components of any growth plan, are available only after years of sus-tained efforts. For instance, it is not just the number of engineers that graduate each year; it is the employability that is more likely to impact scalability issues. The availability of top-quality institutes in the country will reveal accurate statistics of the available talent. Keeping the future in mind, the sentiments of the educa-tion sector towards corporate participa-tion can offer some insights into the kind

of resources that a desti-nation is likely to have. For instance in legal process outsourcing (LPO), efforts by Indira Gandhi National Open University (IGNOU) in New Delhi to launch a course in LPO has been received with enthusiasm.

Rome is not the only city that was not built in a day. Developing infra-

structure that can become an asset to business, takes years to build. Excellent telecommunications in Gurgaon may not necessarily mean good telecom facilities in every part of India. Not every city in China will be as well equipped as Dalian or Shanghai. Monopoly of a telecom com-pany in Costa Rica during early years of outsourcing in the country did prove to be a source of some concern.

Over the years many countries have tried to emulate the National Association of Software and Services Companies (NASSCOM) and its successes. Slasscom in Sri Lanka and BPAP in the Philippines are some examples. Associations contrib-ute a lot to the industry and its ability to scale up by providing a common platform to discuss and resolve all issues. Other aspects related to talent will also reveal the sustainability of the location. General comfort level with other languages, the

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training and development culture, the standard of education compared inter-nationally, etc. can lead to some valuable insights regarding future possibilities. For infrastructure, some of the areas that com-panies can look at are - regulations related to telecom and real estate, recent and long term real estate lease trends, overall connectivity with respect to roads and airports, presence of global companies in these industries, etc. These param-eters will provide insights to the current state and future trends of the outsourcing industry growth.

Good GovernAnce needed for BuSIneSS GrowTh - Business growth depends on government policies that are looking for value addition as in KPO from offshoring need to also take into account certain issues that may crop up with changes in policies. While most governments will not discourage the outsourcing industry in particular, compa-nies must take cognizance of the policies and their impact.

An understanding of the existing politi-cal system will provide insights to busi-ness continuity. While the ruling political parties are an obvious choice for due dili-gence, opposition (or its lack thereof) and regional political conditions also need to be given a serious consideration. The recent unrest in Egypt would have caused many companies serious concern. Internal law and order situation, threats, the country’s

ability to deal with them are all important inputs to risk management. The prevailing economic growth can indicate the strength of policies that the government has under-taken in the past. Many countries have established regulations that are designed to encourage the outsourcing industry, such as setting up of SEZs.

Some of the related economic param-eters that need to be considered are: sta-bility of currency, standard wage norms, disaster management among others. Similarly presence of other companies using outsourcing service providers from a destination can provide valuable insights into salary structures, and information on challenges and benefits.

need for A cuSToMIzed SoluTIonJust like other outsourcing solutions that are customized to enhance benefits, desti-nation evaluation has to be in accordance with company needs. Though cost cutting continues to be the major driver for out-sourcing, the deals that are cancelled are hardly due to lack of cost advantage. Companies have to invest in background checks to understand a location and its offerings. This will help them align their expectations leading to better prepared-ness and lower chances of failure. If desti-nation strategy feeds into selection of ven-dors, who anyway are ultimately respon-sible for delivery and maintaining cus-tomer satisfaction, the rate of success of outsourcing deals will improve. GS

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Lalit DhingraPresident, NIIT Technologies Inc.

Compete or Cooperate? Bridging the Near shore- Offshore Divide

Outsourcing service pro-viders began establishing near shore delivery cent-ers – located primarily in

Canada and Mexico, and increasingly in Latin American countries including Brazil, Argentina and Chile – several years ago for a myriad of reasons. And the drivers were mutually exclusive or mutually inclusive, depending on a vari-ety of factors:• Although India was, and still is, a key offshore destination for IT services, wages for IT workers were increasing year-on-year• Client company staff clearly preferred working with service provider staff located in similar time zones, rather than conduct-ing 2 a.m. local time review calls with a team located in India• Beyond simple preference for standard working hour contact on routine matters, clients were increasingly demanding the ability to reach similar time zone staff for escalation of critical issues and when deci-sions needed to be made, fearing both loss of speed and context if key contacts were located only in India

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• Some IT services companies began realizing the value of moving to a low cost, near shore destination for disaster recovery, multi-lingual support, etc.• IT enterprises were increasingly mov-ing internal IT requirements to existing near shore facilities, relocating employees in lower cost zones and creating a barrier for outsourcing• Western and near shore IT services companies, facing tough competition from their Indian counterparts, were replicat-ing India’s IT services delivery model and already had the same time zone value proposition

With these factors and increased compe-tition eroding business, Indian IT services companies began establishing their own near shore, same time-zone presences by buying other IT companies’ existing near shore centers, or forming partnerships with smaller, niche-focused providers with complementary service offerings.

However, the near shore promise was far from a panacea. Some IT buyers unex-pectedly realized they needed to audit process delivery and data security levels much more closely when doing business with domestic near-shore IT providers, as these firms were lower on the matu-rity curve than their offshore peers. Some Indian IT service providers encountered a skewed curve in smaller countries in which there were, at least near-term, a limited supply of skilled resources. The cultural differences were also a bit of

a surprise to some India-based provid-ers. For example, IT workers in Mexico took two-hour lunches during which they drank and danced was something quite unfamiliar to those from India visiting their near shore colleagues.

These challenges meant that mature India-based providers investing in near-shore capabilities had to find a solution to this multi-pronged cultural divide, and quickly integrate and channelize the acquired resources to deliver services. As a result, the global services industry wit-nessed a cross-pollination of resources from India and near shore countries to shorten the learning curve. This in turn resulted in good professional middle man-agement growth in many near shore and offshore companies.

The result of this compulsory compet-ing in a flat world is that clients will have a greater breadth of options for creating a sustainable IT sourcing blueprint and a solid business continuity planning/dis-aster recovery plan. And vendors will increasingly be forced to adopt and pro-vide delivery models that buyers prefer in order to support their core business case.

I believe that by 2015, the IT services vendors that want to remain in business will all have near shore as a delivery option or a core delivery offering. By then, near shore operations will no longer be a differentiator, and the focus will increas-ingly shift to innovation, automation and non-linear service offerings. GS

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LN BalajiPresident of ITC Infotech

Choosing the Right Offshoring Destination

Today, businesses are using off-shoring extensively as a strat-egy to compete and expand in the global market. This is an

economical way to meet market challeng-es such as rapid globalization, increasing competition and technological sophisti-cation as offshoring offers businesses a significant edge by reducing production and operation costs.

When choosing an offshoring destination, there are several factors apart from cost ben-efits that must be considered. These include:• Skill base and Educational institutions - Each country can be differentiated on the basis of the number of graduates it produces. For example, Indian graduates are desired for their competitive skills in software pro-gramming, whereas Filipino graduates are known for their proficiency in English lan-guage. Thus, when looking for an outsourc-ing location, companies must evaluate their decision based on the skill sets they require for their operations. • Data privacy and protection - Various countries follow different regulations

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when it comes to data privacy and protec-tion. For example, recent concerns about misappropriation of Intellectual Property and trade secrets in outsourcing to China, have compelled companies to re-consider a number of legal and practical issues. When off shoring, organizations should not forget to weigh the reliability of IT infrastructure provided by offshore ven-dors to ensure the security and privacy of shared data. It is also recommended that the network security policies followed by offshore vendors be evaluated beforehand so as to avoid privacy issues. Vendor pre-paredness, together with a robust regula-tory and enforcement environment, makes for a compelling proposition in deciding the location.• Government support- Government sup-port is a crucial factor that determines the success of an offshoring process. A high level of support from the Government trans-lates into ease of operations in offshoring its business processes. Support could be in the form of tax relief, employment regulations, public infrastructure, etc.

• Currency Rate- Another important factor to be considered while selecting an excel-lent destination for offshoring is its currency rate. The huge variation in currency rates of different countries is the main reason why some countries can afford to offer their serv-ices at very low rates. Companies should consider the currency volatility of different markets as well as the currency value and fluctuation over a period of years. • Other factors - The success of investments made in a country also depends on the per-sonal safety promised by the country chosen as an off-shoring destination. Considering factors like language and cultural issues, time zone differences and training is also important. Unfavorable social, political and cultural factors can make project manage-ment difficult, leading to improper integra-tion and poor project execution.

Keeping these factors in mind can help a company select a viable off-horing site. Besides cutting down on infrastructure and operation-al costs, choosing the right offshoring partner allows companies to focus better on their core competencies and strategic priorities.

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Among Indian off shoring destinations, Bangalore tops the list followed by Chennai, Delhi , Mumbai and many others. The tech-nology hub of the East, Bangalore has been serving global clients for over two decades. Some of the factors that work in its favor include:

• Diversity-Bangalore offers clients low-cost technology services in diverse areas. It’s Silicon Valley –like combination of tal-ent and a vast network of consultants and vendors makes it an attractive outsourcing destination for global clients.

• Skilled workers- The metro city has a talented and technologically savvy work-force that can provide quick ramp-ups and at affordable operating costs.

• Geography- The strategic positioning of Bangalore makes it a preferred location for offshoring. It is directly connected through air routes to international locations.

• Proven reputation- With Industry lead-ers like Accenture, Google, IBM, Cisco, Intel and Yahoo! having critical operations in the city, Bangalore comes across as a safe bet for companies looking to offshore due to its proven reputation.

Bangalore: India’s Ideal Offshoring Destination

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Comparative analysis of the most preferred offshoring destinations - India Vs China

Factors India ChinaSoftware quality CMM Level 5 CMM Level 3

Advanced Business Skills Vast experience in catering to the requirements of western IT services clientsBetter skills like project management, business analysis, etc.

Limited experience and therefore, plenty of room for skill enhancement

Business Languages English/Hindi Mandarin/MandarinGlobal Reach Expansion to Latin

America, U.S., Eastern Europe, and China

Limited reach beyond China

Average IT Staffer Salaries $9,896 $10,095Technology Infrastructure Excellent IT infrastructure

within technology parksGood IT infrastructure but not as robust as in India

Popularity Contest Ranked as the best destination for offshore IT services by Western buyers

Ranked #3 for the Eastern Europe regions

Source: CIO

2011 March Issue

Contact Center Industry: Where Do You Go From Here?Contact Centers and the Challenge of Social Media

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Next & Best Practices in Global SourcingThought-leading Practi- tioners’ Viewpoint

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Nigel hughes

Compass Management Consulting

Does CaptiveOffshoring Still Make Sense?

Summary: Captive offshore operations have evolved signifi-cantly over the past decade in response to a changing global

sourcing landscape. A recent TPI study examined the state of the captive opera-tion and assessed the operational perform-ance of 30 captive units. The findings, summarized here, indicate that the captive model remains an integral component of a comprehensive sourcing strategy.

When India was the de facto offshoring destination, captive operations were a rela-tive no-brainer. Large global organizations seeking cost savings could leverage their established Indian presence, eliminate the margins and overhead associated with outsourcing, and avoid the risks posed by putting operations in the hands of service providers who likely lacked the necessary skills and expertise.

Things are much more complicated today. For one thing, myriad countries and regions now compete intensely to be anointed the latest offshoring “hot spot,” and political and economic turmoil raises

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doubts about stability. This means that the optimal geography for offshoring is going to change over time, causing businesses question the viability of a long-term investment in a captive. Moreover, the increasing maturity of sourc-ing providers – in India and else-where – has closed the skills gap between in-house and external staff.

These doubts not-withstanding, the off-shore captive opera-tion remains essential to the sourcing strat-egy of many business organizations. TPI (owned by ISG, Inc., the same par-ent company that owns Compass) recently completed a bench-mark study across 30 IT and BPO Captive units. The analysis, led by Gaurav Kumar, TPI Director and Lead, Captive Consulting, assessed business, financial, and personnel metrics against comparable captives from the previous year. To ensure an apples-to-apples con-text, exchange rates and working hours per year were also normalized across all participants.

Overall, a clear trend that emerges from the analysis is that offshore captives are increasingly focused on improvement ini-tiatives and optimizing efficiency, pro-ductivity, and investments in training and

workforce development. This reflects the general maturation of client organizations

in the space, and of the sourcing marketplace in general, and

demonstrates the realiza-tion that offshoring in and of itself is not enough to gain a competitive edge. In today’s sourcing

environment, any strategy requires effective operational management.One key finding of the anal-ysis: captives are adopting

a global service delivery model by diversifying their

geographic portfolio beyond the typical captive

locations. For example, parent entities are

leveraging cost arbitrage by combining operations in Tier I and Tier II cities. (The median study participant had delivery centers in more than three low-cost loca-tions.) Companies taking this approach tend to identify specific cities to source best-of-breed skills for their operations, so that, for example, knowledge proc-esses might be based in Delhi, applica-tion development and maintenance and R&D in Bangalore, and IT infrastructure in Chennai.

A related trend is a notable increase in multi-country and multi-region cap-tive presence for large companies. Mature companies segment work into the “front

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of the back office,” where services are delivered from captive locations within the same region or time zone, and the “back of the back office,” where work is done from a global low-cost locations such as India, the Philippines, or China.

The increasing prevalence of hybrid delivery models is another indication of the emphasis on operational optimiza-tion. Captives are integrating third-par-ty providers into their existing captive operations to perform non-IP-sensitive processes.

This hybrid delivery model can take the form either of co-sourcing, where cap-tive and third-party units coexist at the same location, or where the captive opera-tion uses use third parties to augment their teams, while retaining overall project management responsibility.

To address the constant challenge of cost efficiency, captives reducing technol-ogy and telecom costs by adopting cloud and virtualization solutions and by utiliz-ing thin clients.

Captives are also proving to be a valua-ble source of talent for the global business, and are enabling their parents to success-fully acquire domain experts and talent for their core business operations globally. For example, the analysis observed situa-tions where captive personnel with dem-onstrated expertise have moved across parent entities to either lead operations in other geographies or to assist in scaling up such operations.

oTher oBServATIonS:Parent entities are taking advantage of

captives’ familiarity with local business conditions and opportunities to deliver services within domestic markets. By lev-eraging the same platform to support both international and domestic opera-tions, the parent organizations achieve economies of scale and ensure consist-ency on regulatory compliance and inter-nal controls and audits across the entire franchise.• Cost-reduction strategies include

aggressive segmentation of salary and facility costs.

• Captives are optimizing technology and telecom costs through rational-ization, implementing thin clients, and consolidating bandwidth.

• Support costs continue to offer captives an opportunity to realign their cost base and prune expenses. Specifically, technical training leading to certi-fication continues to be an impor-tant investment. Top-performing captives employed internal trainers for Business as Usual requirements and external trainers for specialized requirements.

While the role and characteristics of captive operations continue to evolve in response to a dynamic marketplace, evidence suggests that they will remain an integral compo-nent of a comprehensive sourcing strategy. GS

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Dr. P.K. MukherjiPresident & Managing Partner, Avasant

Africa Rising – Outsourcing Juggernaut set Sails

Over the past few years coun-tries in Africa have been try-ing to position themselves on the global sourcing map as

competitive destinations for service deliv-ery. The efforts and initiatives of countries in the region are paying off with several multinational companies making invest-ments in the last few quarters, to both serv-ice the regional market and also to use the geography as a global service delivery hub!

African nations have realized the poten-tial of the IT/BPO sector as an integral pil-lar to foster economic growth in an inclu-sive fashion. Their competence in terms of demographics and language skills has been well established. Their advantage in terms of time zone compatibility with the European nations and shared busi-ness culture has also been acknowledged by many clients and service providers. To harness these capabilities some of the African nations have taken a stride ahead and progress in this domain can be clearly seen. There has been significant improve-ment in the infrastructure, noticeably

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in the telecommunication & technology parks and human capital development. These improvements have resulted in a constantly growing IT/BPO market.

InfrASTrucTure IMproveMenTS: key To SuSTAIned GrowTh

Infrastructure development projects are on an upswing in many locations within Africa with increased participation from both public and private sector. A huge improvement can be seen especially in the communication sector and the commercial real estate with multiple IT parks becom-ing operational.

Large Telecom operators like Bharti Airtel are looking to harness this large untapped market as well as contribute to the infrastructure development thereby making it a more conducive outsourcing location. Airtel has already invested $ 11 Billion in Africa which has led to almost a 50% reduction in mobile telecom tariffs. During the past five years, Africa’ s cellular market has grown 5000% to over 400 million

subscribers, making the continent the fastestgrow-ing ICT mar-ket in the world.

The public and private sector has also made

considerable progress in improving fiber connectivity. Since the fiber optic SEACOM subsea cable went live in 2009 and the dra-matic reduction in Internet costs that fol-lowed (prices in some parts of East Africa fell from $4,000 to under $500 per megab-it), broadband consumption has jumped in some cases almost 10 fold within the first year of commercial service. In the 2010 ITU report, out of the top ten countries show-ing the steepest decline in prices world-wide, nine of them were African countries.

Along with the development in the telecom landscape many technology parks have been developed to promote the growth of the IT/BPO industry in Africa. Parks like Smart Village in Egypt, Innovation hub & Softline Technology Park in South Africa, Casablanca Technopark in Morocco provide state of the art facili-ties and incubation centers to the IT/BPO industry. Tunisia, for instance, has recently announced an ambitious plan to build 10 technopolis to disseminate digital culture and new technologies within the next ten

• Improved Mobile & Broadband Telecom.

• New Technology Parks

• Government Incentives

• Private Sector initiatives

• Tax Breaks• Subsidies

Growing Market SizeInfrasructure Government

Incentives Impact Sourcing

Human Capacity

Development

Multinational Corporations

ICT Industry

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years. Kenya also has outlined an ambi-tious plan of developing a 5,000 acre East African technopolis. These developments and plans pave the road ahead for a sus-tainable growth in the ICT sector of Africa.

GovernMenT IncenTIveS: foSTerInG GrowTh

Governments in most African nations have been actively engaged in develop-ing the IT/BPO industry and from time to time have released attractive incentive plans. These incentives by the govern-ment have enabled an increasing inflow of Foreign Direct Investment since 2000 and is expected to touch the 2008 marks again by 2013 (Depicted in the Chart 1 – There was a reduction in FDI in 2009 and 2009 due to global recession) and attracting service © Copyright 2011 – All Rights Reserved, Avasant LLC Page 3 of 5 providers to set up delivery centers and MNCs to set up shared service centers. Recent incentives by the South African government aim to reduce the operating cost of BPOs by an additional 20%. Similar incentive schemes have been rolled out by most African countries and have acted as a key factor in developing the IT/BPO industry. Strong data and IP protection laws have also been tabled by governments indicating a positive directional movement to create a conducive business environment.

huMAn cApITAl developMenTThere have been considerable efforts,

in the past few years, to improve the

education levels in Africa to fulfill the requirements of growing ICT industries. Apart from the government initiatives in improving the education system and pro-viding training grants to corporations, a lot of initiative has been taken up by pri-vate companies. Some of the recent initia-tives such as the Microsoft’s South African Innovation Centers to promote the job enablement program have started yielding results. The AfDB has invested in informa-tion and technology skills at two regional Centers of Excellence in ICT in Tunisia and Rwanda and in a High Tech Centre in ICT in Mali. MTN & Cisco have also invested in skills development in South Africa. ITIDA (Egypt) has also launched European lan-guage programs in partnerships with lead-ing cultural institutes in Egypt to enhance availability of talent for technical sup-port with proficiency in French, Spanish, German and Italian. These initiatives by both the government and the private sec-tor have increased the employable popula-tion in the African continent resulting in an improved IT/BPO market.

IT/Bpo MArkeT: The GrowTh STory

In the past couple of years there has been a significant development in the IT/BPO space with many third party providers entering the African Landscape. This mar-ket has seen an increase in not just third party service providers but also captives of major MNCs. In order to tap the potential

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at the bottom of the pyramid, Impact Sourcing as a method of outsourcing has become a lead-ing phenomenon taking cues from the rural sourc-ing initiatives in countries like India.

Ranking of countries like Egypt has improved significantly from a 13 in 2007 to 4 in 2011 on the AT Kearney Global Service Location index and the Government is projecting revenue of $ 2 Billion from the IT/BPO industry by 2013. Faced with intense competition and eroding margins due to inflation in India, Spanco a tech-nology firm expanded in Africa and now earns nearly half its profit from the African region in 2 years employing nearly 2500 people here. In Kenya, for instance the number of IT/BPO companies has grown from just 1 in 2005 to over 25 in 2010. Tele Tech entered the Ghana BPO space in October 2010 with the acquisition of Vodafone’s call center and now has a 600 seat center in Ghana, making it one of the bigger third party players in the African market. Over 200,000 South Africans are already employed in the BPO sector, with five of the world’s top 10 BPO firms

setting up © Copyright 2011 – All Rights Reserved, Avasant LLC Page 4 of 5 shop in the country in the last two years. Genpact Ltd, Aegis Communications Group Inc. and IBM have started operations, while Mahindra Satyam is planning to open a center of its own. Entry of these large IT/BPO companies in the African market is a testimonial of the traction the industry has gained over the last couple of years.

Shared Service Centers of Multinationals have forayed into the African market not just to create value through outsourc-ing services to a low cost destination but to enter into the huge untapped African Market. Nestle, for instance, has strength-ened its presence in Africa by setting up a shared service center in Accra (Ghana) to support back office operations to 40 African nations and is expected to employ 150 peo-ple by 2012. Entry of large multinationals

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60

50

40

30

20

10

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

DDA

Source: DECD/DAC for ODA, UNCAD for FDI 2000-2010.Projections for 2011: FDI: IMF; ODA: Simple forecast

*ODA CAGR – 12%*FDI CAGR – 18%

USD

Bill

ion

FDI

0

Chart 1 - FDI and ODA flows to Africa

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into the African market has served them the dual purpose of establishing a foothold in this geography as well as to exploit the benefits of a low cost destination.

Government projects and collaboration with private players are encouraging the development of the IT/BPO landscape through various e-Governance and digiti-zation projects. The Governments in coun-tries like Ghana and Kenya are not just promoting this industry through aids and infrastructure development but also have become the users of these services, creat-ing an anchor demand essential for the growth of this industry.

AchIevInG IncluSIve GrowTh: IMpAcT SourcInG

Impact sourcing, a new phenomenon in the sourcing world revolves around the premise of a social impact through BPO. It involves employment generation within the poorer sections of the society and has seen a huge potential in Africa. A constantly increasing ODA (Official Development Assistance) as seen in chart-1, demonstrates an active participation of various organizations and govern-ments in developmental projects in Africa. Initiatives from groups like Rockefeller Foundation strengthen the viability of this newly established mode of outsourcing. Various models have been identified to create employment in the underprivileged sections of the society through BPOs. In

Ghana, for instance, out of the 2500 odd seats in the BPO sector, almost 30% can be classified as Impact Sourcing seats. Right skilling of work and identifying train-able skills have enabled development of specific skill based training to increase the employable population in these countries. Corporations around the world and gov-ernments in Africa are beginning to realize the huge potential this segment of the out-sourcing market offers and have started to make investments.

concluSIonAfrica has always been perceived as

geography with huge potential but in the recent years, significant progress in real-izing the potential has been observed. Infrastructure improvements and reduc-tion in ICT costs have fostered the growth of the IT/BPO industry. Significant inflow of FDI and foray of service provider com-panies have demonstrated the fact that the African IT/BPO industry is set to compete globally with the established geographies in this sphere. It has become difficult to ignore this huge market both in terms of a low cost location with a young population as well as a regional market with sizable demand for goods and services. Further capacity building activities already initiat-ed by the African nations will enhance the pace of growth and pave the road ahead for further expanding the IT/BPO indus-try in the region. GS

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Pumela SalelaBPO Consultant

Africa :A Ripe Terrain for Impact Sourcing

As early as 1995, C.K. Prahalad author of The Fortune at the bottom of the Pyramid: Eradicating poverty through

profits, asked three pertinent questions i) What are we doing about the poorest peo-ple around the world ii) Why is it that with all our technology, managerial know-how, and investment capacity, we are unable to make even a minor contribution to the problem of pervasive global poverty and disenfranchisement iii) Why can’t we cre-ate inclusive capitalism? C.K. Prahalad correctly stated that new and creative approaches are needed to convert poverty into an opportunity for all concerned.

A few years later, after the growth of Sourcing, the Sourcing industry can play a role in answering some of the late C.K. Prahalad’s questions. This is a legacy the industry can contribute to, not only for the sake of C.K. Prahalad himself but for the future generations, if each industry player could tap into this new socially responsible and sustainable way of sourcing.

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whAT IS IMpAcT SourcInG?Impact Sourcing employs individu-

als with limited opportunity for sustain-able employment as principal workers in Business Process Outsourcing (BPO) centers to provide high-quality, information-based services to domestic and international public and private-sector clients. . According to the Monitor Group, Base of the Pyramid is defined as the population earning $2/day or below in PPP terms for most lower and middle income countries. Different organizations refer to this new move-ment in different ways : The Rockefeller Foundation calls it Impact Sourcing (IS) whilst the Global Sourcing Council refers to it as 3S, which stands for Socially responsi-ble and Sustainable Sourcing. Regardless of the names given to this new form of sourc-ing social revolution,the unifying principle is that Outsourcing work must be given to those communities who are poor as a means of stirring up economic growth in the areas where they live.

whAT IS The SIze of The MArkeT And ITS poTenTIAl?

A new report funded by the Rockefeller Foundation estimates that the field of Impact

Sourcing is currently $4.5 billion and has the potential to reach $20 billion and employ 780,000 by 2015. The report, conducted by Monitor Group, suggests a strong business case for Impact Sourcing, which can provide high-quality, reliable services at prices that are at least competitive with traditional BPO

centers and, in some cases, almost 40

percent lower than what tradi-tional providers can offer. It states that

today, the total global IS market (which gen-erates an estimated $4.5 billion in revenues as indicated above) represents 3.8 percent of the entire $119 billion BPO industry and directly employs about 144,000 people across all segments.Of this, $1.2 billion is estimated to reach IS workers as employment income. Analysis suggests that the share of IS in total BPO could increase and , more than $10 bil-lion will reach IS workers through employ-ment income in the few years to come.

The role of GovernMenTGovernments need to come up with

government policies that create an ena-bling environment for Impact Investing.

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Governments need to direct the market and industry to be socially respon-sible and sustain-able. Governments should encourage new activities in underserved areas. Innovative approaches should be encouraged in order to bring about a new way of doing things and solving day to day problems. The government could provide direct finan-cial support in the form of incentives or institutional support and influence markets through laws, regulation, policy innovation and economic development.

An example could be made of the South African government, which, in its quest to bring BPO jobs to the people , identified areas within the country ( South Africa) which had been previously identified as poverty nodes, as areas that could be used to promote Impact Investment. The South African government came up with a policy which gave investors additional incentives if they located their operations in the desig-nated areas. This encouraged the workforce not to leave their places of birth, which are largely rural, in search of better jobs in the big cities, but to provide the services where they live. This allows a greater interaction with their communities which promotes social cohesion. This initiative also prevents labour movement as people are able to have decent lives where they were born.

The role of prIvATe SecTor/InduSTry

Impact Investors on the other hand, need to find a balance between making

profits and philan-thropy. The private sec-

tor need to create a pri-vate market that sup-ports socially responsible

and sustainable sourc-ing. Industry should start

outsourcing to the severely economically distressed areas.

One of the demand constraints that are faced with Impact Sourcing Service Providers (ISSP’s) is accessing clients and contracts at their early stage of development. Due to their rural nature they struggle to attract a sizeable amount of clients. I believe that this is a short-term challenge. The more awareness is created about Impact Sourcing , the more it should form part of the social agenda of each organization that is involved in Sourcing, be it as a client or a third party service provider that is located in an area that is more “upmarket” than the rural areas that we have referred to throughout this text.

The role of cIvIl SocIeTyOrdinary citizens have a big role to play

in this new “movement”. They need to hold government and the investors/private sector accountable . If communities hear of a new investment in their areas they should try to

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find out how the benefits will trickle down to those who are less fortunate. This is not about bulldozing investments. What it calls for is a robust engagement to determine how communities could provide the labour and the services , in a manner that is decent and promotes the dignity and welfare of commu-nities. Furthermore, civil society should put the government and private sector to task so that the two (government and private sector) can provide the infrastructure that is some-times lacking in these communities.

why AfrIcA ?The Rockefeller Foundation’s Poverty

Reduction through Information and Digital Employment (PRIDE) work aims to har-ness the global outsourcing sector’s inno-vative employment and efficient serv-ice delivery models, and substantially improved Information and Communication Technology (ICT) infrastructure in Africa to create jobs for people at the base of the pyramid who would otherwise not have the opportunity for sustainable employ-ment. PRIDE is aimed at creating sustain-able employment opportunities for people at the base of the pyramid by fostering this new critical new arm of the outsourcing industry called Impact Sourcing (IS). The Global Sourcing Council (GSC) has , as one of its pillars the development of Socially Responsible and Sustainable Sourcing in Africa, and has to this effect appointed an African Ambassador for “3S” to carry out its mission and objectives.

Going back to the question of “Why Africa for Impact Sourcing”? The answer could be explained as follows : Africa has one billion inhabitants The continent has a high unem-ployment rate yet a number of Africans are well educated, in Africa and abroad ( mainly Europe and the United States of America). What they lack is the employment opportuni-ties to give them the edge in life. They have the professional skills and know how in terms of how the global world works. Lack of employ-ment opportunities are not only for the educat-ed, but the poor and the downtrodden contin-ues to be the obstacle to Africa’s development. Sometimes you find a combination of the two, whereby individuals are educated yet poor.

In Africa there is also a large young popu-lation which is technologically –savvy. If we draw inferences from the growth of the mobile market in Africa, it surpassed all projections, which turned out to be timid compared to the aggressive nature in which mobile phones grew in Africa. Figures tell us that there have been 316 million new mobile phone subscribers that have been signed up in Africa since year 2000.

AFRICA FACTS & FIGURESAfrica’s collective GP will be $2.6 trillion by 2020Africa’s consumer spending will be $1.4 trillion by 2020The number of Africans of working age will be 1.1 billion in 2040The number of African households with discretionary income will be 128 million by 2020Source: McKinsey Global Institute(2010), Lions on the move: The progress and potential of African economies.

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whAT IMpAcT SourcInG AcTIvITIeS hAve TAken plAce In AfrIcA ?

Various organisations have proved that this model of Impact Sourcing as a means of employment works : Samasource , for example seeks to help women, refugees and young people in developing countries to earn a living wage by doing work over the internet. In Africa the organisation has a presence in Uganda and Kenya. The compa-ny has been able to provide a living to com-munities which were living on less than $2 a day by giving them income that is as high as $10 an hour. Samasource works with com-panies that need services such as database cleanup, translations , transcriptions and so on. The workers can perform different tasks which vary from low -end to high- end. This has opened a world of opportunities to the

smaller service providers who would have otherwise not had such an opportunity . Enterprise customers send Samasource a project that is broken down by a proprietary technology platform into smaller tasks called "microwork”, a term coined by Samasource founder and CEO Leila Chirayath Janah in 2008. These tasks are sent to Service Partners - nonprofit organizations, grass-roots businesses, and educational institu-tions that work with people living in pov-erty. Service Partners, which are in charge of managing and paying Samasource's work-ers, must meet a range of criteria in line with Samasource's social mission.

The Global Sourcing Council has out-sourced its web design and web hosting services to a small company in Nigeria founded and owned by a young woman,

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Izizi Obele Okpara of Nigerian descent. For the last 2 years La Vida Enterprise has been responsible for uploading 3S Awards entrees and the general competition entry management which is quite a high end job because entrants need to submit videos or powerpoint presentations for them to quali-fy. The Nigerian company also monitors that there are no multiple entries from the same organisation, amongst other things. This is another” proof in the pudding” that African companies can be part of the Globalization of Services. In addition , the company offers other services to other clients and these include social media marketing, internet marketing services, email marketing and search engine optimization (SEO).

whAT IS The fuTure ?The future provides hope.South Africa will host the first Impact

Sourcing conference in the country in the first week of December 2011. It will be an African wide conference with the aim of drawing delegates from across the African Continent with world renowned speakers

in the field of Impact Sourcing. Supported by an international donor organisation, the conference will bring together current and future stakeholders of Impact Sourcing which include the private sector, govern-ments, civil society, advocacy and research institutions ,individuals and the media .

Case studies will be shared on how to bring Impact Sourcing initiatives to life. An activity agenda will be mapped out so that all African countries could participate in this initiative.

It should be stated, however, that African countries cannot do it on their own. They need the support of source geographies such as United States of America, Europe and India in order to make Impact Sourcing a reality.

The positive future economic growth potential of the African continent cannot be disputed. What it needs is sincere partner-ships with organizations who have the development of Africa deeply imbedded in their thinking , actions and operations. It needs individuals and organizations who can “walk the talk”. GS

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Sudhir Narang

Managing Director, BT India

Business Transformation and the Expansion into Asia

The markets in Asia, particularly China, present a wealth of new business and growth opportu-nities for Australian organisa-

tions looking to extend their international footprint. Culturally diverse and complex, the region has a challenging legislative and political landscape but for those that can succeed, it holds huge economic rewards. It is also a market no business can afford to ignore, particularly as China continues on its path to become the number one player in the international marketplace.

So what does it take to succeed in Asia? Beyond a compelling market proposition, price point and proven demand, the IT and communications assets of an organisation are pivotal to the seamless migration to an overseas market. To do this effectively, it falls to the CIO to help facilitate this growth.

A new Breed of cIoWhether through mergers and acquisi-

tions or solid organic growth, Australian businesses are expanding into the buoyant Asian market. These fundamental shifts

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in business are having a knock-on effect on the role of IT within organisations and the role of the people who lead these divi-sions. IT is critical to successful interna-tional expansion and, at the heart of this success, is the CIO, for whom the business landscape is changing.

Gone are the days where IT is perceived as a pure commodity. Effective IT deploy-ment is now a critical part of almost every business growth strategy and CIOs play an important role in business management at a boardroom level.

This requires new skills and profes-sional development and CIO’s are looking to understand how IT innovations can enable collaboration across geographies, time zones and devices under a single communications infrastructure. On top of technology leadership and expertise, CIOs have a critical role to play in navigating

complex business strategies, undertaking cost benefit analyses and risk manage-ment profiles to deliver professional serv-ice excellence. One fact is clear, CIOs are a core part of the management team and have a mission critical role to play.

fAcIlITATInG InTernATIonAl expAnSIon

To effectively capitalise on the potential of the Asian market, organisations must find ways to consolidate their IT opera-tions to achieve greater efficiencies around resource allocation and costs. Regardless of whether you’re in the business of pro-viding online travel insurance quotes or selling enterprise software, customers are quick to vote on their feet and IT needs to create a seamless experience for the customers you serve and the staff you employ.

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Operating from a single set of commu-nications architectures can be an effective way of addressing these complexities as it provides a uniform tool from which to manage all IT assets. It also helps to facilitate borderless communications and seamless access to information, regardless of where an employee is based or the end-point they are using.

It is here where conversations around transitioning to the cloud are coming in to question, with many CIO’s seeking to understand which services they should place in the cloud, which should be kept on-premise and which to combine.

In the area of cloud services, hybrid models are emerging that combine mul-tiple cloud offerings, provide more tai-lored services, more integrated security and better service level agreements. It is also possible to combine private clouds and existing on-premise services, with those located in the public cloud. The advantage is that CIO’s can then view technology investments as a stage in a progressive migration path that focuses on strategic business needs, rather than a huge upfront cost. In effect, CIOs can break down big decisions into smaller, less risky ones.

enSurInG The lonGevITy of IT ASSeTS

Business models have to evolve to remain competitive. They must deliver

services much more effectively and IT is a central component of this process, deliver-ing services in the most technologically advanced way possible. As such, ques-tions in the boardroom must be raised around the longevity of existing IT assets and of current IT capabilities to support business transformation.

Against this backdrop of changing atti-tudes towards IT, the business case boils down to efficiency of service and customer experience. Organisations that can operate more efficiently on both a human and IT level and then measure the effectiveness of these changes and benchmark success, stand to do well.

The dAwn of dynAMIc collABorATIon

In today’s highly connected and com-petitive world, being at the forefront of communication is one of the most criti-cal factors for business success, especial-ly when operating in an international marketplace.

Successful business transformation requires an increased focus on IT to enable businesses to adapt to market changes and reduce operational costs. So in a climate where the next change is around the cor-ner and the pace of technological change shows no signs of abating, businesses must react quickly or risk falling behind the competition – a fate no organisation wishes to fall victim to. GS

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Location Strategy For Indian Delivery Centers

With the threat of a meltdown looming over global econo-mies, companies are now gearing up to face a fresh

recession. Weak finances, rising costs, unabated inflation rates are making the Indian economy less resilient and many analysts are expecting a domestic busi-ness will also face lot of cost pressures.

The Indian IT-ITES industry, overly dependent on developed economies such as USA and Europe, fears a reduction in business due to the slowdown. However, many analysts believe that a mild reces-sion is good for the industry as the demand market would continue to look at IT and IT enabled services (ITES) to get solutions which would help them reduce costs and find new revenue streams.

While this may be true to some extent, the opportunity does not come without the threat of clients cutting margins and getting into a hard bargaining exercise with vendors.

Therefore, it is becoming necessary for Indian IT-ITES companies to find newer avenues to reduce their cost of operations

Executive DirectorHead – Shared Services and Outsourcing

Advisory KPMG in India

Executive Director Head – Global Location and

Expansion Services Advisory

KPMG in India

Viral Thakker Jehil Thakkar

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even further so as to manage the lowering of margins.

Since over a decade IT-ITES companies have been considering emerging loca-tions to reduce their cost of operations and hedge their risks.

With telecom, internet connectivity now reaching remote rural India even Tier III and IV locations are beginning to reap the benefits of India’s economic progress as they are being considered in the location selection strategies of many Indian IT-ITES firms.

GeTTInG locATIon rIGhT1. Defining the location strategy

Selecting an alternate location is one of the most effective strategies for cutting costs. However, getting this strategy right is of paramount importance. While some organizations are continuing to explore

Tier III and now Tier IV/ rural locations to set up operations in, others have shut shop even in fairly established Tier I and Tier II locations.

Organizations while designing a loca-tion strategy believe that they will find a location which is ‘perfect’. However, this is an unrealistic expectation. A per-fect location with the low costs, best skills, enabling business environment and world class infrastructure does not exist – companies must keep in mind that there are always trade-offs.

Aligning the location strategy to the business requirement is the first step to a successful selection exercise. What the organization needs/ expects from the location must be well thought through not only by the C-level executives, but also through discussions with the busi-ness unit heads.

A well-defined location strategy not only has the potential to reduce operat-ing costs, but could also be an answer to many other business problems.

While the Census Commission defines Tier I, II and III cities on the basis of population and GDP, the services sector has re-defined the cities, changing their status on the basis of IT-ITES growth in the locations. According to the new ‘services-focused’ classification:• Tier I cities correspond roughly with

metros, and are the most expensive in terms of rentals and capital values. They account for about 60 percent of the total real estate space.

• Tier II cities are the mini-metros and large cities, which have seen significant IT and real estate construction activity in recent years.

• Tier III cities are the emerging IT destinations

Source: IBEF – Urban Development Publication

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Common requirements for IT-ITES companies: An Illustration

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Grow the domestic business Many IT-ITES companies are looking at India’s grow-ing domestic market to hedge against risks such as exchange rate fluctuations, declining international busi-ness, etc. Operations that have been set up in emerging Tier II and II destinations in India would help the compa-nies get closer to the local market as well as give them an access to a variety of languages

Gain access to specific skills Companies looking to grow/ enter into certain business verticals could devise their location strategy in a way that would give them access to such skills. Ahmedabad, for e.g. is ranked very high for financial services, given the business acumen of the locals. Pune on the other hand is an automobile hub

Get a first-mover advantage Many state governments are offering incentives over and above those that are being given at a country level to attract IT-ITES players. Getting a first-mover advan-tage in these states could bring significant benefits. For e.g. depending on the scale of the project, the Madhya Pradesh government is offering free land and other incentives to players, to improve IT-ITES presence in the state.

Defining a hub and spoke strat-egy

A hub and spoke model could be an optimal model using Tier II and Tier III locations as spokes to the hub at established IT-ITES cities. However, there are some critical success criteria for this model, such as: a) Smart break-up of process; b) Clarity on what can effectively be done out of the Tier II and III centers and c) Stringent quality control measures

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Lower operating costs Tier II and III locations in India (Bhubaneswar, Kochi, Vadodara, Coimbatore) are able to offer 20% – 30% of a cost arbitrage over the existing established IT-ITES loca-tions such as Bangalore and Mumbai

Curb attrition rates Due to the limited opportunities in emerging destinations, attrition rates are in single digits

Plan for business continuity and disaster recovery

Setting up operations in Tier II and III cities that act as BCP/ DR locations help in planning for business continuity

Some of the challenges/ business requirements that could be addressed are:

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2. Location AssessmentOnce the strategy has been put in place and business requirements have been set,

getting to the locations shortlist becomes relatively easy. An evaluation framework will help determine the optimal location for the organiza-

tion. Once the section criteria are defined, organizations need to assign priorities to the criteria, which could be scores or weights. This process is methodologically sound and also takes into consideration the consensus from key stakeholder discussions regarding priorities.

Some of the criteria considered for the selection could be as below. It must be noted, that these selection criteria must be mapped to the defined business requirements in order to arrive at the final selected location.

3. Micro-site SelectionEven after a location is selected, the

exercise is not complete. Identifying potential micro-sITeS within the city/location is an important step to the loca-tion finalization.

Some cities have sub-urban areas which are being earmarked for IT-ITES

operations. These areas, often at the periphery of the metropolitan, offer lower office rentals than the business districts of the metro. They are also able to attract, similar (maybe slightly lower) skillsets that are available in the metros.

Visits to the shortlisted locations will help the organizations gain firsthand

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experience of the economic and social development of the city. These visits should also entail dialogues with the real-estate agents, existing players in the market, local recruitment agencies etc.

concluSIonWhile Tier II, III and IV cities are

constantly being talked of as upcom-ing IT-ITES locations, organizations must bear in mind the distinct advantages as well as drawbacks of moving to such loca-tions. Cost of operations is one important

Case Example: Manesar, a growing suburb of Gurgaon is emerging as the next IT-BPO destination in northern India. With office rentals at around 40% - 50% lower than Gurgaon, the area is becoming an attractive destination. Companies such as HCL Technologies and Agilent have already set up operations in Manesar.

advantage these cities offer, however the trade off could be lack of relevant skills or English language capabilities to handle international operations.

Sometimes, these trade-offs come at the cost of savings (that would have been made by moving to the location) or even reputation, which would lead to the location strategy failing and organiza-tions pulling out after making significant investments/losses.

Companies need to therefore under-stand that a ‘cookie-cutter’ or ‘me-too’ approach can no longer be used for loca-tion selection. It involves not only the marrying of business objectives to the location strategy, but also an in-depth assessment of the selected locations and understanding all contextual conditions associated with the selected city. GS

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