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Global Sourcing: Market Trends & Country Analysis

Frances Karamouzis(Frances.Karamouzis@Gartner.com)Vice President of Research Director

Gartner Inc.

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Management

Optimization Creation

Access

The Services Market Is Being Reshaped, Leading the Way to New Models

Business Outcome

Delivery

Value

IT Efficiency

SharedOne-to-Many

EnterpriseOne-to-One

AlternativeDeliveryModels

Global Delivery

Process Standardization

& Portfolio Rationalization

Overview of Parameters of Gartner Analysis of Global Sourcing

Supply Side

Academic

BPO, AO, Infrastructure - Optimized delivery structure: access to global resources, process maturity, global infrastructure, scale, support systems, security, business continuity/disaster recovery

Country Destinations

Industry/ Technical Trends

GDM Service Categories

IT Service provider analysis – for Global Sourcing we track close to 200+ providers. Traditional providers, offshore pureplay providers, niche vendors etc.

Actual buying patterns (for captives & vendors) of commercial and public sector entities. Business units leaders, CIO, Application Managers, IS leaders, Data Center managers

Country based analysis on viability, suitability and adoption levels of specific country options for Global Sourcing.

Industry-specific trends as well as disruptive technology trends that impact buyer or supplier issues in the market.

Buy Side

Primary focus is the ability of Academia to support the industry. Specifically to provide the right resources at the right time with the right skills at the right scale.

Top Global Sourcing Countries 2007Active

ParticipantsActive

ParticipantsLeader andChallengersLeader andChallengers

Potential Players

Potential Players

• Belarus• Bulgaria• Chile • Costa Rica• Dubai• Egypt• Estonia• Latvia• Lithuania• Mauritius• Morocco• New Zealand• Nicaragua• Northern Ireland• Singapore• Slovenia• Sri Lanka• Turkey• Uruguay• Vietnam

• Algeria *New*• Armenia• Bangladesh• Bahrain *New*• Columbia• Cuba• Dominican Rep• Ghana• Guatemala• Jamaica• Kenya *New*• Madagascar *New*• Malta *New*• Moldova *New*• Pakistan• Senegal• Saudi Arabia *New*• Thailand• Tunisia• Uganda *New*

• India• Argentina• Australia • Brazil• Canada• China• Czech Republic• Hungary• Ireland• Israel• Malaysia• Mexico• Philippines• Poland• Romania • Russia• Slovakia• South Africa• Spain• Ukraine

Note: Other than the leader, all countries are listed alphabetically within category= Change in category from 2006

Key Factors (Top 10)• Chindia trajectory• Domestic Demand side synergy• Positioning in “Innovation” Race• Achieving “truly” Global vendor

status• Service Category penetration (BPO,

Infrastructure and specialty areas)• Workforce Issues (attrition, middle

layer scarcity, diversity of workforce, localization issues, global resourcing)

• Infrastructure issues• Domain Competency• Relationships (Trust/Brand Factor);

Strategic Deals (Market Share That Matters)

• Depth; Breadth, Size

India Positioning in Future

Prediction: By 2012, India's dominant position as an offshore location will be significantly diluted by effective alternative destinations.By 2010, 30% of Fortune 500 enterprises will source from three or more countries (0.8 probability).

Charting the Course for India to 2012

Innovative & Creative

Purely Technical

Qualified Resources

Inadequate & Stagnant

(2007 Levels)World-ClassPhysical Infrastructure

India Today

Isolated ICT Islands Digital Chasm

ICT SuperpowerBrain Drain

Budget 2008Elections in 2009

Budget 2008

Elections in 2009

Elections in 2009

Defining MilestoneProgress on reforms

Budget 2008

Charting the Course for China to 2012China As Technology Innovator

China Today

High level of ICT-related patents and Chinese ownership of ICT Intellectual Property

Low level of ICT-related patents and Chinese ownership of ICT Intellectual Property

2007 Levels

The World's (Non-IT) Factory Isolation/Protectionism

China IncEntrepreneurial

Milestone –2008 Beijing Olympics

Post-2009 Chasscom created

ICT-related Patent Level in 2010

ICT-related Patent Level in 2010

Promotion of China-specific standards

Reduced government ownership of private assets in 2010

ICT-related Patent Level in 2010

2012

2012

2012

Government Involvement in EconomyMajor Reduction In Ownership Of

Private Assets

Pre-2009 Chasscom created

One China, Three Markets

$1,349Xinjiang

$937Xizang

$1,362Inner Mongolia

$719Gansu

$1,037Qinghai

$949 Ningxia

$4,465Beijing

$3,801Tianjin

$1,139Hainan

$2,374Guangdong

$2,495Jiangsu

$2,039Shandong

$2,885Zhejiang

$6,663Shanghai

$2,074Fujian

$1,963Liaoning

$1,556 Hebei

$935 Shaanxi

$1,158

$1,265Hubei$977Sichuan

$867Guangxi

$508 Guizhou

$811Yunnan

$1,098 Hunan

$1,102Shanxi

$1,141Henan

$1,396 Jiangxi

$936 Anhui

$1,317Jilin

$1,674Heilongjiang

Chongqing

Western RegionGDP per capita: $1,096

Population: 83.7 million

GDP per capita by Province*

* 2004 population and GDP data

Source: China Statistics Bureau, 2005

Inner RegionGDP per capita: $1,059

Population: 786 million

Coastal RegionGDP per capita: $2,457

Population: 424 million

• What you need:

• Different message

• Different distribution

• Different product

The Emerging Economy of Chindia

2003 2005 2010 2015

Bilateral India and China trade @$US9 billion

Bilateral India and China trade

@$US18.7 billion

Bilateral trade growing at 30% to 40%

China passed Japan as India trading partner

China will pass US as India's No. 1 trading

partner

Bilateral India and China trade @$US50 billion

China's PPP will pass

U.S.

India's PPP will pass Japan

Complementary Strengths of India and China

Services expertiseProcess/quality capabilityHR practicesHelp promote the "one China" viewGlobal client demandGovernment support "insights" for servicesIT industry bodies (NASSCOM / MAIT) insightsFinancial services and capital markets expertiseTraining Infrastructure

Large(r) market for ITInfrastructure for services companiesHardware expertise andcapabilityServices launching pad to Japan and South KoreaGlobal client demand Government support "insights" for hardware & semiconductorsBest practices in leveraging external investment & expertise to improve country's R&D capabilityBest practices in policy implementation

High growthFDI inflowGlobal IT presenceGlobal client interestLarge markets

What India can offer China

What China can offer India

Chindia Scenarios Framework

Fully Engaged

Nonexistent / Hostile

Geopolitical Alignment

Relationship Depth

Chindia Today

Ships Passing Rivals

ChindiaAll Talk & No Action

Discrete -competitive

Highly integrated & Collaborative

Scenarios for Chindia

Competition

Concurrence

Cooperative

Collaborative

Ships Passing Rivals

All Talk Chindia BlocLevel of Intimacy

Intensity of Geopolitical Alignment

Chindia TodayMilestone –Research Design & Development Collaboration

Milestone –Research Design & Development Collaboration

Milestone –Ideological Modernization

Milestone –Ideological Modernization

Milestone –Rural Development Collaboration

Milestone –Rural Development Collaboration

Milestone – India Elections 2009

Milestone – India Elections 2009

People PolicyPolitics Patents(Science)

Patterns (of Trade)

Policing(Military)

Milestone – 2008 Beijing Olympics

Expanding Service Categories via GDM

Global Footprint/Vendor LandscapeGlobal Footprint/

Vendor Landscape

M&A Activity Reshaping Global Sourcing OptionsM&A Activity Reshaping Global Sourcing Options

Workforce Issues Workforce Issues

Alternative DeliveryModels/AutomationAlternative DeliveryModels/Automation

Expanding Service Categories via GDMExpanding Service Categories via GDMThrough 2012, service

providers that fail to implement new business and service models will go out of business or will be acquired (0.8 probability).

Predictions with Highest Impact to Commercial Enterprise Buyers

Global Footprint/Vendor LandscapeGlobal Footprint/

Vendor Landscape

M&A Activity Reshaping Global Sourcing OptionsM&A Activity Reshaping Global Sourcing Options

Workforce Issues Workforce Issues

Alternative DeliveryModels/AutomationAlternative DeliveryModels/Automation

Expanding Service Categories via GDMExpanding Service Categories via GDM

By 2012, fewer than one-third of the Fortune 500 will have sourcing strategies that consider alternatives to labor-based delivery models to achieve their goals for growth, cost, speed and agility (0.7 probability).By 2011, 25% of new business software will be delivered as software as a service (0.7 probability).

Through 2010, workforce issues for service providers and captive centers will be the single largest operational inhibitors to capitalizing on market opportunities (0.8 probability).

Notes accompany this presentation. Please select Notes Page view.These materials can be reproduced only with official approval from Gartner. Such approvals may be requested via e-mail—vendor.relations@gartner.com.

Supply Side –IT Service Provider (Vendor) Landscape

Global Brands Hold Current Market Share but Collective Impact of Offshore Pureplays is Undeniable

Other Services Providers

46%

IBM - $40.6B2.4% AGR

EDS - $19.4B-0.5% AGR

Accenture - $15.7B13.1% AGR

Fujitsu1.2% AGR

CSC6.1% AGR

ADP10.6% AGR

Capgemini15% AGR

Lockheed Martin10% AGR NTT Data

3.1% AGR

SAIC20.2% AGR

• Avg annual growth rate of 6 leading I offshore pureplay> 35% AGR

• Avg annual growth rate of Top 10 global leaders 8.3% AGR

• Avg annual growth rate of Top 2 providers (IBM and EDS) <1% AGR2005 Worldwide Professional Services

$493 Billion — Five-Year CAGR: 7%Source: Gartner Dataquest IT Services Market Share Analysis, IT Professional Services Only

Targeted Lens of Vendor Landscape

1. IBM2. Accenture3. EDS4. CSC5. Deloitte6. Oracle7. CGI8. BearingPoint 9. SAP

10. TCS

1. IBM2. Accenture3. EDS4. CSC5. Deloitte6. Oracle7. CGI8. BearingPoint 9. SAP

10. TCS

Top 10 CSI Providers by Commercial Revenue Only

2005 NA Professional Services

$217 Billion: Five-Year CAGR – 7.8% North America Consulting & SI Services Market share (published Dec 2006)

Prediction: By 2010, the new Global Top 10 providers will include at least two India providers (based on commercial revenue).

M&A Activity Reshaping Global Sourcing Options

Global Footprint/Vendor LandscapeGlobal Footprint/

Vendor Landscape

M&A Activity Reshaping Global Sourcing OptionsM&A Activity Reshaping Global Sourcing Options

Workforce Issues Workforce Issues

Alternative DeliveryModels/AutomationAlternative DeliveryModels/Automation

Expanding Service Categories via GDMExpanding Service Categories via GDM

Offshore “pure plays” have executed more than 40 acquisitions between 2003 and 2006.Notable acquisitions by “traditional” providers include:• Capgemini – Kanbay• EDS – Mphasis• Fujistsu – Rapidgm• Oracle – iFlex• Keane – Caritor• CSC - Covansys

The relatively stable vendor landscape will change significantly, with new players, differentiators and casualties.

China: Emerging Buying and Selling Dynamics

Selective Penetration

Fast FollowerFirst-MoverFirst-MoverPragmatist Customer Base

Selective Penetration

Selective Penetration

Fast FollowerFirst-MoverGateway Customer Base

TBDFirst-MoverFast FollowerSelective Penetration

Product (R&D) Customer Base

Selective Penetration Over Time (limited focus on nearshore)

Selective Penetration

Considerable Challenges

First-MoverNearshoreCustomer Base

First-MoverFirst-MoverTBDFast FollowerDomestic Customer Base

Local, Native-Chinese, Product-Led ESPs

Local, Native-Chinese, Service-Led ESPs

India Pure-Plays

Large, Traditional, Global ESPs