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On February 6, Everest Group hosted a webinar that covered facts and insights on outsourcing transaction trends, financial performance of leading service providers, and Global In-house Center (GIC) adoption across verticals and geographies. How has the global services industry been impacted by the economic slowdown? Is the worst behind us or is there more to come? Why has global services delivery continue to increase in Asia despite inflationary pressures? And what about Latin America? Don’t Miss the Special Guest Speaker… Peter Bendor-Samuel, Founder and Chief Executive Officer of Everest Group. An industry veteran, Peter will share his unique perspectives on the state of the global services industry in 2012 and outlook for 2013.
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Global Services Developments in Q4 2012 and 2012 Year in Review: Market Vista Briefing February 6, 2013
Live Tweeting #MarketVista
Proprietary & Confidential. © 2013, Everest Global, Inc. 2
Introductions
Eric Simonson Managing Partner – Research [email protected]
Peter Bendor-Samuel CEO and Founder [email protected]
H. Karthik Vice President [email protected]
Proprietary & Confidential. © 2013, Everest Global, Inc. 3
Context setting
Sources for today’s webinar
Focus of this webinar Present key global services developments in 2012
Describe outlook on global sourcing locations for 2013
IT and Business Services research
Location Optimization Summary from a
200+ page report Fact-based
research covering global services
+
Proprietary & Confidential. © 2013, Everest Global, Inc. 4
Terminology | Global In-house Center (GIC) replacing “captive”
Context
Historically, the term “captive” has referred to service delivery operations in lower cost geographies, which are owned and operated by the same company receiving the services (i.e., not third-party outsourcing)
Although the term has become widely used, it has a perceived negative tone and is not self-explanatory, causing confusion for those new to the global services space
Furthermore, many organizations, for which captive is intended to describe, do not use the term themselves
What has changed Everest Group has adopted “Global In-house
Center” or “GIC” as the preferred term to replace “captive”
This will appear in all of our reports and content beginning in July 2012
Growing industry-wide shift Both NASSCOM (India) and BPAP (Philippines) are championing the change in terminology
Proprietary & Confidential. © 2013, Everest Global, Inc. 5
Highlights of 2012
Top 3 locations across regions Drivers of growth
Increase in new location set-ups; significant uptick in LATAM
GIC set-up activity Changing parent expectations
GIC set-ups steady; increasing sophistication in leverage
Outsourcing transactions Service provider performance Location activity GIC trends
Global services market maturing in multiple ways
Proprietary & Confidential. © 2013, Everest Global, Inc. 6
Presentation topics
Special topic | Global sourcing locations: outlook for 2013
Wrap up and Q&A Key market developments in 2012
Outsourcing transactions Service providers Locations GICs
Proprietary & Confidential. © 2013, Everest Global, Inc. 7
7 What is your growth outlook for the global services market in 2013 compared to 2012?
13%
58%
19%
11%
0%
Significantly faster
Marginally faster
Similar
Marginally slower
Significantly slower
Source: Live polling conducted during the “Market Vista: Global Services Developments in Q4 2012 and 2012 Year in Review” webinar on February 6, 2013
Proprietary & Confidential. © 2013, Everest Global, Inc. 8
Outsourcing transactions decreased in 2012 as compared to previous years; Q4 showed a marginal uptick
Index of outsourcing transactions
Q1-Q4 2012; Number Index of outsourcing transactions
2010-2012; Number
1,978 1,929
1,633
2010 2011 2012
441 411
380 401
Q1 2012 Q2 2012 Q3 2012 Q4 2012
Proprietary & Confidential. © 2013, Everest Global, Inc. 9
Broad-based decline in transactions across regions and verticals, except in continental Europe
North America1
UK
Outsourcing deals announced Number of transactions
Rest of Europe
1 Excludes Mexico 2 Includes Asia-Pacific, Latin America, and Africa
Rest of World2
733 699 541
283 373
302
522 475
473
440 382
317
2010 2011 2012
1,978 1,929
1,633 BFSI MDR
Public sector
Healthcare Others
2012 performance compared to 2011
Proprietary & Confidential. © 2013, Everest Global, Inc. 10
Market Vista Index service providers yet to meaningfully penetrate small- to mid-market segment
5% 6%
14%
20% 22%
12%
19% 21%
43% 41%
0%
10%
20%
30%
40%
50%
Share of Market Vista Index providers1
Percentage
<US$0.25 billion
US$0.25-1.5 billion
US$1.5-5 billion
US$5-10 billion
>US$10 billion
1 Share of deals involving Market Vista Index service providers as a share of all deals signed in a buyer revenue category
BPO ITO
Proprietary & Confidential. © 2013, Everest Global, Inc. 11
11.5% 10.9% 13.2% 13.7%
23.3% 22.6% 22.9% 22.2%
0%
5%
10%
15%
20%
25%
30%
Q4 2011 Q1 2012 Q2 2012 Q3 2012
7.3% 5.1%
1.5% -3.3%
18.0% 15.0%
11.2% 9.7%
-10%
0%
10%
20%
30%
40%
Q4 2011 Q1 2012 Q2 2012 Q3 2012
Sluggish demand in 2012 impacted provider revenue growth
Revenue growth rate (year-on-year basis) for Market Vista Index service providers Percentage
Offshore-centric service providers Traditional global service providers
Operating margin (quarterly) for Market Vista Index service providers Percentage
Offshore-centric service providers Traditional global service providers
Proprietary & Confidential. © 2013, Everest Global, Inc. 12
93
27 32
84
22 32
90
37 29
Latin America witnessed significant uptick in activity; some “dark horses” emerged
2010 2012 2011
Latin America Europe Asia Pacific
Number of service delivery centers set up
India
China
Singapore
Costa Rica
Mexico
Colombia
Poland
Romania
Ireland
Top-3 locations by activity (2012)
ES/R&D Prominent functional spikes (2012) Bilingual voice and
non-voice BPO Mix of IT, BPO, and ES/R&D
~40% ~25% ~50% Share of GICs in centers set up (2012)
Significant surge in activity in country in 2012
Proprietary & Confidential. © 2013, Everest Global, Inc. 13
GIC set-up activity remained steady; there were a few key divestures
Index of offshore GIC health
2010-2012; Number GIC set-ups and expansions GIC divestures
62
89
70
2 1 5
2010 2011 2012
Sustained shift towards more complex work: ~60% of new GICs set up in 2012 supported ES/R&D
India continues to be nerve center for ES/R&D
LATAM dominated new GIC set-ups focused on BPO (close to 50% of BPO GIC set-ups in 2012 were in LATAM)
Some increase in number of divestitures, reflective of sourcing model strategy maturation
Proprietary & Confidential. © 2013, Everest Global, Inc. 14
Expectations of value beyond cost savings Distribution of parent respondents; Percentage
Focus only on cost savings
Deliver additional value while maintaining cost savings
Deliver additional value even if cost savings is reduced
Stronger permission for GICs to deliver value, but not at the expense of cost
Source: Everest Group GIC Value Diagnostic Survey 2012
42% 36%
50% 60%
8% 4%
2007 2012
52 53 100% =
Proprietary & Confidential. © 2013, Everest Global, Inc. 15
What to expect in 2013
Continued shifts in service provider landscape become even more visible
More granular vs. broad-based approaches to sourcing model decisions
Moderate uptick in growth but nature of growth will be very different
Global talent management an increasing priority
Proprietary & Confidential. © 2013, Everest Global, Inc. 16
When organizations move work to an onshore center, what is the main motivation?
51%
15%
32%
1%
Improve quality by moving work back onshore from offshore delivery
Reduce cost by moving work out of high cost locations to lower cost …
Other (regulatory, tax, etc.)
Don't know
Source: Live polling conducted during the “Market Vista: Global Services Developments in Q4 2012 and 2012 Year in Review” webinar on February 6, 2013
Proprietary & Confidential. © 2013, Everest Global, Inc. 17
Presentation topics
Wrap up and Q&A Key market developments in 2012
Special topic | Global sourcing locations: outlook for 2013
“Newer” frontiers Expanding scope of
services Onshore/offshore location
activity
Proprietary & Confidential. © 2013, Everest Global, Inc. 18
Global sourcing locations: Outlook for 2013
Companies will continue to expand into “newer” geographies to tap into niche labor pools, manage costs of delivery, or diversify risks Scope of services delivered from established locations likely to selectively expand beyond “traditional” sweet spots Companies will continue to grow onshore, but not at the expense of offshore
1
2
3
Proprietary & Confidential. © 2013, Everest Global, Inc. 19
Companies will continue to push the envelope and explore “newer” frontiers
South Africa
Vietnam
Peru
Turkey
Colombia Large graduate pool, Spanish skills
Attractive costs and Spanish skills
Preferred location for UK voice; large domestic market
Low-cost alternative for IT
Emerging R&D destinations
Baltic states
Multilingual skills, low competition
The Caribbean
Native English skills South Korea
Taiwan
Emerging R&D destinations Emerging R&D destinations
1
NOT EXHAUSTIVE
Proprietary & Confidential. © 2013, Everest Global, Inc. 20
Scope of services delivered from locations likely to expand beyond “traditional” sweet spots
“Traditional” sweet spots
English-language voice BPO for the U.S.
English-language contact center for the UK
Bilingual (English and Spanish) voice BPO for the U.S.
Bilingual (English and Spanish) BPO for the U.S.
“Hidden jewels”
Healthcare BPO
High-end finance skills
Engineering and design
KPO, analytics, financial research
Locations
Philippines
South Africa
Costa Rica
Chile
2
Proprietary & Confidential. © 2013, Everest Global, Inc. 21
Companies will continue to grow onshore, but not at the expense of offshore
New delivery centers of Market Vista Index service providers Number
34% 22%
66% 78%
2011 2012
79 88
13% 8%
87% 92%
2011 2012
28-32 36-40
Estimated capacity addition by Market Vista Index service providers ‘000 FTEs
Onshore
Offshore
Onshore
Offshore
Even though large service providers are setting up delivery centers in onshore locations, this is not at the expense of offshore locations; share of onshore locations by number of set-ups is typically 20-30%
On a capacity basis, the share of onshore locations is even smaller (10-15% annually)
3
Proprietary & Confidential. © 2013, Everest Global, Inc. 22
Presentation topics
Special topic | Global sourcing locations: outlook for 2013
Key market developments in 2012
Wrap up and Q&A
Submit any remaining questions!
Proprietary & Confidential. © 2013, Everest Global, Inc. 23
Highlights of the webinar
Increase in new location set-ups; significant uptick in LATAM
Growth in both traditional locations and some “dark horses”
BPO driving growth in Latin America
Global sourcing locations: outlook for 2013
Onshore-offshore complementary, not competing
Continued push towards newer locations and models
Global services market maturing in multiple ways
Growth is slower, but broad-based across sourcing models, providers
Stronger permission for GICs to deliver value, but not at the expense of savings
Proprietary & Confidential. © 2013, Everest Global, Inc. 24
To ask a question during the Q&A session Click the question mark (Q&A) button located on right side of your screen. This opens Q&A
Be sure to keep the default set to “send to All Panelists”
Type your question in the box at the bottom of the Q&A box and click the send button
Attendees will receive an email with instructions for downloading today’s presentation
For advice or research on Market Vista, please contact: – Eric Simonson, [email protected] – H. Karthik, [email protected]
Q&A
Websites www.everestgrp.com research.everestgrp.com
Twitter @EverestGroup @Everest_Cloud
Blogs www.sherpasinblueshirts.com www.gainingaltitudeinthecloud.com
Stay connected
Proprietary & Confidential. © 2013, Everest Global, Inc. 25
Check out our blog for the latest perspectives on global services
www.sherpasinblueshirts.com
Experts in the global services terrain
Proprietary & Confidential. © 2013, Everest Global, Inc. 26
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Blog: Service Providers Versus GICs: the Age-old Debate
Blog: Leverage Points in Global Services for India, China, and Philippines
Blog: Why the Traditional Infrastructure Outsourcing Market Is about to Shrink Dramatically
Proprietary & Confidential. © 2013, Everest Global, Inc. 27
About Everest Group
Everest Group is an advisor to business leaders on the next generation of global services with a worldwide reputation for helping Global 1000 firms dramatically improve their performance by optimizing their back- and middle-office business services. With a fact-based approach driving outcomes, Everest Group counsels organizations with complex challenges related to the use and delivery of global services in their pursuits to balance short-term needs with long-term goals. Through its practical consulting, original research, and industry resource services, Everest Group helps clients maximize value from delivery strategies, talent and sourcing models, technologies, and management approaches. Established in 1991, Everest Group serves users of global services, providers of services, country organizations, and private equity firms in six continents across all industry categories. For more information, please visit www.everestgrp.com and research.everestgrp.com.
Proprietary & Confidential. © 2013, Everest Global, Inc. 28
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