key market developments in q3-2011: market vista briefing

Key Market Developments in Q3-2011: Market Vista Briefing

November 8, 2011

Live tweeting #MarketVista

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

Introductions

Eric Simonson Managing Partner, Research Everest Group [email protected]

Amneet Singh Vice President, Global Sourcing Everest Group [email protected]

Salil Dani Research Director, Global Sourcing Everest Group [email protected]

mailto:[email protected]�




Context setting

Focus of this webinar Present key findings from the Q3 2011 Market Vista report and implications for

buyers and service providers

Provide perspectives on the state of the global services industry in Poland and implications for stakeholders


Market Vista provides continuously updated facts and analysis every quarter to enable effective management of global services portfolios

General sourcing market

Detailed analysis of trends by industry vertical and geography

Report of transaction volume, size, and momentum

Perspective on events with significant industry impact (e.g., M&A)

Implications of regulatory changes

Service Provider landscape

Updates on service provider market share, capabilities, and performance

Service provider profiles, including data on: – Transactions – Location footprint – M&A activity

Location data and dynamics

Data on market activity in key offshore geographies – Political – Macroeconomic – Promotion incentives

Trends in wage inflation, attrition, and arbitrage

Processes and models

Process-level trends Details of captives set

ups, divestures, and overall trends

Fact-based insights on adoption of emerging pricing models

Data and perspectives on new opportunity areas


Related Content

Related Content

Market Vista: Q3 2011

Global Locations Compass – China

Global Offshore Captive Landscape and Trends: Focus Geography - China

Global Location Insights: October 2011 – Perspectives on Global Services Market in Poland

Blog: Video: Outsourcing and Offshoring Trends in Pharmaceuticals Report – Key Findings

Blog: Do Indian Tier 1 Service Providers Run the Risk of Losing Their Cost Competitiveness?

Blog: Indian “Strategic” Outsourcing Deals: Can the elephants dance when the music changes?

http://research.everestgrp.com/Product/11592�










http://www.everestgrp.com/2011-11-video-outsourcing-and-offshoring-trends-in-pharmaceuticals-report-key-findings-sherpas-in-blue-shirts-8381.html�

http://www.everestgrp.com/2011-11-do-indian-tier-1-service-providers-run-the-risk-of-losing-their-cost-competitiveness-sherpas-in-blue-shirts-8368.html�

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What will you learn from today’s webinar?

Summary of key messages Questions we will address today

Outsourcing and offshoring activity declined in the third quarter of 2011

What is the current outlook for global sourcing activity? What is the extent of decline? Which segments are exhibiting momentum? Weakness?

Delivery center set-up activity remained steady in the third quarter

How are the center set-ups distributed geographically? Which new captives were set-up during the quarter? What are the trends across Tier 1 and Tier 2 locations?

The service provider financial performance and market activity in the Market Vista index varied across different players/segments

How did service provider segments perform financially? Which providers were most active in deals and M&A? How has the share of deals signed by Market Vista index

service providers changed?

Poland has become the primary European delivery hub due depth of multi-lingual skills and cultural affinity

Is Poland viewed as an offshoring location? What are the leading cities for global sourcing activity? How do operating costs in Tier 1/ 2 locations compare? What are the distinctive advantages offered by Poland?

Audience poll


Poll Question: Which statement best reflects your sentiment about demand for global services?

3%

26%

39%

26%

5%

Significant decrease in demand

Modest decrease in demand

Flat or steady demand

Modest increase in demand

Significant increase in demand

Source: Live polling conducted during the “Market Vista Q3 2011” webinar on November 8, 2011


Agenda

Key market developments in Q3 2011

Special topic: Global services industry in Poland


Both outsourcing transactions and captive activity decreased from last quarter

Index of offshore captive health1

Number

1 Includes only publicly disclosed data 2 Announcements include both new set-ups and expansion of existing captive operations Source: Everest Group analysis

Captive set-ups2 = New Expansion + Captive divestures =

Q3 2010 Q2 2011 Q3 2011

13

33

4 1

29 20

1

9

4

20

Index of outsourcing transactions1

Number

503 516 472

Q3 2010 Q2 2011 Q3 2011


The decrease in outsourcing transactions was mostly due to lower traction in the public sector, particularly in the UK

20% 19% 21%

7% 5% 4% 2% 3% 2%

15% 17% 14%

4% 3% 2%

8% 5% 7%

8% 11% 11%

17% 15% 17%

20% 22% 21%

Q3 2010 Q2 2011 Q3 2011

BFSI

Defense

Healthcare

Telecom

MDR

Technology Government

Others1

516 472 503

Outsourcing transactions by vertical Number of transactions

E&U

Others3

UK

RoW2

Rest of Europe (RoE)

North America 34% 32% 34%

13% 20% 17%

28% 25% 27%

20% 22% 21%

4% 1% 1%

Q3 2010 Q2 2011 Q3 2011

516 472 503 100% =

Outsourcing transactions by buyer geography1

Number of transactions

100% =

1 Includes logistics and wholesale, services, travel and transport, media and entertainment, education, etc. Also, includes any transactions where buyer identity/industry was not disclosed

2 Includes Asia-Pacific, Middle East, Africa, and Latin America 3 Includes transactions where the buyer geography was not publicly disclosed Source: Everest Group analysis


27% 30% 41%

11% 18%

10% 26%

22% 29%

27% 29%

19% 8%

1% 1%

Q3 2010 Q2 2011 Q3 2011

Financial services Distribution of transactions by buyer geography1 Number

ITO AND BPO TRANSACTIONS

Outsourcing activity continued to remain steady in financial services and manufacturing although the distribution varied across geographies

100% =

UK

North America

Rest of Europe

Rest of World2

1 Buyer geography is the buyer location or the signing region associated with the transaction 2 Includes Asia-Pacific, Middle East, Africa, and Latin America 3 Includes transactions where the buyer geography was not publicly disclosed Source: Everest Group analysis

98 100 99

Others3

37% 26% 21%

18%

14% 22%

34% 46% 38%

7% 13% 18%

4% 1%

Q3 2010 Q2 2011 Q3 2011

Manufacturing, distribution, and retail Distribution of transactions buyer geography1 Number

100% =

UK

North America

Rest of Europe

Others3

Rest of World2

76 82 83


1 Perot was acquired by Dell in Sep 2009 and was rebranded as Dell Services 2 EDS was integrated into HP, and the segment is now called HP Enterprise Services (HP ES) 3 Hewitt merged with Aon in October 2010 and the combined entity is now called Aon Hewitt

Traditional global service providers

1

2

3

Offshore-centric service providers

Service provider developments | Market Vista Index service providers


Top events in Q3 2011

1 Analysis includes financials for Mahindra Satyam, which was acquired by Tech Mahindra in April 2009 2 Normalized operating margins exclude ACS, Atos, Capgemini, and Dell Services as information is not available Source: Company disclosures; websites; press releases; Everest Group analysis

Department for Work and Pensions (UK)-IBM: US$1.2 billion (seven years)

Vodafone Essar-IBM: US$1.0 billion (six years)

U.S.-based manufacturing firm-CSC: US$900 million (ten years)

Manulife Financial-IBM: US$659 million (seven years)

Top outsourcing transactions by deal value

IBM: 23 deals Accenture: 11 deals HP ES: 10 deals CSC: nine deals Infosys: nine deals Capgemini: eight deals HCL: seven deals ACS: six deals

Top service providers by number of transactions announced

IBM-Algorithmics: The deal, valued at US$387 million, will expand IBM's business analytics capabilities in the financial services industry

Capgemini-AIVE: The US$60 million acquisition will strengthen its application portfolio as well as its Software-as-a-Service (SaaS) positioning in Italy

Significant M&A deals

Service provider developments | Overview Highlights of Q3 2011

Sequential growth in revenues (Q2 2011 vs. Q1 2011) Percentage

3.6

6.2

4.0



Overall

Sequential growth in operating margins (Q2 2011 vs. Q1 2011) Basis points

3.0

-117.0

-13.0



Overall


While overall transaction activity reduced in Q3 compared to Q2, the share of leading service providers increased during this period

408 354

108 118

Q2 2011 Q3 2011

516 472

Other service providers

Market Vista Index service providers

Number of outsourcing transactions announced

Number of deals

100% =

Source: Everest Group analysis


Asia continued to account for majority of offshore location activity in Q3; Tier-1 cities reported marginally more activity than Tier-2 cities

Offshore location activity across geographies

Number of service delivery centers set up Offshore location activity across Tier-1 and Tier-2 locations Number of service delivery centers set up

Note 1: Offshore location activity denotes number of delivery centers of captives and third-party service providers established in offshore locations Note 2: Five delivery centers were set up in Africa during Q3 2011 Source: Everest Group analysis

Q3 2011 Q2 2011 2010 Quarterly average

19 17

2

24

17

5

23

9 7

Asia Europe and Africa Latin America

21

17

24 22 21

18

Tier-1 Tier-2


While India continued to account for largest activity in the captive1 market, Europe and Africa also witnessed considerable activity

1 Indicates announcements related to actual captives set-ups and expansion Note: All references to captives include only offshore captives Source: Everest Group analysis

Europe: Four captive set-ups Nestle opened its shared business

service center in L’viv (Ukraine) Romtelecom opened its new BPO

center in Bacau (Romania)

Rest of Asia: Five captive set-ups Acer opened its new R&D facility in

Chongqing (China) Nokia Siemens Networks opened an R&D

facility in Quezon City (The Philippines) Mitsui Chemicals opened its new center in

Singapore

Middle East and Africa: Four captive set-ups Ericsson opened its first regional support

center in Ghana (Africa) Amazon opened its new customer service

center in Cape Town (South Africa)

Latin America: One captive set-up National Instruments opened a

new shared services center in San José (Costa Rica)

India: Six captive set-ups Microsoft opened a R&D center in Bangalore (India) Maruti opened a new R&D center in Delhi/NCR (India) Fiserv opened a new R&D center in Bangalore (India)


2007 2008 2009 2010 2011

Sourcing risk: Currency appreciation in Brazil, Chile, and Malaysia is impacting arbitrage potential in these locations

Currency trends over 2007-11 Local currency/USD indexed to 2007

India

Depreciating currency: Decreases costs in USD

ITO SERVICES

+19% +13% +7% -4% -10%

Appreciating currency: Increases costs in USD

Poland Philippines Malaysia Brazil

xx% Net change in currency over 2007-11

Annual operating costs per FTE per annum 2011; Index: India = 100

100 115-120 170-175 175-180

300-320

India (Bangalore)

Philippines (Metro Manila)

Malaysia (Kuala Lumpur)

Poland (Krakow)

Brazil (Sao Paulo)

80-85% 42-47% 67-71%

xx%

75-80%

Arbitrage relative to U.S. Tier-1 city (Chicago)

69-72% Source: Everest Group analysis


Agenda

Key market developments in Q3 2011

Special topic: Global services industry in Poland


Poll Question: What is your organization’s current posture on the role of Poland for global services?

66%

11%

5%

14%

5%

Do not currently use and no plans to begin using Poland

Do not currently use, but plan to begin using Poland

Use for service delivery, but not planning to grow

Use for service delivery and planning to grow modestly (<20% growth)

Use for service delivery and planning to grow significantly (>20% growth)

Source: Live polling conducted during the “Market Vista Q3 2011” webinar on November 8, 2011


Leading buyers and service providers have multiple delivery centers in Poland

NOT EXHAUSTIVE

Wroclaw

Poznan

Warsaw

Lodz

Krakow

Tier-1 city Tier-2 city

Katowice

Olsztyn

Gdansk



Poland’s key strengths include significant depth in multi-lingual skills and cultural affinity with source geographies along with moderate savings in global services delivery

Croydon Warsaw Krakow Lodz

Annual operating cost per FTE in F&A services 2011; US$ (‘000s)

68-70

39-41 34-36

45-50%

40-42

Croydon (London)

Warsaw (Tier-1)

Krakow (Tier-1)

Lodz (Tier-2)

40-43%

Please refer to our recent newsletter Perspectives on Global Services Market in Poland for more details and insights

Poland offers significant depth in multi-lingual skills

Good availability of English, German, Russian,

French, and Spanish

Multiple players already leverage Poland for delivery of multi-lingual voice- and non-voice-BPO processes such as customer care, transaction processing


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To ask a question during the Q&A session Click the question mark (Q&A) button located on the floating tool bar in the bottom right of your screen.

This will open the Q&A Panel

Be sure to keep the default set to “send to All Panelists”

Then, type your question in the rectangular field at the bottom of the Q&A box and click the send button to submit

Attendees will receive an email enabling them to download today’s webinar presentation as well as access a recorded audio version

For advice or research on Market Vista, please contact: – Eric Simonson, [email protected] – Amneet Singh, [email protected] – Salil Dani, [email protected]

For background information on Everest Group, please visit:

– www.everestgrp.com – research.everestgrp.com

Thank you for attending today

Q&A




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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.



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