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Globalization of Services Trends in the Outsourcing Sector

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					                            "Impact of ICT on
                         Globalization and Socio-
                         Economic Development
                          in Emerging Regions"


                                         Anupam Govil
                                    President, Avasense &
   Strategic Advisors                    Partner, Avasant
for the Global Economy


                                 March 2011


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                                         Confidential - Not For Distribution
About Avasant

Based in Los Angeles, California, Avasant experts have performed over 1,000 engagements since
2001 across 40+ countries within three primary disciplines: Enterprise Optimization, Sourcing
Advisory and Globalization Advisory services

                                                                                          Enterprise
                                                                                         Optimization
                                                                                           Services

        Enterprise      Optimization      –    Avasant      assists
        organizations with managing critical internal IT and
        Operations    initiatives  to    drive   efficiency    and
                                                                         Globalization                  Sourcing
        effectiveness of service delivery, capabilities acquisition        Advisory                     Advisory
                                                                           Services                     Services
        and optimal cost savings

        Sourcing Advisory – Avasant assists public and
        private sector clients with navigating the complex
        transaction lifecycle of securing critical IT , Operations
        and Analytics managed services from global Tier 1 – 3
        service providers by leveraging best practice contracts,
        service level frameworks and financial analysis

        Globalization Advisory – Avasant assists the
        governments and the supporting provider ecosystem of
        emerging markets with targeted economic development
        solutions designed to foster job growth, education,
        policy optimization, infrastructure development and
        global market awareness


                                           Avasant Headquarters

                                            Avasant Offices & Delivery Centers
                                                                                                                               Page 2
                                                                                                   Confidential - Not For Distribution
About Avasant (2)

Within Avasant’s primary disciplines: Enterprise Optimization, Sourcing Advisory and
Globalization Advisory; are comprehensive solutions sets which have been hailed across the
industry in recent years




Avasant Ranks as the #1 Global
Sourcing Advisor for BPO and as a
TOP Ranked ITO Advisor . . .
            2008                            2009
1. Avasant
1. Avasant                        Avasant
                               1. Avasant
2.    Hackett Group             2.   neoIT
 3.   Nelson Hall               3.   TBI
 4.   Everest Group             4.   Equaterra
 5.   Gartner                   5.   TPI
 6.   PricewaterhouseCoopers    6.   NelsonHall
 7.   TPI                       7.   PA Consulting
 8.   PA Consulting             8.   PricewaterhouseCoopers
 9.   KPMG                      9.   AT Kearney
10.   McKinsey                 10.   Global Equations




                                                              IAOP World’s Best - Avasant has also been the recipient of several awards
                                                              for excellence in Management Consulting and Sourcing Advisory. Avasant
                                                              has been designated among the “World‟s Best Outsourcing Advisors” by the
                                                              International Association of Outsourcing Professionals (IAOP) in 2009 and
                                                              2010.
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Globalization Dynamics- How it is
Evolving?




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Objective of Globalization is all about achieving
a balance between Risk & Reward…


                                                                                    Well defined
                Effective                                                           Strategies
                Governance reduce                                                   improve the
                the overall                                                         returns
                business risk

    •   Country Risk       •   Strategic Risk                      •   Cost Savings
    •   Operational Risk   •   Reputation Risk                     •   Process Improvement
    •   Security Risk      •   Event Risk                          •   Capacity Increase
    •   Compliance Risk    •   Credit Risk                         •   Coverage
                                                                   •   Operational Flexibility

               Risk                                                        Return




                                           Service Globalization


  Effective program roll-out lead to improved engagement monitoring, reduces business risk and
                                strikes the right risk-return balance…


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Global Sourcing of IT and BPO services will
continue to grow at a healthy rate…

     IT and BPO markets will continue to grow at a high rate in the next 5 years
            Worldwide Technology Related Spends      Global Sourcing Market and Potential




                                                         Worldwide BPO Spends
                Worldwide IT Services Spends




     Source: NASSCOM


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Business Models have evolved and will continue
to change rapidly…

                                           Clearly, the next 5 years will see a mix of
               Impact Of                   traditional outsourcing with some
                                           experimentation on the cloud model.
                 Cloud                     Cloud computing will make an impact, but
               Computing                   will not replace traditional outsourcing

                                           Core legacy applications will continue to
                                           remain in-house and not move to the
                                           cloud model. High sunk costs on recoding
                                           will discourage the cloud model for core
                                           applications

                                           Pricing models of outsourced vendors will
                                           see high degree of innovation to compete
                                           with the „pay-per-use‟ cloud model

                                           Providers will move up the value chain to
                                           offer end-to-end services including cloud
                                           computing. Assisting clients in creating
                                           private clouds could potentially be a
                                           litmus test before they adopt the public
                                           cloud model

                                           Buyers will find it easier to integrate the
                                           cloud approach with existing providers,
                                           thereby reducing risk and being cost
                                           effective

                                           Reduced regulatory concerns on data
                                           security and reliability will drive cloud
                                           computing to a success


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Rapid Change Driving Industry Towards
Globalization 3.0…

                                                                                 Globalization is now looked at
 Competitive Advantage




                                                                 Market          delivering more than just cost
                                                                 Access          savings… Its being pursued now
                                                                                 for gaining strategic market access
                                                Skill             Skill
                                             Availability      Availability
                                                                                 Lets take example of the call centre
                                                                                 industry:

                              Cost              Cost              Cost           1.0 Call Centers moved from
                            Arbitrage         Arbitrage         Arbitrage           Ireland to Australia to India in
                                                                                    search of lower costs.
                         Globalization 1.0 Globalization 2.0 Globalization 3.0
                                                                                 2.0 Realizing that skills are critical
                                                                                    factor lead to call centers
                                                                                    moving to Philippines to take
                                                                                    advantage of skills in voice
                                                                                    processes.

                                                                                 3.0 Globalization is now seen as a
                                                                                    tool for competitive advantage.
                                                                                    Increasing trend of moving
                                                                                    centers to region such as Africa
                                                                                    where market potential is rising



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Globalization 3.0- A case in point is entry of
Airtel in Africa

   Airtel is the no. 1 cellular service provider in India

   Concerned over saturating market and increased
     competition, Airtel identified Africa as the next
     growth market and the revenue driver for future.

   Airtel acquired Zain‟s assets in Africa for $10.7 bn.

   Customer services by telecom firms in Africa has
     been abysmal whereas Airtel is known for its high
     customer services in India.

   Airtel proposes to improve the customer services
     in Africa. This presented a great opportunity for
     service providers to enter Africa

   Following its strategy of reliance on outsourcing as
     in India, Airtel outsourced the IT aspects of its
     operations in Africa to IBM and customer services
     to Tech Mahindra and Spanco.


       Airtel’s entry in Africa followed by service providers amply demonstrates the
                 importance of gaining market access through globalization

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Differentiating strategies among providers will
be the key, when everyone looks the same…
               However, success in one geography will only drive service providers to continuously
                                        evolve and meet “Glocal” needs
                                               •   Lower Cost
                                               •   Improve Delivery Performance
                                   Strategy
                                               •   Move to managed services from staff augmentation
 Common Differentiating Factors




                                               •   Business Alignment

                                               •   Efficient recruiting and hiring mechanism
                                               •   Strong brand image
                                   Staffing
                                               •   Effective training and development process
                                               •   Innovative retention policies and practices

                                               •   SEI/CMM, CMMi, ISO, Six Sigma, eSCM
                                               •   Process-focused, Process as part of corporate culture
                                   Quality     •   People‟s orientation to quality
                                               •   Technology support
                                               •   Full process capability
                                               •   Platform based development
                                  Operations   •   New services – IMS & Cloud Computing
                                               •   Strong transition expertise (50% of transitions go over budget/time)
                                               •   Innovative Governance models

                                               • Well thought out compliance approach
                                  Compliance   • Compliance with general regulations (SOX, etc.)
                                               • Compliance with industry-specific regulations (HIPAA, GLBA, etc.)



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Newer technologies such as Cloud Computing will
be will soon take Globalization to the next level…

    Cloud Computing
    •  Cloud computing is the provision of dynamically scalable and often virtualized resources that is delivered as a service


                                  Secure
                                                                                                     Economic Element
                               Multi-Tenancy                                                         • Pay-as-you-go
                   Utility
                                                                                                     • No Capex
                                                  Self-Service
                   Pricing
                                                                                                     Architectural Element
                                                                                                     • Simple environment
                                                                                                     • Responsive to demand
             Elastic              CLOUD                   Virtualized
            Resources           COMPUTING                                                            • Secure shared resources
                                                          Resources

                                                                                                   Strategic Element
                                                                                                   • Focus on core competencies,
                  3rd Party                          Automation                                     What you do best
                 Ownership
                                     Managed
                                     Services




            Business view of Cloud Computing                                           IT view of Cloud Computing
               A user experience and business model                                        An infrastructure management and services
               Transparent IT & infrastructure                                             delivery method
               Massively scalable                                                          Secure
               Dynamically delivered                                                       Resilient
               Standardized                                                                Public and Private
               Self Served                                                                 Enterprise class
               Utility pricing model                                                       Virtualized
                                                                                           Easily managed


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Social Objectives like “Being Green” also will
have to be addressed…




                                            Executive Imperative: IT Sector
                                            Energy Demands account for 6 percent of
                                            total U.S. Emissions. The IT Sector is
                                            responsible for 2% of emissions world-
                                            wide



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Emerging Markets Cannot Be Ignored




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Some Interesting Facts…




                                                Which region witnessed the
     US imports more oil from
                                                  fastest mobile phone
          which region?
                                                   subscriber growth?


               Middle East                                       Asia


                   Africa                                       Africa

    U.S. oil imports pumped in Africa: 18.6%    Year-on-year mobile phone subscriber
                                                  growth in Africa: 61%
    U.S. oil imports pumped in the Middle
     East: 17.2%                                 Year-on-year mobile phone subscriber
                                                  growth in Asia: 25%




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There are few basic factors that are analyzed to
evaluate Global Sourcing geographies..

 The outsourcing landscape is an increasingly complex web of service
 providers and global service delivery locations. With time, the
 evaluation factors of buyers have evolved too
  Key Evaluation Factors
                                                                                                                                    Eastern    Latin
                                                                           India   Philippines Russia   China   Ireland    Israel   Europe    America

    Talent Pool                            Regulatory Environment

                                                          Labor Pool

    Geopolitical risks                                     Education

                                                  Cost Advantage


    Education                                    Quality Programs
                                                                                                                          Russia
                                                          Experience                      Baltic Republics


    Culture
                             Canada          Cultural Compatibility Ireland                   Hungary
                                                                                               Chez Republic
                                             Language Proficiency
                                                                                                    Israel                 China
    Local marketplace
                                                        Infrastructure

                                                                                                                                               Korea
                                                   Overall Climate
                             Mexico           Bermuda
                                                                         SAMPLE – For Discussion Purposes Only
    Industry Best Practice
                                                                                               India    Vietnam
                                                                                                                                          Philippines
                              Costa Rica                                              Egypt
                                                                                                                                        Malaysia

    deployment
                                                                                                                    Singapore
                                               Brazil
                                                                          Ghana
                                                                                      Kenya

    Regulatory Environment
                                             Argentina                                              Mauritius
    & Incentives                                                                   South Africa




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Globalization 3.0 will require a new approach to
evaluate the emerging geographies…

                                            China                     India          Africa
  GDP growth (real) %
                                            8.7%                      5.7%           3.4%
  (2009 est.)                                                                                              22% Of World
                                                                                                              GDP
  GDP Size, PPP Adjusted
                                       $8.77 trillion           $3.53 trillion   $ 2.81 trillion
  (2009 est.)

  GDP, PPP Adjusted,
                                           12.5%                      5.1%            4%
  Share of World

  Population
                                         1,341 mn                 1,215 mn          994 mn
  (2010 estimates)

  Labor Force
                                           814 mn                     467 mn
  (2009 estimates)

  Telecom Penetration                        60%                       55%          < 40%

  Broadband Penetration                      10%                      < 1%        Negligible
  Banking Access                                                                                             52% Of World
                                            <35%                      <40%          <10%
  (% of population)
                                                                                                              Population
  Source : IMF, CIA Factbook, Government Websites, Avasant Research




      Evaluate potential of large market and dynamics in local industries like Banking
                                        & Telecom…



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Emerging economies have started getting their
act together to compete globally…
 Global Competitive Index Rankings for Select Economies
                                                           • Emerging nations in Europe, Middle
                                                             East, Africa and Asia offer significant
                                                             advantages for the global sourcing
                                                             industry
                                                           • Emerging nations have taken a
                                                             number of steps to increase global
                                                             competitiveness
                                                           • Significant scope for improvement
                                                             exists and countries need to align
                                                             growth strategies with other fast
                                                             emerging and mature markets

                                                          Ranking of Outsourcing Geographies



  Source: World Economic Forum, 2010



 • A number of nations are gaining traction
   as emerging IT/BPO destinations




 • However, Skill Development Needs
   Significant Focus compared to market
   leaders such as India and China

                                                          Source: AT Kearney, 2009
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Analyzing the Social Impact




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Each region has its own characteristic and are at
different phases of growth cycle...

                         •   Mature locations such as India Philippines and China
                         •   Presence of most global corporations
                         •   Abundant talent pool
                         •   Proactive government
                         •   Incentives on their way out
                         •   Rising costs makes it unsuitable for low end
                             operations

                         •   Explored locations such as Mexico, Brazil, Chile
                         •   Strong in Non English support
                         •   Presence of most global corporations
                         •   Ideal for specific requirements and skills
                         •   Talent availability high in certain pockets
                         •   Unable to provide scale matching India / China



                         •   Emerging locations such as Egypt, SA, Ghana
                         •   The most unexplored markets
                         •   Fast growing region – huge domestic market potential
                         •   Untapped talent pool.
                         •   Incentives and red carpet from governments
                         •   Stability in political environment is a challenge in
                             certain locations


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Some of the key challenges in emerging
economies is driving social growth…




                                         Source: Socially Responsible Outsourcing; Samasource
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Globalization has had a significant positive
impact on society…

                             • Reduced Capitalism
                             • Employee Friendly
                                                    • Women constitute 35%
  • Increased Pool of                                 of the outsourcing
    Educated                                          industry in India
  • Training Resource                               • Gender Inclusivity
    Pool                                              Policies




                                                            • Higher Consumer
                                                              Confidence and
 • Improved CSR/                                              Spending
   Green Initiatives                                        • Improved Standard
 • Reduced “Brian                                             of Living
   Drain” – Retention
   of Talent


                                                             • Improved
                                                               Transparency
                                                             • Higher
   • Direct : Indirect Job                                     Accountability
     Creation Ratio 1:2.5
   • Snowball Effect on
     Other Industries




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The positive impact has provided opportunities
for innovative solutions…


    M-PESA, a small-value electronic payment
    accessible from ordinary mobile phones

    Adopted by 9 mn customers (40% of
    Kenya‟s adult population) in less than 3
    years

    Average of $320 million per month in
    person-to-person transfers.

    Half of the 16,900 retail stores providing
    M-PESA services are located outside
    urban centers.

    25+ companies using M-PESA for bulk
    distribution of payments

    75+ companies are using it for bill pay




     Innovative technology led solutions can provide significant
                  opportunity to global companies

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                             Thank You


                             Anupam Govil
                              Partner, Avasant
                            President, AvaSense
                         anupam.govil@avasant.com




   Strategic Advisors
for the Global Economy




                                                                  Page 23
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