Destinations Compendium 2011

Hangzhou, China
A City of Financial Delivery Center
Demonstration City of Chinasourcing Hangzhou

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

Planner & Organizer: Great-Idea Business International Outsourcing Promotion Center
2011 the West Lake, Enlightenment and Discussion Discovery, Transformation, Reaction, Share
To Combine the Global Resources and Facilitate the Integration & Improvement of Global Service Capability
For Your Attention
International Outsourcing Business Development Summit Date: October 24-26, 2011 Venue: Zhejiang Narada Grand Hotel, China
Sponsors: Ministry of Commerce of the Peoples Republic of China Ministry of Industry and Information Technology of the Peoples Republic of China Ministry of Education of the Peoples Republic of China Host City : Hangzhou Peoples Government Ofcial Promotion: Hangzhou Municipal Foreign Trade & Economic Cooperation Bureau
International Financial Outsourcing Center

Contact: Tel-8610 85863613 Fax-8610 59081093 Email-salida-liu@great-idea.com.cn
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Global City Competitiveness: Summarizing the Dynamics
he services industry has earned the reputation of being a very respectable, environmentfriendly, 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 overall 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 years 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. NeoGroups annual study on city competitiveness provides the main research input into this years 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!
True Public Private Partnership Reliable Infrastructure Central Location Committed to Investors Success Investor Friendly CMMI and SPOT Certi cations Educated Human Resources
CoNTENTS
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Key Insights Methodology & Coverage Global Cities Coverage
THE TOP 100 CITIES

2012 Top 100 Global Services Destinations
12
14 16 17 18 19 20 21 22 23
Country Snapshot:
APAC EMEA Latin America
City Profile:
Dalian Bogota Cairo
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REGIONAL DYNAMICS
Asia Europe Middle East & Africa Latin America North America
30 40 45 50 59
69
EXPERTS
The Case for Nearshoring: Why and How the New Normal will shift Sourcing Dynamics by Anupam Govil, Partner with Avasant and President of Avasense Global Supply Risk Management: Monitoring and Managing Global Sourcing & Services outsourcing Risks by Atul Vashistha, Chairman & CEo, Neo Group Inc. Latin America: De-risking is Becoming Ever More Critical by Benigno (Beni) Lopez, Chief Globalization officer, Softtek Destination Strategy - What Makes/Breaks It? by Deepali Sathe, Project Manager, ValueNotes Sourcing Practice Compete or Cooperate? Bridging the Near shore- offshore Divide by Lalit Dhingra, President, NIIT Technologies Inc. Choosing the Right offshoring Destination by LN Balaji, President of ITC Infotech Does Captive offshoring Still Make Sense? by Nigel Hughes, Compass Management Consulting Africa Rising outsourcing Juggernaut set Sails by Dr. P.K. Mukherji, President & Managing Partner, Avasant Africa : A Ripe Terrain for Impact Sourcing by Pumela Salela, BPo Consultant Business Transformation and the Expansion into Asia by Sudhir Narang, Managing Director, BT India
70 76 86 90 94 96 100 103 108 114 117
Location Strategy For Indian Delivery Centers by 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
the top 100 cities
n n n n
Country Snapshot : n APAC ...................................................................... 18 n EMEA ..................................................................... 19 n Latin America .......................................................... 20 City Profile : n Dalian ..................................................................... 21 n Bogota .................................................................... 22 n Cairo ....................................................................... 23
2012 Top 100 Global Services Destinations ............. 12 Key Insights ............................................................ 14 Methodology & Coverage ........................................ 16 Global Cities Coverage ............................................ 17
Neo Group & Global Services
by
12 12
E X P E R T S
Global Services Destinations

Key Topics covered
Detailed profiles of 100 cities across Asia Pacific, Europe, Middle East, and Africa, and Central and Latin America Key outsourcing services from each city Current and future attractiveness of cities Established, emerging, and nascent locations by outsourcing service functions Data on annual graduate pool, IT and BPO workforce, industry size, attrition etc for each city Recommendations on location strategy and evaluation
2012 Top 100
http://microsites.globalservicesmedia.com/destinations2011
Destinations Compendium 2011
The Top 100 Cities
13
2012 Top 100
Global Services Destinations

rganizations continue to adopt outsourcing as a business strategy and an effective optimization and transformation lever to help them mitigate the current financial and competitive challenges. As a consequence of increased adoption of outsourcing, the global sourcing landscape has been undergoing changes and many global locations are evolving to serve specific needs of organizations that embark on their globalization journey or evolve as mature globalizers. Global sourcing is mainstream. While cost containment will continue to be an important factor in the global sourcing decisions of organizations, other factors such as access to a global talent pool, new market entry, and geographic risk diversification have become increasingly important. The cities covered in this report are by no means an exhaustive set of potential destinations. New destinations are constantly emerging in the global marketplace. This report attempts to provide its readers a view of the changing landscape across the more established as well as emerging destinations. We hope this report will provide you with insights as you consider and evaluate options as part of your organizations location strategy. This report analyzes a mix of established as well as emerging and nascent outsourcing destinations. The report covers over 100 cities across 50 countries. While traditional and preferred outsourcing destinations have been the focus of attention for over a decade, this report provides a perspective of many other locations that possess a strong potential to emerge as successful global sourcing destinations in future. The complete report will be available in November 2011 at www.neogroup.com and www.globalservicesmedia.com
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KEy INSIghTS
City, not Country: Location assessment based on country selection is a good starting point, but cannot be the basis for an organization to set up operations. Certain macro factors such as currency and risk perception are the same across the country. However, several important criteria for location assessment such as quality and availability of labor, taxes and other incentives can vary significantly across cities within the same country. Assessing organizational determinants and mapping them against market determinants, at a city level would be the recommended approach. Country based assessments, often tend to overlook organization specific requirements. The Changing Landscape: Global outsourcing destinations can be categorized as established, emerging, and nascent, based on the maturity of locations. While established locations have inherent challenges of higher costs and sustainability, they are still the most optimal fit for mature and advanced globalization activities. Tier-II and Tier-III global cities are gaining increased attention where organizations are keen on leveraging an early mover advantage. With the migration of talent becoming a common global phenomenon, such low cost cities are well placed to offer their competitive advantages. Expansion of global Sourcing: Several factors are resulting in the expansion of the global sourcing landscape. IT and BPO service providers are expanding their global delivery capabilities beyond the established hubs such as Bangalore, Manila, Warsaw, Shanghai, etc in order to access new sources of talent, overcome the fight for talent in established locations, preserve their margins by going to lower cost locations as well as have the first mover advantage and be the employer of choice. Margin preservation, a relook at core competence, gaining an early mover advantage, revenue preservation, multi-lingual requirements to address global markets are few drivers adopted by matured globalizers that continue to expand the global sourcing landscape. This expansion is
http://microsites.globalservicesmedia.com/destinations2011 Destinations Compendium 2011
The Top 100 Cities

taking place not only in cities in newer geographies but also in Tier-II cities in countries such as India, China, Philippines, and Poland. Governments and local administrations are also wooing investors via incentives as well as through the development of business and human resource infrastructure to promote their locations. Finally, as established destinations evolve in terms of service maturity and complexity of services offered, newer cities will emerge to fill in the void and become attractive from a cost and capability perspective for less complex skills. Scale vs. Niche: An important consideration for companies establishing their delivery centers is also to consider their headcount requirements. The choice of a city for setting up a large delivery center with headcount in thousands is fundamentally different from a requirement for resource headcount of a few hundred or less. Few countries and specifically, few cities offer a viable opportunity to scale operations. Cities in populous countries such as Brazil, China, India, Poland or the Philippines stand out for such requirements. Even within these countries, scalability issues vary by city. While established cities such as Sao Paulo, Manila or Warsaw may offer limited scalability for a company in todays environment, emerging cities in these countries such as Campinas, Cebu, d or Pozna may be more viable alternatives. While nascent cities with limited activity look attractive, companies should consider the potential supply shocks that may result with rapid, large scale expansion and increased wage and cost pressures. For many matured globalizers that target global markets, multilingual requirements and offshoring advanced and core activities of business functions have become key requirements to sustain competitive advantage. Such organizations have a unique requirement of combination of scale and niche skills which mostly can be supported by established and matured outsourcing destinations. Leading product development firms and professional services firms are good examples of such matured globalizers. Role of government Support and Incentives: The success of the IT and BPO sectors in employment generation in the economy, increased standards of living, contribution to the regions exports, GDP growth as well as a diversification to a service oriented economy is abundantly clear. Success stories of countries such as India, China, and Philippines have made governments and local administration in other regions realize the tremendous potential and accompanying benefits. In order to wean potential investors, incentives in the form of corporate and income tax holidays, subsidized or free land grants, lower customs and export duties, fast-track, single window regulatory clearances as well as incentives for training and recruitment are provided. While the nature and basket of incentives offered varies across cities, it is a common theme that runs across the cities that we have covered in this report. Companies that are early or first movers are the biggest beneficiaries of government incentives, as the local administration is keen to develop an initial set of success stories that can be used to effectively market the region to attract further investment in future. The role of government in identifying the ICT sector as a strategic growth area and channelizing planning efforts are critical success factors for a locations attractiveness.
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MeThodology & coverage

Data for this report was collected using a combination of primary and secondary research. Neo Group contacted outsourcing industry associations from various countries, software technology parks, investment agencies, as well as service providers across 50 countries covered in this report. The data gathered was qualitatively analyzed using Neo Advisorys proprietary location assessment framework. Leveraging our experience on location assessment engagements by working with our clients, the research focuses broadly on eight categories that are critical to be analyzed while choosing a location.
Location Factors Macro - Economic Attractiveness Financial Attractiveness service sectors Real estate rent, support cost, corporate tax rates, labor cost, wages inflation, cost to start business, tax incentives, travel cost Geopolitical Attractiveness Industry Maturity Political stability, natural disaster, terrorism, rapes rate, City Murder rate etc Size of industry, presence of major IT & BPO companies, multilingual capability, key services, industry specific services and focus Human Resource Attractiveness Infrastructure Attractiveness Size of workforce, university graduates output, attrition rate, scalability, sustainability, language proficiency Number of ISPs, personnel computers, Internet users, Fixed Internet subscribers, number of IT parks and SEZs, airline connectivity, road infrastructure, power supply Business Environment Attractiveness Procedures Required to Start a Business, Time Required to Start a Business, Procedures Required to Register a Property, Time Required to Register a Property, Procedures Required to Enforce a Contract, Time Required to Enforce a Contract, Lodging availability, Hotel Room Occupancy Rates, Cultural compatibility for expats, Cost of Living, Risk & safety for expats, Environmental Pollution levels, Ease of travel such as frequency of flight and travel times to U.S, Europe, Australia, Japan etc Risk Overview Security, Political, Government, Legal & regulatory, Macroeconomic, Foreign trade & payments, Financial, Tax policy, Labor market, Infrastructure
Key Parameters FDI, inflation rate, GDP growth rate and contribution to
The Top 100 Cities The following is the list of cities covered in this report under respective regions:
APAC: 1. Bacolod City 2. Bangalore 3. Bangkok 4. Beijing 5. Bhubaneswar 6. Chandigarh 7. Chengdu 8. Chennai 9. Coimbatore 10. Colombo 11. Dalian 12. Davao 13. Delhi NCR 14. Guangzhou 15. Hangzhou 16. Hanoi 17. Ho Chi Minh City 18. Hyderabad 19. Jaipur 20. Jakarta 21. Jinan 22. Johor CyberPort 23. Kabul 24. Klang Valley 25. Kolkata 26. Metro Cebu 27. Metro Manila 28. Mumbai 29. Nanjing 30. Pasig City 31. Penang Cybercity 32. Pune 33. Shanghai 34. Shenzhen 35. Thiruvananthapuram 36. Xian Global Cities Coverage EMEA: 1. Alexandria 2. Amman 3. Belgrade 4. Bratislava 5. Brno 6. Bucharest 7. Budapest 8. Cairo 9. Cape Town 10. Casablanca 11. Dubai 12. Dublin 13. Durban 14. Irbid 15. Jerusalem 16. Johannesburg 17. Kharkov 18. Kiev 19. Kosice 20. Krakow 21. Ljubljana 22. Lodz 23. Lusaka 24. Lviv 25. Minsk 26. Moscow 27. Nairobi 28. Nizhniy Novgorod 29. Novosibirsk 30. Port Louis 31. Poznan 32. Prague 33. Riga 34. Sofia 35. St. Petersburg 36. Tallinn 37. Valletta 38. Vilnius 39. Warsaw AMERICA: 1. Barranquilla 2. Braslia 3. Buenos Aires 4. Calgary 5. Cali 6. Campinas 7. Cordoba 8. Curitiba 9. Guadalajara 10. Guatemala City 11. Kingston 12. Lima 13. Managua 14. Medellin 15. Mexico City 16. Monterrey 17. Montevideo 18. Queretaro 19. Rio De Janeiro 20. San Jose 21. San Pedro de Sula 22. San Salvador 23. Santiago 24. Sao Paulo 25. Toronto 26. Valparaso
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Country Snapshot :
APAc
Cities in this region continue to offer the highest cost saving among all the outsourcing destinations covered in this report. The average ITO and BPO salaries in APAC cities are much lower compared to wages in Latin America and EMEA region. The universities and colleges generate a large, qualified labor force that is highly scalable to meet the demands of the industry. The skill sets of the labor pool available in the region are well suited to support BPO and ITO services including knowledge services. One of the barriers is the cultural and time zone difference with the western countries. The United States, Western and Japan are the key United States accounts percent of the total of the region while as Dalian, Beijing, focus on the due to the lingual proximity. It that around the Chinese revenue is from market. While has been on the suppliers in the diversifying their risk demand markets such and United Kingdom. This changing revenue mix of the Europe, United Kingdom, demand markets. The for approximately 70 outsourcing revenue Chinese cities such and Shanghai Japanese market capability and is estimated 60 percent of o u t s o u r c i n g the Japanese the regions focus U.S. market, the region are gradually by focusing on other as continental Europe has been evident in the region over the last few years.
The APAC outsourcing business is dominated mainly by banking, financial services, insurance (BFSI), and telecommunication sectors. It is also forecast that the BPO market size in Asia Pacific will reach 17.47 billion by end of 2015 with a growth rate of 15% in the emerging countries such as India, China, and South Korea.
The Top 100 Cities
19
Country Snapshot :
eMeA
The EMEA region has seen a surge in outsourcing activity traction in the last few years. This traction is attributed to multiple reasons. Cultural and geographic proximity to European markets, availability of relatively low cost skilled workforce in regions like Eastern Europe, Russia, and North Africa, and most importantly, a sizeable workforce that can meet and support the multi-lingual requirements of global organizations are the key drivers for outsourcing traction in the region. The region has a highly efficient school system that adds thousands of skilled labor every year to its workforce. Focus on advanced science and engineering, specifically in Russia and Eastern Europe has led to the creation of global centers of engineering and technology excellence in this region. They have a huge technical potential because of their level of western world comprehension bolstered by their educational system. Middle East has been a source of attraction for the outsourcing industry in the recent past. North African locations like Casablanca and Cairo offer excellent multilingual skills at low cost. North and East Coast Africa have good telecommunications connectivity and thus more traction is seen in these regions within Africa. MENA region is expected to witness a CAGR of 8% during the forecast period of 20092016; even UAE outsourcing market will record a CAGR of 10% during the same period.
20
Country Snapshot :
Latin America
Presence of huge Spanish speaking population in the U.S. and Latin America has led to the growth of Central and Latam regions outsourcing industry. With sizeable and moderately scalable bi-lingual population along with skill sets to support few European languages, the Central and Latam region has captured a prominent space in the global outsourcing landscape. Positioned in a similar time zone and geographically close to the
U.S. market has made Central and Latam region the most favored nearshore destination for the U.S. Central and Latam region is unique in terms of its cultural orientation. Being close to the U.S. and with large historic European settlements, the region is culturally oriented to both the demand markets. Similar time zone is another advantage that cities in Central and Latin America possess in the global outsourcing market. Due to geographic proximity, travel time to Central and Latin American cities from the U.S. is very less when compared to offshore locations. One of the main advantages of Central and Latin America is the ability to offer real-time services. Outsourcing in Latin America is the fastest growing region in the world. The BPO market size in Latin America is forecasted to reach US$ 18 billion by 2012, which contributes to about 4% of the global BPO market.
The Top 100 Cities
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Dalian
alian is known as the Model City of China, and a showcase of how China is attempting 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 cultural affinity have resulted in the city cornering most of the Japanese market for outsourcing. 80 percent of Dalians software exports are destined to Japan. Having 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 citys combined IT and BPO projected revenue in 2010 was US 3.9 billion, with exports of US 842 million, accounting for one-third of the countrys 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 additional 8,600 students with reasonable Japanese-language skills. Currently, the city employs approximately 95, 700 in the IT industry. The Dalian Institute of Foreign Languages provides training in English, Japanese, Korean and other foreign languages to cater to the requirements of the call center industry. Neusoft Institute of Information Technology is one of Chinas 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.
Country Population Annual Graduate Pool IT Labor Pool Size BPO Labor Pool Size
China 6.2 Million 94,500 95,700 38,500
Key Services
Call Center (Japanese, Korean, Chinese), Embedded Software, Engineering Services, F&A BPO, IT Services, Systems Integration, Technical Helpdesk Future Attractiveness
Current Attractiveness
City Profile
22
City Profile
Bogota
aogot, considered a rising star in Latin America for services offshoring is the commercial and cultural capital of Colombia. Once perceived 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 countries such as Brazil, Chile, and Mexico. Bogot has a good educational system that produces qualified talent to meet the demands of the growing industry for various business activities related to offshore services. The city is home to more than 107 higher educational institutions that produce approximately 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 workforce of 50,000, of which approximately 80 percent is employed in servicing the domestic market and 20 percent services the export oriented markets, primarily across Latin America and Spain followed by the United States. 80 percent of Colombias contact center industry is located in Bogot and generates 60 percent of the overall revenue. Bogots outsourcing revenue in 2010 was about USD 582.162 Million, of which 82 Million is from exports. Bogot is well suited for setting up contact center operations to service the Spanish speaking markets in the United States, Spain, and Latin America.
Colombia 7.8 Million 67,000 20,000 35,000
Key Services
Contact Center (Spanish, Limited English), IT Services Future Attractiveness
The Top 100 Cities
23
Cairo
he city of Cairo is the educational hub of Egypt as well as for MENA (Middle East and North Africa) region. The government is eager to attract and support foreign investments to develop the ICT sector and provides several incentives to investors. Incentives include beneficial purchase options for municipally owned land and tax exemptions to companies setting up operations. The recent event in Egypt doesnt stop the growth of outsourcing industry in Cairo. Example: - Teleperformance has no intention to reduce its investment in the country; instead the company increases its manpower from 1,100 in January 2011 to 1,700 in May 2011. Cairo serves not only the Middle East and African 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, German, 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 captives and global delivery centers in the Smart Village. 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 services, 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.
Egypt 17 Million 30,000 28,400 11,600
Key Services
Embedded Software , IT Services, Medical Transcription, Multilingual Call Center, Product Development, Software Testing Future Attractiveness
City Profile
COUNTRY-IN-FOCUS
A special feature for countries to showcase their uniqueness
Ensuring Global Visibility

Inviting Countries to showcase capabilities that accentuate their uniqueness.
There are numerous outsourcing destinations that exist as great alternatives to India and China.
Examples of Country-in-focus feature

Egypt Philippines Jordan
JORDAN
For more information write to satishg@cybermedia.co.in
Why Jordan?
Irbid Development Area: LocatedinJordansfertilenorth adjacent to the kingdoms leading scientific institutions and one of the Middle Easts foremost ICT and health care universities,andstretchedover a 3.2 km2 area, 20Km east of Acentrallocationtosupport BusinessParkDevelopment Irbid city and 80km north of a regional hub and spoken Area in Amman-Dabouq: theJordaniancapitalAmman delivery model; with many businesses looking to expand beyondthetraditionalmarkets, Jordan offers a unique market to tap to the growing MENA region.Atashortflyingdistance from the GCC countries, North Africa,CentralAsia,andEurope, Jordan provides an easily accessible location from which tosupportmultipleregions Jordanian companies now have CMMI and SPOT certifications; Certificates that are the best internationally and are considered an asset to any Located in an outstanding company city location on Ammans A young, growing, and main corridor with quick educatedtalentpoolproviding access to all city amenities, agoodsourceofmanpower Business Park Development Investor-friendly regula- Area is destined to become tions that do not require local a sustainable and enduring businesspartners,Jordandoes mixed-use city district that not have any foreign owner- willprovidefuturegrowthand ship/repatriations restrictions development for Amman and or localization policies thus Jordan. It offers international standard office environments givingflexibility Jordan also possesses a modern and progressive society. Jordan is known for its economic and political stability, and for a multi True Public-private partnercultural society, marking it as ship: A model that has been an attractive destination for proven to be a success; The foreign nationals to work and Government and the private reside sector have committed to developing the required infra- Two cities; Amman and structure, attractive incen- Irbid have emerged as the tives and training initiatives to outsourcing Cities due to ensure a constant supply of the strong infrastructure and talentedworkforce: skilledmanpower with high quality residential developments, and a vast array of dining entertainment and leisure opportunities for residents,workers,visitorsand tourists
Time Zone: 2-3 hours ahead of Greenwich timing in Winter and Summer times respectively. Countries within 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 fiscal and monetary policies and sustained structural reforms includinglegislative,regulatory, and judicial reforms have positioned Jordan as an ideal base forexport-ledgrowthtoregionalandinternationalmarkets The Kingdom consistently ranks among the safest locations for business in the world andamongArabnations,inparticular Jordan is committed to freedom of expression and choice.MeasuredbytheAnnual Freedom House Survey, Jordan ranksfourthintheregion An array of international trade agreements for foreign directinvestmentandexport: USA-JUSFTA: Has been in forcesince2001.Itwasthefirst free trade agreement negotiated by the US with an Arab country,andthefourthwithany countryintheworld GAFTA:Establishmentofthe ArabfreetradezonebyJanuary 2005 JordanEUAssociationAgreement: Came into force in 2002, the agreement aims at creating a free trade agreement by end of2010 Singapore: Signed in May 2004; The agreement aims at the gradual elimination of custom duties over a period of 10 years
European Free Trade Association:Enteredintoforcein January 2002, it aims at setting up a fully operational free trade areaoveraperiodof120years AGADIR: Entered into force on July 6 2006, the agreement allows for diagonal accumulationoforiginamongstitsmembercountries Joining the GCC council membership is in negotiation phaseamongstothers general infraStructure Three Airports: Queen Alia International Airport (Amman) which was recently expanded to serve 9 million passengers.
Roads: Jordan has a well developedroadnetworkallowing quick access to all its territory ElectricEnergy:Reliableand competitively priced, electricity in Jordan is generated by the Jordanian Electric Power Company(JEPCO).Government directionisalsogearedtowards increasingtheuseofrenewable energysources education & Workforce Named as the MENA regions topperformerinthefieldofeducation reform, Jordan has been
King Hussein International Airport (Aqaba) and Amman CivilAirportatMarkaformostly domestic and nearby internationalroutes Seaport: The Gulf of Aqaba on the Red Sea is deep water harborwhichoffersfacilitiesfor general cargo, containerized cargoandspecializedcargo Railroad:Thereisanewrailwaymasterplantoimproveand increase the existing 620 km longrailnetwork
pushingtowardsattaininghighest internationalstandardsofquality Jordan has a literacy rate of 91% 70% of the population age demographic is under the age of30,denotingayouthfulpopulation, ideally suited for ITO andBPOjobs Females comprise 51% in undergraduatestudies 26 state and private accrediteduniversities Over40 institutionsproducinghighlyskilledtechnicians
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tious initiative led by Majesty King Abdullah was launched, creating development zones across the Kingdom that provide investors with a globally competitive combination of location, infrastructure, and services and labor. The DFZCs vision supported by a highly qualified team that works in partnership with the developmentzonesmasterdevelopers; charged with managing the buildings, development and operationofthezones.Todate, six development zones are currently operational, offering diversifiedinvestmentopportunitiesthatbuildoneachzones competitiveadvantage benefits to foreign investors: Foreignownership100% Foreignemployment One Stop Shop: One-Stop commitment to Shop services to streamline inveStorS SucceSS andeasetheprocessofestablishinganoperationwithinthe 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 incentivesandexemptions Jordan Investment Board: Exemption from sales tax A government institution andcustomduties committed to working with the private sector to promote As a result, Foreign Direct Jordan for its unique and busi- Investment (FDI) surged from ness friendly environment and USD 937 million in 2004 to diverse investment opportuni- aroundUSD2.4billionin2009 ties.TheJIBpresentsstateofthe ict art services for facilitating reg- In response to a challenge istration and licensing proce- put forward by His Majesty in duresforprojects,andoffersall 1999, the efforts were directpossible simplified procedures ed at devising a comprehenforinvestment sive framework for Jordans ICT Development and Free sector, which resulted in many Zones Commission: An ambi- strategies
Today,morethan29,000foreign students are enrolled in JordanianUniversities AreasofstudywiththehighestenrollmentincludeBusiness Administration, Engineering, ComputerSciences,Humanities, EducationandTeacherTraining, andMedicalServices Jordansworkforceisregardedasoneofthemostqualified, competitive and productive in theregion Jordans labor rates are considerably cheaper than those inothercountriesintheMiddle East Labor force specialties include: information technology,engineeringservices,travel andtourism,textileproduction, natural resource extraction, pharmaceuticalsandlightmanufacturing
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 governmentmusttaketodoitspartto facilitateICTsectorgrowth As a result of implementing these strategies, annual ICT sector revenues increased by an average of 25% yea-onyear over the past few years and generated income representing approximately 14% of the countrys GDP, adding over 15,000 jobs directly to the economy and more than 80,000 jobs overall whether direct,indirectorinduced Jordanian telecoms have invested over USD 400 million in recent years in a number of technology solutions designed to make Jordan more accessible to the rest of the world OpportunitiesinJordanstelecomrevenuereachedUSD3.1 billion,upfromUSD673million in2001
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outSourcing:
Jordan specialties in outsourcing liesin:
business functions like finance and accounting, human resources, claims processing, and customer relationship manager
buSineSS ProceSS outSourcing (bPo): Many multinationals as well as BPO requires expertise in key localfirmshavecapitalizedionJordans As a BPO hub for MENA region,
rich source of talent and aptitude for sophisticated IT skills by establishing outsourcingoperations Jordan can be the decisive choice for establishingregionalheadquartersand sharedservicesinfrastructure
stylelegalsystem,strongIPRlawsand abusinessfriendlyclimate,Jordanhas been positioned as an important IT outsourcingdestination
Shared ServiceS center: Alongside lower costs, western With its strategic location as a
gateway into the MENA region, its good international connectivity, lower costs, and world class infrastructure, Jordancanbetheidealdestinationfor sharedservicescenters
CurrentcapabilitiesinJordanrange With its higher literacy rate, lower fromoutsourcedsoftwaredevelopment A supportive government and best in class incentives offer an ideal
cost, and highly trainable ICT savvy workforce, Jordan is ideally suited to providesuchservices and testing to remote infrastructure management to providing technical assistanceonsophisticateproducts Cisco, Microsoft, Oracle, HP, Google and others have established centers ofexcellenceinJordantotapintothe countrysICTadvantage
Jordans familarity with the American, British, Asian, as well as Middle East business practices positionsitwelltoserveallcontinents
active in Jordan and are using it as a base to serve its regional as well as globalclients
Leading tech companies such as
launchpadformultinationalsthatcan leverageJordansstrongworkforceand costtotheiradvantagetofurthertheir globaldiversificationstrategy
Globalserviceprovidershavebeen
knoWledge ProceSS outSourcing (kPo): Sectors with good potential for Knowledge based services require
outsourcing business processes to Jordan include banking, insurance, healthcare, telecom, hospitality and technology
qualified labor force with specific expertise, advance knowledge, analyticalinterpretation,andtechnical skills
to become a strong contact center outsourcing hub owing to a highly service oriented economy, a competitive cost structure, a young workforceandfamiliaritywithboththe WesternandRegionalcultures
contact centerS: Jordan has a natural affinity
With a relatively neutral English
penetration rate and a large number ofICTgraduateswithastrongindustry focusedskills
Jordan with its vast skilled labor information technology poolwillprovidequicktimetomarket outSourcing (ito): solutions for any organization and Several outsourcing providers Jordan enjoys a high level of ICT guarantees a continuous flow of operateoutofJordan,offeringservices
support that will ensure continuous success for all current and future business to the US, UK and the Middle East ranging from customer support, pre sales and loyalty management to technicalandhelpdesksupport
and Arabic accents, Jordan is fast emerging as the most viable contact centerdestinationintheregion
InfactJordanhasbeenasourceofIT talentformajorlocalandmultinational companies in the Middle East and is widely recognized as possessing the strongestICTworkforceintheregion
Some of the key KPO services that can be delivered from Jordan include financial analytics, technical research, MiddleEastspecificmarketandbusiness researchfunctionstonametheleast
Besides Amman a new contact center hub is emerging in Irbid to service growing demand for cost effectiveandtalentedagents
all Middle East emerging markets. Internationally recognized firms have emerged in Jordan to provide specialized F&A servicesforregionalandglobalcompanies engineering services:Jordanproduceshighcaliberengineeringtalentbyvirtueofitshighlyrecognizedandprestigious educationalsystem healthcare and pharmaceuticals:TheJordaniangovernmentiscommittedtopromotingthelife-sciencesindustryas oneofthenewgrowthareasinthecountry information and communications technology:JordansvibrantICTsectoristheresultofafullyliberalizedmarketand athrivingprivatesector.TheICTindustryhasincreasinglybecometheengineofgrowthforJordanseconomy energy and renewable energy:JordanisripetoemergeasaCleanTechnologyhubwithintheMENAregion.Strong solar irradiance, robust electric infrastructure, abundant engineering talent, and moderate labor costs are particularly conducivetogrowthinthesolar contact: Formoreinformationandstatistics: Int@j:Tel:+96265152322,info@intaj.net,www.intaj.net For more information and statistics on Jordan's country profile, please log on to http://tiny.cc/0ptth FormoreinformationandstatisticsonJordan'soutsourcingprofilepleaselogontohttp://tiny.cc/tvuus
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Jordan believeS itS outSourcing StrengthS lie in: financial services:Jordansbankingandfinancialindustrysystemisamongthestrongestandmostdevelopedamong
regional dynamics
n AsiA
30 40 45 50 59
n EuropE
n MiddlE EAst & AfricA n lAtin AMEricA
n north AMEricA
30
Asia - Balancing the Weight

of the Western World
Sourabh Chandra Pushp

he dynamics between various Asian outsourcing locations could best be characterized as the war for BPO destinations. Apart from India, which has major scale in both IT and BPO, the rest of Asia is more of a BPO story. The outlook for Asia/Pacific's BPO market remains positive, with growth in 2011 expected to be 17.9 percent in terms of U.S. Dollars. According to the latest Gartner research, the worldwide BPO market is forecast to grow by 6.3 per cent globally and 17.9 per cent in the Asia-Pacific during the year 2011. The study titled, Market Overview: BPO Service Providers in Country Marketplaces in Asia-Pacific and Japan,2010-2011, states that the BPO industry will grow to $1.69 billion by 2012 and $2.47 billion by 2014. H Karthik, research vice-president at Everest Research, said: "Emerging markets are faring far better and, generally,
multinational companies now look to BPO far more as a means to reduce costs for business operations. The outlook for Asia/Pacific's BPO market remains positive, with growth in 2011 expected to be 17.9 percent in terms of U.S. Dollars. The presence of multiple city options with significantly different characteristics drives complexity in location selection decisions in Asia. There is a significant diversity in the evaluation of the top Asian players. India, with its early-mover advantage, is able to
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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, Chinas potential labor pool, and the attractiveness of China as a huge demand 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 demand 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 opportunities 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
provide manpower for all type of offshoring activities. The Philippines' long established tradition of providing leading call-center support continues to be strong. China provides competitively priced high-end analytics and engineering, while Malaysia attracts IT services offshoring. Companies in Japan and South Korea are looking at China to offshore their IT/BPO processes-while operations in Singapore are considering their neighboring Malaysia as an attractive alternative. Australian companies are moving their IT/BPO processes within the region to Indian and Philippines.
Sakshi Garg, Senior Research Analyst, Everest Group, adds, India has retained its position as the leading global shoring destination with a 55 per cent share of global ITO and BPO market in 2010. Early-mover advantage in the outsourcing industry and critical mass has made India the most attractive global location for companies looking at outsourcing. She further adds, There are a number of considerations in terms of identifying a particular country as a favorable outsourcing destination, besides, the very obvious cost related advantages, some of the other considerations include: availability of skilled manpower,
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competitiveness of suppliers/service providers, language proficiency, government support, educational system and infrastructure. In another report on BPO trends in the Asia-Pacific region, excluding Japan, research house IDC forecasts the market to rise to US$15 billion by 2011, recording a compound annual growth rate (CAGR) of 16 percent. In support to this, research firm Ovum, predicts- Asia-Pacific's BPO market will reach revenues of US$17.47 billion in 2015, a CAGR of 9.3 per cent from the US$11.18 billion it hit in 2010, predicts Ovum.
IT Spend IS GrowInG AcroSS The reGIon

The market in Asia for IT purchases is growing considerably. Research firm, Forrester expects growth to accelerate over the next few years. According to Forrester, the Asia Pacific economies may not have the fastest growth in nominal GDP in 2011, but overall, IT purchases in Asia will grow by 8% in 2011 and 9% in 2012 with Japans slower growth dragging the regional growth rate down. In terms of the fastest-growing countries in the top 15 IT markets (in local currencies), Brazil and China will have the fastest growth at 15% and
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12%, respectively. India scores next at around 9%. Asian economies occupy four of the top five fastest-growing economies in relation to IT spend. destination. While the cost advantage is unparalleled, India has the worlds largest pool of employable talent, service delivery infrastructure across multiple geographically dispersed locations within the country, and a supportive policy regime. China, India's immediate neighbor and major competitor in the region, views Indian provider growth as a major threat diplomatically. Contrary to its earlier positioning as a competitor to India, China is now hailed as being supplementary to India. China rules the manufacturing outsourcing space and is undoubtedly leagues ahead of any other nation but, when the conversation turns to service outsourcing India certainly is reckoned the leader. In fact, the Indian growth rate in the sourcing space is expected to surpass China by 2015 significantly. There is significant buzz in the market that China has the potential to also
chIneSe drAGon vS. IndIAn Bpo

India has retained its position as the leading global shoring destination with a 55 per cent share of global ITO and
BPO market in 2010. India with its firstmover advantage and deep skill base remains the unquestioned leader in the Asian-regional dynamics. The fact that India has a vast workforce and talent pool that is eager to walk the extra mile, has made them a powerful outsourcing
On the supply side, China faces many serious challenges such as Intellectual Property (IP) and data security concerns and the employability of the workforce, which threaten fundamental growth. The Chinese government and suppliers are implementing new measures, however, to address these concerns. Liu Jiren, Chairman and CEO, Neusoft Group
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become a leading sourcing destination for services. Although the BPO industry in China is yet to attain the maturity witnessed in India, there is more than enough reason to believe the Chinese dragon is inching towards that desired level of maturity and it surely poses a significant threat to the Indian supremacy. 2009-10 data reflects a growth of 21% in the Chinese outsourcing industry with a value of $23.6 billion. While India still remains the most preferred outsourcing destination for companies in the West, the scenario is different in the Asia-Pacific region. Most companies in these regions prefer to send their work to China primarily due to low employee costs. Hence, there is no doubt that China is fast emerging as a major outsourcing destination worldwide. Aegis-CEO, Aparup Sengupta is of the view that China will overcome India as an appealing destination for non-voice BPO services. According to him, a generation of English-speaking Chinese will surface in four years from now, as they have really toiled hard during the last one decade to progress on this. Although Aegis does not have a presence in China till now, the company is currently considering setting up centers in that country. India has been a pioneer in providing outsourcing solutions and a range of outsourcing services to countries across the globe. Outsourcing to India can help achieve all the above stated benefits. The kind of trust and faith that companies enjoy with Indian providers is a gradual process; to break this faith is the real challenge for China. Following are some of the prominent reasons why companies choose to outsource to India and may be what China needs to concentrate on in addition to creating a favorable market environment.
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, however, spending on IT software and services next year is set to increase over levels recorded in 2010. Blanca Trevino, CEO, Softtek
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IndIA AdvAnTAGe conTInueS
Cost-Effective Services: The number one reason global organizations outsource to India is their cost-effective services. Outsourcing to India can help you save more than half of your operating costs. Having a large technically skilled labor pool has enabled India to provide cost-effective services without compromising on quality. Outsourcing to India can help you save on your operating costs while increasing your productivity, quality and efficiency. Replacing Indian dominance in the IT services space seems to be unthinkable. high-Quality Services: Outsourcing to India is not just a cost saving play, it's transformed into an all round satisfying experience that saves money and makes the process more robust and standardized. Quality and process excellence initiatives like Six Sigma, Lean, and others have been embedded in the offerings by all prominent Indian providers. India has proved it is technically superior when compared to other offshore countries providing outsourcing solutions. The Chinese propose to move in the same direction, but it's a path the Indians have pioneered. Other advantages: Vast talent pool, scale, language, process maturity, government stability, good and quality excellence certification.
The phIlIppIneS
The Philippines has become one of the most preferred offshore destination for call center outsourcing, specializing in customer support services. Like Indians, Filipinos also have a high level of English proficiency and strong customer orientation. The Philippines have not been fueled only by traditional
low-value-added call centers, but by higher-end outsourcing. Even though call centers still dominate the sector, the Philippines has started capitalizing on its non-voice processes.
TAkInG AdvAnTAGe of The phIlIppIneS

Many cities in the Philippines including Manila and Cebu have the infrastructure, the talent, and the government support needed to maintain successful call centers. In addition, the caliber of people and the level of language proficiency in these parts of the Philippines are equal if not superior to most of the current offshore locations.
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The Philippines are a prime location for BPO services because the work can be spread around smaller cities in various provinces around the country which are extremely inexpensive in terms of both human capital and infrastructure. Both Manila and Cebu are top tier cities for BPO and software development, but it is still the early stage of the industry. The offshore outsourcing industry in the Philippines is now estimated to be growing at about 30% and will reach $25 billion in 2012. Initially the focus was on call centers and low value added BPO, however growth over the last few years has centered on higher value activities such as web design, software development, animation, legal services, medical transcription etc.. While voicebased services constitute a bulk of the BPO market currently, non-voice and back-office processes contribute 90% to the future market opportunity. According to Marife Zamora, Managing Director -Asia Pacific, Convergys, As the BPO market evolves, expect 90% of future Philippines-BPO opportunity to derive from non-voice BPO functions. BPO revenue in the Philippines has grown to over $8 billion, almost 50% over the last four years, with projections showing them overtaking India as the BPO leader sometime within the next 18 months.
whAT MAkeS The phIlIppIneS The preferred Bpo deSTInATIon?

First, there is great language advantage. A huge chunk of the Philippine population is literate in English. The education system, public and private, uses the English language as a medium of instruction. Filipinos, even when untrained, have a good grasp of the language. Moreover, more Filipinos can be easily trained to speak with an American accent or any accent the client prefers.
Success in voice-based BPO services has made the Philippines the second largest low-cost BPO destination after India. Clients are now saying that there are certain kinds of processes they want done out of the Philippines and some that they want back in India. Keshav R. Murugesh, CEO, WNS
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Most Filipinos can communicate well, written or oral, in the English language, and can be trained to do better. The Philippines also has a vast human resource talent pool that can be tapped for various services. Aside from the widely growing number of qualified call center agents, a lot of Filipinos are already skilled and trained or trainable to provide medical transcription services, legal services, SEO and web development services, software development, virtual assistance, and other such services. There is still a widely untapped pool of talents in the Philippines which can be utilized via outsourcing. Another important edge of the Philippines in terms of outsourcing is the country and its peoples familiarity and affinity for American (US) laws and culture. The Filipinos, most having relatives or friends based in the US, and being exposed to US mass media for a long time, are very much well-versed in US laws, situations, environment, and culture. The Philippines, comparatively speaking, offers affordable human resources and office space. Furthermore, the cost of operations in the Philippines is very much affordable and well within the
range of its closest competitors in the BPO industry. Aside from the capital Metro Manila, many other cities in the country such as Davao City, Baguio, and Cebu offer a vast pool of talent, and affordable office space. Finally, the government is very much supportive is providing infrastructure and money to developing human resources through education and training. There is also focus on improving telecommunications infrastructure in order to encourage businesses to invest in the countrys BPO industry. Success in voice-based BPO services has made the Philippines the second largest low-cost BPO destination after India. A number of companies are already leveraging the Philippines for a wide
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array of non-voice functions though the scale of operations is low. Moreover, the Philippine government has been encouraging the growth of the BPO industry by offering fiscal and non-fiscal incentives to attract more foreign investment. While India has long been the preferred location for Information Technology Outsourcing (ITO), the Philippines' rich pool of low-cost, English-speaking, accounting and business support talent has made it the preferred destination for BPO and will soon be the worldwide leader in BPO. GS
India Market Estimates

According to data released by NASSCOM, Indian-IT/BPO sector is estimated to aggregate revenues of USD 88.1 billion in FY2011, with the IT software and services sector (excluding hardware) accounting for USD 76.1 billion of revenues. As a proportion of national GDP, the sector revenues have grown from 1.2 per cent in FY1998 to an estimated 6.4 per cent in FY 2011. Within exports, IT Services segment was the fastest growing segment, growing by 22.7 per cent over FY2010, and aggregating export revenues of USD 33.5 billion, accounting for 57 per cent of total exports. Speaking at NASSCOM-BPO Summit 2011, Som Mittal , President-NASSCOM, said domestic BPO segment grew by 14 per cent to reach USD 14.1 billion in FY2011. The year also witnessed the next phase of BPO sector evolution - BPO 3.0 - characterised by greater breadth and depth of services. According to CRISIL's Roopa Kudva, Indian software product segment is estimated to grow by 14 per cent to reach 157 billion, fueled by replacement of in-house software applications. Government sector is a key catalyst for increased IT adoption- through sectors reforms that encourage IT acceptance, National eGovernance Programmes (NeGP) , and the Unique Identification Development Authority of India (UIDAI). IT services is expected to grow by about 3.5 per cent in 2011 and 4.5 per cent in 2012.
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Europe: Niche Capabilities

Driving Demand
Smita Vasudevan
Europe certainly cant 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.
ven in the post recession phase, when cost saving is a major priority for enterprises in deciding where to outsource, Europe has retained its position in the global outsourcing market with some distinct advantages. Eastern Europe has emerged as a strong competitor to low cost destinations like India and Philippines, with its ability to offer niche capabilities and when it comes to highend, sophisticated application development and IT projects, Europe is still seen as the best bet. The advantage here is not
much in terms of cost but in the innovation and quality of services that is brought to the table.
neArShorInG opporTunITy
Over the last few years, there has been a visible shortage of skills in the Western Europe, while Eastern Europe has witnessed a significant growth in its talent 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
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particular for technology services expertise. Reason: The regions talent pool has never been stronger. Multilingual Skills Multiple language capabilities differentiate 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 operations and has attracted numerous service providers to the region. Stringent Data Protection Laws MAjor STrenGThS ThAT defIne Marriot says privacy legislation and alignment with legal system give high europe Talent Pool confidence in most parts of EU. Europe has a vast talent pool, engi- Cultural Affinity neering expertise, and high standard of Eastern Europe offers a culture fit to education. Dmitry Loschinin, President enterprises in the nearby countries and and CEO, says Confidence is quickly the US, with advantages, such as language rebuilding and more and more compa- compatibility, less travel time, similar nies are turning to Eastern Europe in time zones and other cultural similarities. employed at companies offering IT outsourcing services. This justifies why services 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 compatibility and similar time zones make nearshoring 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.
NearshoriNg TreNd driviNg The europeaN MarkeT

Each year we analyze 78 countries and we take top 30 of them to do a deepdive 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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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 200809 crisis. Large differences in cyclical positions, capital inflows, current account balances, and inflationary pressures remain. Source: IMF report titled Regional Economic Outlook: EuropeStrengthening the Recovery (2011)
Source: IMF report Regional Economic Outlook: EuropeStrengthening the Recovery (2011)
key TrendS for 2011
ITo or Bpo-whIch IS hoTTer?
Nearshoring interest is high in Europe- According to Forrester report Market demand coming mainly from Western Overview: European IT Infrastructure Europe. Outsourcing (2011), cloud-based serv It is the preferred place for high end IT ices are dominating the infrastructure solutions and niche capabilities. outsourcing market. As concerns over Global service providers are expandsecurity issues prevail, private dediing operations in emerging locations cated clouds and hybrid solutions are like Serbia. being offered by service providers. Indian service providers particularly Forrester expects that resistance will are looking at ramping up Europe change as more business professionals business and building delivery capapush for the flexible capabilities that bilities in Europe itself. cloud enables. IT talent pool in the Eastern Europe Western Europe and UK are gradually, is expanding significantly and is sufyet confidently gaining the dominant ficient to satisfy demand. Therefore, share in the global ITO market, catchfactors such as attrition, wage increasing up with the United States. The es are not yet matters of major concern. Forrester report states that Ukraine is Cloud computing is on the uptake and the lowest cost nearshore ITO destinabeing a developed market, skills in tion. The IT Sourcing Europe Survey this area are available. discovered these countries as the most attractive locations for the outsourced
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key couNTries raTed oN a 5-poiNT scale
Source: Forrester report, European IT Outsourcing Intelligence Report 2010
nearshore IT development- Ukraine, Poland, Romania, Hungary, Belarus and the Russian Federation. The BPO space is seeing lot of momentum in both voice and non-voice operations. Driven by multilingual capabilities, 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 location in the non-voice space.
opporTunITIeS
Emerging locations in Europe are capturing lot of attention from service providers in different parts of the world. Good infrastructure, abundant labor, language 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 presence. Mphasis, which has set up operations 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 languages 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 sophisticated IT solutions.In the next couple of years demand is likely to increase with countries coming out of debt crisis. 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.
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chAllenGeS
India and Philippines. The provid DDifferent locations within Europe ers tend to be of a smaller scale, and have specific characteristics, advancan put together large teams slower tages and limitations. So, service prothan competitors from other locations. viders will have to employ a combinaHowever, for traditional R&D projects tion of strategies to expand within the that's not a problem, as big teams are region. rarely needed says, General Manager, There exist difficulties in scaling up. Andrei Pronin, Auriga. The operations in many of the top Currency fluctuations and uncertainty locations are much lower in scale in the economic outlook is posing compared to that of destinations like another challenge. GS
Key Country Profiles

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, Polands 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 testing and is 7th of 25 safest cities for offshore/nearshore outsourcing. russia ITO market value higher than other three countries. Russia is in Gartners List of Top 30 Outsourcing locations. Specialized skills in engineering design and R&D services.
Source: Forrester report, European IT Outsourcing Intelligence Report 2010
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Middle East & Africa:
Offering Advantages Beyond Low Cost

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.
Smita Vasudevan
ith a fast growing local market and huge untapped potential, the Middle East presents an attractive opportunity as an outsourcing hub as well as a nearshore destination. Foreign language skills, relatively cheap workforce, strong education system, high internet penetration are some of the major factors that have added to its attractiveness. The region has witnessed significant changes over the years and has been successful in establishing a solid infrastructure and business environment. Service providers are
increasingly eying the MEA region as a target spot and investments are coming in from all corners. MEA Countries like Egypt, UAE and Jordan have come out as powerful competitors on the global outsourcing scene. AT Kearny Index has been ranking Egypt amongst the top 50 outsourcing countries, for some consecutive years now. This year Egypt ranks 4th and UAE comes 15th. Jordon is another region that is rapidly gaining popularity. Its city Amman is expected to emerge as a major outsourcing hub. All these are
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Drivers Restraints 1.Increased Gov- Uncertain Political Enviernment Focus ronment 2.More Investments Data Security & Integrity by MNCs Concerns 3.Vast Pool of Talent Relative Newcomer to the industry 4.Infrastructure De- Competition from Lowvelopments cost Countries
Source: Frost & Sullivan
Prospects for the MENA Region MENA 2009 2010 2011 Real GDP growth 2.8 3.6 4.5 Exports (change %) -9.5 2.6 5.2 Imports (change %) 1.2 4.9 6.6
Source: Wikipedia
Year 2011: Comparison over 2010

Economic outlook is challenging. Until late 2010, the MENA region was on track for recovery. Growth had accelerated from 2.1 percent in 2009 to 3.9 percent in 2010. But social unrest and surging commodity prices changed the outlook in 2011, improving prospects for oil exporters and diminishing them for oil importers. The Middle East markets lost $112.39 B in capitalization during first eight months of 2011 due to uncertain global economic outlook, US and Europe debt crises.
Source: IMF
clear indications that the Middle East market has emerged.
econoMIc ouTlook
MEA had survived the previous recession relatively unscathed than most other parts of the world. The year 2010 saw the region heading to an impressive recovery. But the economic outlook for 2011 is quite challenging. There is uncertainty as a result of sociopolitical unrest, and oil importing countries are going to have a tough time due to the rising fuel and commodity prices. The estimated growth for these countries this year is only around 2 percent, while the oil exporting countries are expected to grow at a faster rate by around 5 percent.
proGreSS SnApShoT
countries like Egypt, Jordan, UAE and South Africa have been doing exceptionally well in the recent years and captured significant attention. Egypt has been able to do many things the right
way. The country has a well established education system and has been able to generate awareness about its outsourcing sector with the help of a solid promotion strategy and focused agencies. The UAE offers a great business environment, crime protection and strong multilingual capabilities as a result of its geographical placement. South Africa has been gaining more popularity in the BPO space, both voice and non-voice processes. The country's huge English speaking population is
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what gives it an edge. Numerous BPO service providers have set up operations here in the recent past. Frost & Sullivan report, Middle East Outsourcing Value Proposition (2011), states that the global outsourcing industry is estimated to reach a whopping $ 500 B by 2016, and the MENA region is
expected to hold only a minute share of this with an estimated share of $2.6 B. But experts believe that the market holds huge potential for future growth and some of its major locations are expected to grow at a much faster rate than leading destinations like India and Philippines.
ThE DESTINATION LANDSCAPE
Offshore Destinations in Middle East and Africa

Key countries
Key functions Primarily French language voice IT support Key source market France Continental Europe Key functions Primarily French language voice IT support Key source market France Continental Europe Key functions Primarily German language BPO IT support Key source market Germany Continental Europe Key functions IT support Multi-lingual BPO Key source market France Continental Europe Key functions English language voice support Finance and accounting Key source market UK Mauritius 10 South Africa Key functions Primarily French voice support Telecom and BFSI BPO Key source market UK Continental Europe Size of offshore industry (FTEs 000)
Tunisia 8 30
Turkey 25
Egypt 15
Kenya 1
Key functions Primarily English language voice support Banking and financial services back-office Key source market UK
10
Source: Everest report,Group analysis Source: Everest Overview of Offshore Destinations in Middle East and Africa (2011)
Proprietary & Confidential. 2011, Everest Global, Inc.
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COMPARISON Of TOP MEA DESTINATIONS WITh INDIA AND PhILIPPINES
Diverse Destinations

Legend:
Source: Frost & Sullivan report Middle East Outsourcing Value Proposition (2011)
Poo r
Good
11
MAjor ServIceS And clIenTS

Prominent services rendered here include CRM Services/call centers, IT services, Finance & Accounting, HRO and procurement. Other specialist services include legal services, transcription, data analytics, R&D, business intelligence and animation. France, Central Europe forms the major markets for these services.
opporTunITIeS wIThIn
Middle East and Africa is relatively new to the outsourcing industry. But experts believe that the market holds value elements and unexplored resources, that if used well can help it grab a major chunk of the global outsourcing pie.
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ExPErt ViEwS
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.
key STrenGThS & opporTunITIeS for MeA
low costs. This includes relative The region with its English language ly cheaper workforce, foreign lanprofiency, multingual skills, similar guage skills and favorable business time zones and regional proximity, environment. offers a good nearshoring opportunity Considerable support by the national for Europe. and regional governments to develop MEA is an attractive spot for enterprisand strengthen the outsourcing seces that wish to diversify their offshore tor. More focused agencies are comoperations to places other than India. ing up and promotional strategies The region is diverse and offers are being planned to explore the full distinct advantages that go beyond potential of this region.
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chAllenGeS
Sociopolitical unrest in some parts and uncertain economic outlook have dampened growth to some extent. As MEA is diverse, developments have been fragmented and limited mainly to specific countries and regions. For instance, if Egypt has done well with its promotion strategy and creating awareness, other countries still lag behind in this area GS
fuTure TrendS
Regions like Tunisia and Morocco will be exhibiting strong outsourcing elements Countries, such as Iraq, Iran and Oman going to provide more outsourcing services French speaking North African countries will be seeing lot of development Increased demand for emerging markets within Africa
recoMMendATIonS
Develop skills that are suitable for private sector jobs Create niche areas of expertize Strong focus on quality of service Ensure that services are not just cheap but cost effective Create more awareness about the outsourcing sector in different regions within MEA
Source: Frost & Sullivan
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Latin America
It's Not All About Proximity
Smriti Sharma
Recent times have witnessed this region draw ace players of the outsourcing world - American Express, General Motors, Intel, Genpact, Sitel, Wipro, Citibank and more. Business process outsourcing (BPO), shared service centers (SSC), call centers, offshore delivery centers have grown significantly in the region. For example, Wipro currently delivers finance and accounting services to the largest beverage company in Latin America from a service center in Curitiba, Brazil. For years, TCS had had significant presence in Uruguay. Similarly, many of the global leaders have presence in countries like Chile and Colombia. Still, many potential areas beyond call centers and IT have been untapped. Areas like HRO, FAO and procurement outsourcing have still not started to make best use of the available resources. Don Berryman, general manager of Americas at Sitel articulated, In the past few years, Sitel has experienced great growth in Brazil, Nicaragua and Panama. Additionally, Sitel has cultivated aggressive development with our English-speaking agents in Bogota, Colombia. We have seen the Brazilian domestic market growing rapidly, and business opportunities are expanding by 20-25% a year. In fact, Sitel opened a state-of-the-art facility located in the city of Sao Paulo in January 2011, doubling our capacity in Brazil, and bringing Sitels total employee count in Latin America to over 11,000.
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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 centers and business functions requiring work to be completed during US business hours lend themselves to a working location 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 Colombia and Brazil are best options. Brazil is the best option because it is where the biggest market is and most developed, next to Mexico 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
The cAllInG cArd of lATIn AMerIcA:

Juan Diaz, consulting manager, Wipro Consulting Services, author of the recent report (by Wipro Consulting Services) titled Latin America- A New World Option for Offshoring said, When clients look at Latin America they look for Spanish language skills, geographical proximity, and also cost effectiveness. For example, if you look at India which is the most developed sector in outsourcing or shared services, there is a lot of wage inflation going on, and inflation is on the rise every year. In
that comparison, Latin America is more stable. If you look at long term in that case, it is going to be probably same cost for some years and these are the kind of things companies are looking at. So, probably if you have the same cost, if you have the same talent and it takes you the same to go from Europe to India or from Europe to go to Latin America, then Latin America is also a good option. This location provides good language skills. Especially, in terms of Spanish and Portuguese it becomes a potent force as you think about the Spanish
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population in the US. There is probably no other region in the world that offers the combination of language skills at scale plus cost savings. Offshoring Opportunities Amid Economic Turbulence, The A.T. Kearney Global Services Locations Index 2011 highlights, With a growing Spanishspeaking population in the United States and English proficiency continuing to grow in Latin America, customer services activities will naturally increase. This region presents a kaleidoscope of skill set. H. Karthik, vice president, Everest Group, stated, In addition, to Latin America being a region to serve the US, it also offers a fairly significant domestic or regional opportunity especially in large countries like Brazil and Argentina where the domestic market is also fairly large. Our estimate suggests that between 60-70 percent of the work in the region is focused on the region itself and 30-40 percent is focused on offshore, primarily the US. So, the domestic market is a large opportunity. Domestic business opportunities: If you are to look at large global companies, they also see domestic business opportunities in Latin America. This is irrespective of outsourcing. The same time zone with US and Canada is also an added advantage. Berryman expressed, 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 centers and business functions requiring work to be completed during US business hours lend themselves to a working location in this general time zone.
chAllenGeS
The Economic Intelligence Unit states, The concern with a lack of creativity is particularly acute in Asia and Latin America, indicating a feeling that workers in these regions, in particular, are conditioned to think in straight lines, and are less able to adapt to changing circumstances. Speaking of how Genpact's client feels about their chosen locations -Juarez, Mexico and Guatemala, Mary Korthuis, vice president and operations lead, Mexico and Guatemala, Genpact said, Drug cartel-related violence and related
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media stories has caused concern with some customers and their own security organizations have limited/eliminated their travel to Juarez. Other customers are fine and continue to travel in and out with no concern. Besides the city issues, customers are pleased with the near shore location; easy access for mail pick up/drop off; facility literally within a stones throw from the US; easy hiring of English speaking resources who go back and forth across the border themselves so they are integrated into US culture. Technology is all in the US, so for all intensive purposes on-shore functionality at near-shore prices. Berryman enunciated, Sitel is always on the lookout for oversaturation in a market where we are competing for resources with our competitors or local providers. However, an interesting development is surfacing where our clients desire to enter markets that we see as slightly oversaturated. This may be happening because of regional promotion directly to our clients or even the loss of expertise within the contact center industry. The key is creating a great work environment and offering incentives like continuing education to become the most desirable place to work in these areas. But, at the same time, you need to consider other markets so you dont saturate an area. We work with our clients to provide an honest assessment of the situation.
Potential entrants to Latin America should consider the following: Rather than a company-by country approach, companies should adopt a regional, networked approach. They need to capture the right skill in the right cities. Differentiated advantages should encapsulate cultural similarities and the physical proximity part. These advantages should be promoted aggressively on how they can translate into real business value. Berryman added, You must remember this is not a domestic US location. There are many cultural and sociological similarities but they still dont have the infrastructure of the typical U.S. location. So customers will not have the same experience they would with a US call center. Expectations have to be
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aligned to the uniqueness of the environment, similar to when we developed our presence in the Philippines or India. He added, Agents and front line supervisors are the foundation of our business and Sitel always builds our operations from the ground up. We have an outstanding real estate group at Sitel, and they do a great job of analyzing these locations and markets. In some cases, we are looking at the quality of people, quality of education and the support in the call center. Other times, Sitel looks at the role of government to see if they are active in terms of subsidies, credits or opportunities for job training in preparation for positions in a new call center. Sitel believes its not just the quantity and quality of the people; its also the participation of the government on a local and national level that can elevate a destinations capabilities. Focus on the services that are best provided in this region and also carve out new niches that may do well. Compete vigorously in the local market and the global service delivery playing fields to mitigate risk and enhance economic benefit. Diaz stated, I would recommend a company that is looking at setting up their operations is that they need to have local support. As they are the ones who are operating in this location, they are the ones who know the region and they are the ones who know which are the countries that bring the best benefit depending on what you want to do.
counTry ScorecArd
The A.T. Kearney Global Services Locations Index states, Brazil excels in IT and is a strong platform location for software developers and system integrators. Mexico is becoming a more prominent BPO location, as it supports US with both English and Spanish. Meanwhile Chile has emerged as a niche destination for R&D and analytics, while Costa Rica and Argentina continue to grow their offshore services presence despite facing some decline in cost-competitiveness. The report, A New World Option for Offshoring, states Wipro has developed a ranking methodology to help organizations decide which of these countries would offer the greatest benefits based on their needs and priorities. The ranking method is based on three primary business criteria, each composed of a group of key factors namely cost effectiveness, talent and resource availability and business catalyst.
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here is the combined score (5= Best Ranking)
1. Colombia: Ranking: 3.34 Negative publicity about guerrilla, drug cartels and high crime rates has slowed investments by corporations. However, during Alvaro Uribes presidential period, security and crime rates have improved significantly. Today, countries like Brazil and Mexico are ranked as even more dangerous and risky locations. With a good combination of low cost, talent pool and government support, Colombia is becoming among the best options in Latin America, especially in Call Centers. The number of local and foreign BPO suppliers operating in Colombia and the significant growth the sector has had in the last couple of years, show the country is gaining the confidence of foreign companies. 2. Brazil: Ranking: 3.08 Largest call centers industry in the region. Very strong telecom network (150 million mobile phones in operation and 50% of households linked to broadband by the end of 2011. 3. Chile: Ranking 2.98 Chile is ranked as one of the best Spanish-speaking delivery locations. Its pushing to grow in the sector by covering operations as an offshoring location for companies in Spain. 4. Argentina: Ranking: 2.91 Inflation in 2009 was 13% and it is predicted that Argentina will suffer higher inflation increases in 2010, which adds an additional risk when offshoring to this location. It is key that these projections are assumed in the business model to ensure benefits realization in the long term. 5. Mexico: Ranking: 2.70 Biggest call center industry in the region after Brazil. Proximity to US attracts US customers. GS
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ReCommendationS foR buyeRS

Location strategies must place a high priority in identifying market saturation as Latin America is not one location, but several unique countries. Buyers need to keep in mind that there are significant differences across the region in terms of cost and labor pool. For example, between Brazil and Argentina, Brazil is almost 40 50 percent more expensive than Argentina. There is cost dissimilarity across the region, this is something companies need to keep in mind while zeroing upon locations. Also, there are significant variations in the scale of talent pool in skills and language capabilities across the region. For example, countries like Argentina and Brazil support large scale, but countries like Colombia, Costa Rica can only support small scale centers. Also, in terms of scale there are contrasts, Brazil has fairly evolved in terms of IT skills such as SAP but countries like Costa Rica is more favorable for contact center work in Spanish and English. Differences in language skills - Brazil is more suited for Portuguese work; Argentina, Chile, Mexico are more on the Spanish side. Broadly, all locations offer some advantages, there are differences across the region both across countries and cities in the countries, which companies need to keep in knowledge. Karthik said, Most countries in this region have issues of fluctuating currency. For example, in recent months, Brazilian and Chilean currency are becoming less competitive, while Argentinean currency is becoming more competitive. Diaz added, Buyers need to have a clear overview of where they want to get to and what each of those countries offers to them. It comes to what they want to do in the country; if you want to do just plain call centers, then just go for a cheap location and if you want to go further and into operations across all the US and other places and company processes like procurement, then you need to be very careful where you set up those operations. They need to talk to the local people. Companies are already operating here and they have done their homework.
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ReCommendationS foR SeRviCeS PRovideRS
Services providers should approach this as an integral component of their global strategy. In other words, think about what complementary roles that Latin America or the cities/countries in Latin America can play to their network of existing centers. For example: Are you thinking of Latin America as a location to do very niche work focused on the US market, or are you thinking about Latin America as a location to get certain skills? Karthik stated, Overall, the strategy on how Latin America fits in the global play needs to be very clear and there are lots of differences across the cities and countries so people need to be very clear on how they need to use Latin America. If you are thinking of it on both the grounds of domestic opportunity and offshore opportunity, then some of the larger countries are more favorable to locate in. Also, in terms of strategies, acquisition can be a powerful mode of entry. Don Berryman, general manager of Americas at Sitel states questions service providers should be cautious and ask before approaching the Latin American market: What kind of business am I planning to put in Latin America? What kind of agents am I looking for? Is there support in terms of workers, education level, service or sales experience and English speaking skills? How will this location benefit my overall global location strategy? Failing to answer these questions is a common mistake that outsourcing providers have made in new markets. Added Don, Also, there are countries in Central and South America that might not make good call center locations because they dont have the workforce in place, so service providers need to carefully assess what kind of business they want to put in there, what kind of work experience the local people have, and can the business model sustain a long period of time to be a viable investment. Talking about the major challenges Genpact is facing, Korthuis shared, The main challenge is the drug cartel-related violence and the related media stories. That said, this violence has not disrupted our operations there at all and we ensure that our employees are safe at all times.
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North America
The Closer the Better, but the World is flat
Smriti Sharma
The economy of United States indicated some signs of growth in the third and fourth quarters of 2010. However, the second quarter of 2011 again presented a mixed picture. United States is the largest and most established market for both IT services and BPO and will remain so in the foreseeable future. In 2010, US accounted for 63 percent of global IT offshore outsource spending, down somewhat from pre-crisis levels of approximately 67 percent. The main obstacle that US needs to combat is anti-outsourcing sentiments. Though US President Barack Obama gave his word to stop American jobs from being outsourced to India, Indian companies got active in ramping up their American workforce. For example, Infosys plans to hire 1,500 workers in the US, Aegis one of the largest Indian employer in US - recently announced that they intend to create more than 4,000 jobs in the US over the next two years, and this message resonates strongly with their US based clients.
huGe GrowTh proSpecTS

Onshoring in North America offers the advantages of proximity, cultural affinity, time-zone alignment, relatively lower cost, fast & simple visa attainment, ease of software and hardware procurement, and the legal and IP protection provided by NAFTA treaty. Esteban Herrera, chief operating officer, HfS Research articulated, North America has not historically been a low cost location. But the weak dollar, the recession, and the maturity and reliability of its telecommunications
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Knowledge of the US healthcare system and the business environment contributed to the decision to choose this destination. It provides opportunities for outsourcing with a skilled labor force and in-depth technical expertise. Each location has its own advantages. While India offers high quality 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. Talent tanks are very solid here, economy is booming because of its mining wealth, it is rich in natural resources, it has also done a better job of managing its economy than US has done. A lot of CRM companies have insourced captive centers in Canada. So, the opportunity 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
infrastructure have made it cost effective to locate major centers in relatively lowcost places like the Dakotas, Tennessee, Idaho, etc. In addition, struggling state economies like Michigan have led local governments to offer hard-to-beat incentives. For most of the service providers, this market generates the largest percentage of revenue. Thus, when more than 50 percent of revenue is produced by a geography, it is essential to have a presence in that geography. Also, you need to be closer to the client location
to comprehend what are the dynamics affecting his business. Aegis Limited has a strong philosophy - 'We want to be where our clients want us to be.' Highlighting this philosophy, Sandip Sen, president, CLM, Aegis Limited elucidated, If we come across a good client that wants us to be in any geography and if the business is viable, we will consider it. We like to adapt quickly to the needs and requirements of each client and grow with them by co-creating value and leveraging our strategic partnership with them.
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word of thE wiSE
* The Global Talent Index Report: The
Outlook of 2015, written by The Economic Intelligence Unit reported, The US is the stellar Global Talent Index performer, ranking first in 2011 and 2015. The US lead is almost one full point (on a 1-10 scale) in both years over the next best performers. The countrys foremost strengths are the excellence of its universities, the high overall quality of its existing workforce and a meritocratic environment that is relatively unencumbered by restrictive labor regulation.
Snapshots from the report a) 73 percent of respondents are confident that their business will be able to attract and retain the talent it needs over the next two years. b) 27 percent of respondents are not satisfied with the quality of new hires over the two years. The report also stated, Canada bursts into eighth position in 2015, rising by six places, the largest jump in the index. This improvement is propelled by the demographic growth rate of its working population, together with a prospective surge in employment and a marked improvement in technical skills, both resulting largely from the boom in the countrys oil industry. * The AT Kearney Global Services Location Index, 2011 states US leads in people skills and availability. * Gartner estimates that North America's BPO market will grow 3.8 percent in 2011. * Another forecast made by Technavio analyst states that the Data Center Outsourcing market in North America will grow at a CAGR of 12 percent over the period 20102014. The report enumerates, One of the key factors contributing to this market growth is the increasing need to reduce data center capital and operational costs. The Data Center Outsourcing market in North America has also been witnessing increasing adoption of private cloud-based data center outsourcing. However, the growing number of endusers' concerns for data center security could pose a challenge to the growth of this market. HP, IBM, CSC and Dell are key vendors dominating this market space. * Canadian outsourcing industry continues to grow in 2011 after an overall positive year in 2010. BPO registered a year-on-year (YOY) growth of 2.25 percent whereas hosting services grew by 8.75 percent. The CORE (Centre for Outsourcing Research & Education) Monitor Governance report, a joint research effort with industry experts, IDC Canada and CORE in the last quarter of 2010 had estimated a year end growth of 3.8 percent as compared to 2.1 percent in 2009. 2011 is expected to be a good year for outsourcing in Canada with estimated increase of 4-5 percent predicts IDC and Merit Outsourcing Advisors expect.
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A weak dollar and lower labor costs are conjoining to increase the attractiveness of low cost North American locations for global sourcing. Leading offshore service providers have been bolstering their onshore presence. For example, HGS, a provider of outsourcing solutions has acquired 100 percent of the common stock of Canada- based relatively untouched by the recession. Talent tanks are very solid here, economy is booming because of its mining wealth, it is rich in natural resources, it has also done a better job of managing its economy than US has done. A lot of CRM companies have insourced captive centers in Canada. So, the opportunity lies for us in managing these captives.
Customer Relationship Management company On-Line Support Inc. (OLS)- at an enterprise value of C$74.85M in an all cash deal. Ajuba Solutions India Pvt. Ltd. is constantly hiring people and opening additional locations. Also, as the industry is moving towards consolidation the company is looking to acquire new businesses in the region. Partha De Sarkar, global chief executive officer, HGS, shared, Canada is a very important destination for us because unlike the US, Canada has been
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. Speaking about why buyers and service providers opt for this market, H. Karthik, Vice President, Everest Group elucidated, There are certain processes whose nature necessitates onshore or delivery based out of North America. It is also the language skills and cultural affinities that come in. For example, if you are doing mortgage foreclosure than
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going to be 30M more people having insurance accessing hospitals and doctors. This will put an enormous amount of pressure on the system to avail outsourcing services from companies such as MiraMed who have the expertise in the sector. The healthcare system will look towards companies who will be able to process the claims efficiently from people who have insurance. Knowledge of the US healthcare system and the business environment contributed to the decision to choose this destination. It provides opportunities for outsourcing with a skilled labor force and in-depth technical expertise. Each location has its own advantages. While India offers high quality skilled work force, the US provides the opportunity and the capacity, Mira added.
all the interactions required with the customers to arrive at the foreclosure of the deal are done out of North America. It may need four or five interactions per day to arrive at a foreclosure. This is very difficult to do from offshore geography. Even from a time-zone perspective there are certain process that requires a time-zone delivery. Also, it makes sense from a political perspective to keep some of your workforce in North America. Healthcare is a huge sector in US with the presence of a large number of people who understand the healthcare system that is unique across each of the 50 states in the country. Tony Mira CEO, Ajuba Solutions India Pvt. Ltd. articulated, In the next couple of years with the new healthcare regulation, there are
eMerGInG TrendS
1. IDC's survey result shows that while 70 percent expect no change, a net 6 percent of Canadian companies plan on spending more money on outsourcing. The study pointed, The average length of a Canadian outsourcing contract has come down from 7 years in 2001 to a less than 5 years in 2010. This is especially true for the new deals that tend to be averaging 4.1 years focused on 1 to 2 towers. Even the larger contracts(C$100M or greater) that tend to have longer durations are getting
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ChallEngES: from thE horSE'S mouth
hinduja global soluTions
From a situation where we had 100 percent revenue from US, we have reached a situation where our 60 percent revenue is generated from here. We have secured our revenue from other markets as well.' Partha De Sarkar, global chief executive officer, HGS, addressed, This region is not very cost competitive, so unless we have the right price points or cost points the margin tends to be very low. It is a very fractured market with too many players, so your ability to charge a premium on your pricing is also very low unless you have a true differentiator. That is the reason why we have to be very careful on what we are investing, how much we are investing, where we are investing and what is the return on capital employed. From a market perspective, because of the uncertainties in the last three years one needs to diversify the revenue dependence in US, which is what we have done by making acquisitions in UK and Canada.
ajuba soluTions
Tony Mira CEO, Ajuba Solutions India Pvt. Ltd. stated a) Healthcare regulation has led to changes in the healthcare processes in the country. Companies are not sure how the new regulations are going to evolve and operate and hence they will have to adapt to the new trends in the healthcare sector. b) With more and more EMR and automation happening not only is a lot of sophistication required from the outsourcing companies, hospitals and doctors, it also requires a huge amount of investment. c) Automation and sophistication of the healthcare sector will make it difficult for companies to survive as it will require enormous amount of technical expertise. d) There is also a high cost for entry to the sector compared to earlier situations
anThelio healThcare soluTions

Vish Sivaswamy, head, global practices, Anthelio Healthcare Solutions enumerated a) Understanding the complex technologies, processes and regulations of the healthcare industry. b) Educate and convince the healthcare provider community about offshoring. c) Re-Engineering the processes that are currently prevalent for standardization. This will help process repeatability for scale. d) Expanding the larger talent pool in India for the specific Industry - inducting clinicians into technology is new and challenging. e) Making sure of the security of data and information when accessed by large number of offshore resources and the risks of breaches.
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shorter. A greater proportion (18 out of 22) of the large deals have been renegotiations, renewals and extensions. The average Total Contract Value or TCV has decreased from $100M in 2001 to under $40M for 2011. 2. Anandan Jayaraman, chief product and marketing officer, Connectiva noted, North America has witnessed a change in terms of the extend to which services are being outsourced. For example, earlier they would outsource maybe a part of their operations -such as analytics- and they would do most of the work themselves. However, now they are more open to outsourcing large functions. Also, pricing is changing to pay for performance. 3. Karthik predicts that there will be modest growth in this region from a service delivery perspective. Overall growth in North America will not overshadow growth in offshore market, but it is going be modest growth in some areas like contact centers, industry specific work that requires an onshore presence. 4. There is certain amount of protectionist pressure to keep jobs in America. 5. Some of the Indian firms have also been victims of trying to do to many things too far and have suffered in quality. Some of these jobs have given India bad name, opined Partha De Sarkar. 6. Some smaller destinations such as Costa Rica, El Salvador, Jamaica are emerging.
rECommEndationS for BuyErS

Esteban Herrera, chief operating officer, HfS Research recommends, Most buyers setting up shop in North America will be native to North Americathe economics dont support outsourcing in the reverse direction (yet) so they will be very familiar with the environment, regulations, culture and labor dynamics. The key is to remember that nearer is not always better. There is no bigger or more qualified labor pool for application development and maintenance than in India, period. While buyers may have to endure some cultural and operational challenges, if they need scalable ADM talent, theres nowhere else to go. Contact centers, on the other hand, have proven to be quite cost effective in North America. A lot of BPO can benefit from proximity and cultural understanding as well. We always recommend buyers make a dispassionate, non-patriotic business decision: Where can I best find and secure the talent I need at the most competitive price?
reGIon SpecIAlIzATIonS
Voice-based processes, some niche industry specific process that require regulatory approvals, constant interaction with the customers - For example, mortgage, aerospace & defense, energy, insurance, healthcare- CRL will continue to grow, Contact Center, SOX accounting.
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Anything that can be home-sourced and takes advantage of superior telecom and other infrastructure is a likely growth area. Some new areas of scope that require proximity and/or are viewed as very high risk to deliver from a distance can gain traction over the next few months and years. The conditions for Research and Development outsourcing are very favorable right now, shared Herrera. employers and will hire mainly from the community. For example, El Salvador the reason why this region is popular is that it is close to the Mexican border, thus offering Spanish language support. Mira spoke about Ajuba Solutions chosen locations in North America: Michigan Affected by the economy and the automotive industry
counTry ScorecArd
In a bid to cut costs, many of the centers are being located in the remote areas. In these rural locations, call centers would typically be single largest Quality of workforce - motivated and committed High unemployment rate throughout the state
Charlotte High level of expertise specifically in the areas of finance and healthcare Growing destination with the presence of a large number of companies - migrating their headquarters to the city It is also an attractive destination for very large US companies United States The country provides tremendous opportunities for entrepreneurs and businessmen to expand, grow and create new businesses Healthcare is a big part of the US economy and infrastructure. The sector is also rapidly changing and growing. This provides opportunities for entrepreneurs who understand the sector and want to
provide services catering to this sector Aegis' onshore and nearshore locations in the US, Costa Rica and Argentina offer benefits such as an enhanced end user experience, complementary time zones, good infrastructure and a strong cultural affinity. More than 60 percent of their revenue comes from the clients based in America. They are witnessing an incresed demand for client engagements to be performed onshore and nearshore, along with traditional focus on reduced costs. Their centers in the Americas provide a range of services encompassing the entire customer lifecycle acquisition, retention, customer care, upselling, back-office operations, and collections. GS
st cing The World's Foremo Introdu 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, webcasts, expert round tables and more.
An initiative by
For queries, write to us at globalservices@cybermedia.co.in
experts speak
n The Case for Nearshoring: Why and How the New Normal will shift Sourcing Dynamics 70 by Anupam Govil, Partner with Avasant and President of Avasense n 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 86 by Benigno (Beni) Lopez, Chief Globalization Officer, Softtek n Destination Strategy - What Makes/Breaks It? 90 by Deepali Sathe, Project Manager, ValueNotes Sourcing Practice n Compete or Cooperate? Bridging the Near shore- Offshore Divide 94 by Lalit Dhingra, President, NIIT Technologies Inc.
n Choosing the Right Offshoring Destination 96 by LN Balaji, President of ITC Infotech n Does Captive Offshoring Still Make Sense? 100 by Nigel Hughes, Compass Management Consulting n Africa Rising Outsourcing Juggernaut set Sails 103 by Dr. P.K. Mukherji, President & Managing Partner, Avasant n Africa : A Ripe Terrain for Impact Sourcing 108 by Pumela Salela, BPO Consultant n Business Transformation and the Expansion into Asia 114 by Sudhir Narang, Managing Director, BT India n Location Strategy For Indian Delivery Centers 117 by 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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E X P E R T S
The Case for Nearshoring: Why and How the New Normal will shift Sourcing Dynamics
ver the last decade, organizations 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 created significant long term value for themselves. But as Dr Howard Rubin, who coined the term Technology Economy, famously states the only thing about the future is that its not what it used to be. Times have changed and with the economy 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 leverage outsourcing to provide the operational flexibility that constantly changing market conditions demand. Businesses that thrive will be the ones that master the Technology Economy by spending wisely in solutions that further multiply the impact of outsourcing. The supplier landscape has also undergone significant shifts, with the rise of new
Anupam govil
Partner with Avasant and President of Avasense
E X P E R T S
how different sourcing destinations are developing. For instance, recently Philippines overtook India as the largest provider 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 outsourcing assets between different geographies 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 following the maturity curve of India and the Philippines. These nearshore geographies offer not just cost savings and quality of service but also address some of the gaps of mature offshore locations such as language availability, time zone proximity and cultural affinity. Nearshore locations like Colombia, Dominican Republic, Jamaica, Costa Rica and further south such
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destinations, rapid vendor consolidation, evolution of cloud based services and proliferation of more transformative sourcing 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 challenges 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
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as Chile, Argentina and Uruguay present viable alternatives for a balanced sourcing portfolio. Mature services buyers are expanding their presence in this region to diversify their resource base and reduce outsourcing risks.
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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 proximity with the maturity of more established locations. Accenture for instance has set up delivery locations both in Brazil conSolIdATIon And expAnSIon of and Argentina. Indian outsourcing giant The neArShore lAndScApe Tata now has presence in 14 countries All aspects of global sourcing have wit- in Latin America, with centers in Brazil, nessed rapid transformation in a span Uruguay, Mexico and Chile to serve its of few years. From newer engagement clients with local and global IT resources. models to advanced technologies to more There were 14 M&A transactions involvinnovative service providers recent ing Latin American targets in 2010, a subdevelopments have changed the game stantial increase compared to just three significantly. The transformation has hap- Latin American acquisitions in all of 2009. pened at both the macro as well as micro Private equity firms are also investing environment level. Some geographies aggressively in the region now, with Apax have saturated while newer locations have Partners last year agreeing to pay about $1 emerged. Service providers have been on billion for Tivit, a Brazilian IT outsourcing a consolidation spree (Igate acquiring company. Many U.S. players, including Patni; Xerox acquiring ACS; Dell acquir- HP, Accenture and Unisys, are increasing Perot Systems, Atos Origin acquiring ing their presence in Brazil in particular, Siemens IT Services, Cap Gemini acquir- a growing center for BPO and IT services. ing CPM Braxis etc.) resulting in new sup- These players are not only bringing their plier market dynamics. Service providers specialized practices and service delivery from established locations are moving into maturity to this region, but also acting as the nearshore market not just to expand a reservoir of talent for other companies to their portfolio but to cater to a rising offer more value-added services to their demand of Spanish/Bi-lingual services as global clients. well as time-zone sensitive services such as Agile computing. Countries such as IncreASInG AdopTIon of cloud Argentina and Uruguay also have a strong BASed BuSIneSS ServIceS affinity with Europe. They are serving Organizations are starting to give cloud Europe not just in Spanish but in Italian, computing the respect it deserves. Though German, French and other languages as we do not expect that cloud will replace
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traditional IT anytime soon, we strongly 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 organizations future. Sourcing IT services on a subscription basis requires reliable communication and security infrastructure. 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 contextually 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 centers that house the application and data servers in farshore locations would not satisfy the QoS and Service Level requirements of Cloud users. Many Telecom and Infrastructure providers are already setting up large Data and Cloud computing
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centers across the Caribbean, Central and Latin America to serve regional and North American markets. Cloud computing in many ways will change not only the IT operating model, but also significantly impact the service delivery market. Mature providers are already repositioning their services and embedding components of Cloud services within their delivery 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 increasing fascination towards finding a comparable nearshore alternative. Not only is there erosion of offshore savings due to high travel and communication costs, but mature offshore locations are also witnessing 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 emergence of new nearshore service providers and expansion of global players, there is now a much wider array of options. Buyers visiting major nearshore destinations such as Colombia, Costa Rica and Chile have not only been pleasantly surprised by the capabilities available, but also enthralled by the natural beauty of these countries. When 24 hour plane journeys 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 management 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 methods with many nearshore providers may not yet be at the same level as mature offshore 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
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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 familiarity within the region to create scalable business models. A combination of economic reform, advances in technology, improved education, comparatively low costs and increased management sophistication 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 burgeoning 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 structuring strategic ventures to capture these opportunities as well. According to the COO of TCS, which has probably the largest footprint in the region, the primary reason for their growing Latin American presence 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 country 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 culture 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 majority 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 worlds largest ATM network. This domain expertise is being leveraged by many global banks that outsource their IT to Brazil.
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concluSIon
A perfect confluence of factors ranging from economic uncertainty to emergence of alternative sourcing models and maturing 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 reality, 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 carried many companies into the new millennium is obsolete and the only way to navigate 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 mainstay of corporations. It is mainstream, it is global and it is rapidly changing. This dynamic has a huge impact on the competitiveness 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 outsourcing 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 unprecedented nine-day Internet shutdown; or
Atul Vashistha
Chairman & CEO, Neo Group Inc.
E X P E R T S
the recent hurricane and floods in the USA that caused disruptions in operations from the south to the north-east. These two situations, in sharply contrasting locations one, an emerging outsourcing hub and the other one of the worlds 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 outsourcing 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 outsourcing and offshoring. than one. At the turn of this century, fewer corporations outsourced, corporations outsourced fewer services and fewer countries or markets provided these services. Consequently, risks were limited, and tended to focus mostly on supplier quality and service-level issues. So much so, an outsourcing 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 imperative. 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, companies 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 corporations 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 headquarters. Each piece of the puzzle is important, and has to be ordered to precise specifications; and all the pieces then need to come The new rISkS back in good time, and to exact standards, A decade ago, global sourcing was rela- for managers to put the puzzle together. tively limited. This was true in more ways 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 suddenly 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 thousands 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 years Excellence in Risk Management Survey found that the number of firms utilizing enterprise risk management programs had tripled from 2009!
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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 countries 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 capitalisms 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 emerging economies. Even giant nations such as China and India lean heavily on outsourcing to create jobs and to drive domestic growth. Consequently, almost all the socalled emerging nations fancy themselves as
The unITy And dIverSITy of rISkS

Even 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
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an emerging hub or spoke, for outsourced services. Latin America is a large emerging outsourcing hub whose proximity to developed North American markets has proved a boon. Eastern European countries, especially after the financial re-alignment following 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 corporations 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, dont mean only natural disasters. They mean much more geopolitics, regional politics, regional financial policy, local (city- or region-specific) 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 tsunamiearthquake Seasonal (and predictable) natural disasters: Monsoon floods in Mumbai, typhoon season in Manila Terror attacks: Unpredictable but several 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 statehood for Telengana Financial risks: China for its currency risks; Greece for its bankrupt economy; Europe overall because of the euros 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: Indias fraud-hit Satyam Computers is the most egregious example of how a vendors collapse can ruin the best plans. But almost every vendor has a level of risk that needs to be assessed
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A pArAdIGM for rISk-MonITorInG

Time 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 ongoing service delivery, even if a provider has the highest CMM rating. How is one to evaluate these ongoing risks? Could somebody, 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 currency inflation or wage inflation? None of these specific events could have been predicted with any accuracy. However, each of these could have been anticipated. Lets 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, Egypts geographical location situated in a region of harsh, Islamic dictatorships with Israel as neighbor brought more than average risks. Meanwhile, Indias rising 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 companies that sourced products and services
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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 appropriate redundancies. The fact is: the worst of risks can be fully assessed well ahead of time, avoiding service disruptions, financial losses and potentially brand dilution. Using qualitative inputs, expert assessments and quantitative methods, we propose a comprehensive risk-monitoring model focusing on services 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 Risks Risk categories at these levels include
Country Risk
Macro- Economic Geo- Political
Financial Legal
Business Scalability
Infrastructure Quality of Life
City Risk
Macro-Economic Geo-Political
Financial Legal
Business Scalability
Infrastructure Quality of Life
Supplier Risk
Financial Service Capability
Clients Governance
People Infrastructure
Alliances Thought Leadership
Figure 1: a comprehensive risk model at a glance
Negligible Risk
Low Risk
Modetate Risk
High Risk
Extreme Risk
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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 categories (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 cities. 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
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Figure 2: a deep dive into sample risk categories For countries

Geopolitical Risk Risk Category
Risk Segment
Political Risk
Social/Security Risk
Natural Disaster Risk
Political Stability Average Government Tenure No. of Political Party Corruption Level: State/City
Crime Rate Rape Rate Kidnapping & Ransom Events Terrorism Social Unrest/Striks
Earthquake/Tremor Volcano Eruption Tsunami/Hurricanes/Typho on Floods Drought
Risk Parameter
Country Level Data Points & Trends

Counry Risk monitored across
n n n n n n n n n
Inflation rate Rental rates Space surlplus/defcit Lodging costs Outsourcing industry size Attrition, Graduate pool
n n n
Salary Growth rate Existing and upcoming SEZs ITO and BPO Salary Levels
n n n
8 Risk Categoris 32 Risk Segments 250 + Risk Parameters
Fresher Manager Lead
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Supplier Model: Finally, we created a model to assess supplier risk, again using 250+ parameters across eight categories (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
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We then created a Web-based proprietary analytical engine that can continuously 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 models analytical engine dynamically 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 constantly monitor risks at the three levels. The
various risks are then identified and categorized 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 outsourcing 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 encouraging 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 company proactively renegotiated, ahead of the policy announcement, a deal with a partner to locate in a SEZ, helping it realize an annual savings of approximately eleven percent.
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Samples analysis and reports are below:
Figure 4: sample analYsis
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Here are a few other examples of how the models 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 service issues arising from higher attrition levels. In Pune, India, the analytical engine seized on a growing number of violent attacks against women, following which companies were encouraged to beef up security for women employees working night shifts. In another case, when a global suppliers quarterly results indicated declining profitability, the model helped outsourcing managers proactively 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 following the government actions on the STPI law and predicted it not being extended. Prior to this happening, an alert to a client focused them on renewing a contract but moving operations to the SEZ zone and thus
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eventually realizing an eleven plus percent tax benefit amounting to over $3 Million a year in savings.
concluSIon
Firms leveraging global services and offshore outsourcing need a risk management system to ensure stability of operations 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 management 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 supplier based risk. So, the levels that need to be included in a supply risk management program include Country, City and Supplier. Supply risk monitoring is not an activity to be just undertaken during sourcing 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 Groups - Global Supply Risk MonitorSM (GSRMSM). GS
st cing The World's Foremo Introdu 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, webcasts, expert round tables and more.
An initiative by
For queries, write to us at globalservices@cybermedia.co.in
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De-risking is Becoming Ever More Critical
Latin America:
Benigno (Beni) Lopez

Chief Globalization Officer, Softtek
he 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 visibility 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 optimistic. 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 question 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 dont 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 companies, 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 center in Brazil is growing, as is the demand from many domestic companies as well as for many MNCs, augmenting their strategy 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 weve 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 homework looking for a risk mitigation alternative, what theyre finding in some cases to their pleasant surprise is a very dynamic, strong talent pool in Latin America.
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poInTerS BuyerS need To keep In knowledGe
You cannot treat Latin America as one singular region but rather as complementary and diverse entities. Buyers must try to match their strategic goals to each countrys 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 contexts of each country. Buyers must develop local contacts and coordinate with them to get the most upto-date and factual information about each countrys 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 buyers 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 medias business objectives. As such, one must really separate myths from realities. Additionally, just like Latin America is not one entity, Mexico is comprised of many different cities and regions,
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same quantity as in countries like Mexico or Brazil. Finally, its a good point to remember that generally, in the Latin American context, election years mean that government officials face uncertainty in terms of the long term viability of some programs. Thus, new programs may need to wait until elected leaders draft and execute their own agendas. Its likely that during election years, one cannot expect much decided support from governments. Make sure you do consider the locals. Most offshore-centric 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 all with their own political, economic, cul- services from Latin America to the U.S., still tural and business landscape. Thus, one have a learning curve to master because they cannot treat Mexico as a single city or region are not used to operating in an environment either. Each region has different strengths where cost is not the primary lever, as it is in and weaknesses, and you must find some- India. As I already commented, each country one trusted to shed light on any grey areas has different regulations, governments, charin question. acteristics, laws, culture, and putting all the In terms of Costa Rica, its really a scale pieces together means that local understandissue. Buyers must make sure to plan what ing is key to getting the most out of each they want to achieve in Costa Rica in such country or citys potential. Finally, the couna way that they are not planning for a huge try strategy must consider the issue of scale, presence. This is because the demographics and influence the decision making progress in Costa Rica are simply not present in the early on. It possible to make adjustments to
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strategy, but its 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.
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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 welldefined business strategy that focuses on ServIce provIderS ApproAch To local knowledge and knowledge of your The MArkeT clients major markets and operating culThe best approach is to remember the ture. For instance, not only is it important tried and true saying, You must walk to know the ins and outs of the economic, before you run. Providers need to under- political, cultural, technological and busistand that each country in Latin America ness landscape in Mexico, but it is equaldeserves and demands its own strategy. If a ly as important to have the same knowlprovider is thinking of setting up a delivery edge in the U.S. for a U.S.-based client, center for the U.S., it needs to think of lan- and so forth. In this sense, the most guage offerings, complexity and scalability. important attributes to help deliver busiFor example, in Brazil, tax implications have ness value in the region are: experience, a large-scale effect on cost that one must local knowledge and buyer market keep in mind and account for. understanding. GS
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Destination Strategy -
What Makes/Breaks It?

he news about most of the offshoring 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 outsourcing 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 educated location strategy.
t
deAl
Deepali Sathe
Project Manager, ValueNotes Sourcing Practice
The uSuAl SuSpecTS of A Broken

Some of the usual suspects blamed for the failure of an offshoring deal include Change mis-management - It is imperative that a company prepares its employees for the changes that are expected once the decision to offshore has been taken. The importance of clarity in communication, cultural sensitivity, understanding
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certain inherent nuances cannot be stressed enough when making the transition. Communication disparity - 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 clarity on deliverables is the single largest reason for deals to fall through. This has its roots in lack of communication, preconceived assumptions and lack of predeal 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 savings and risk management. The company states that initial efforts and training went through smoothly. However, within a few weeks of going live, customer satisfaction plummeted. In hindsight, the reasons cited were accent issues, poor telecom infrastructure, non-resolution of customer
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problems, differences in companies philosophy, 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 connections have to be revelations post the deal? Considering this was a voice-based service, where end users would need technical support - language capabilities with neutral accent and good telecom infrastructure appear to be the natural filters. Even a basic destination analysis would have brought out these issues.
BehInd The SceneS The reAl ISSue

Companies typically decide to outsource to achieve certain benefits such as cost arbitrage, talent pool, and risk management, among others. Destination strategy is one of the many governing factors that eventually contribute to the overall
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of resources that a destination 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 infrastructure 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 company 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 contribute 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
success of a deal. Companies must focus on these dynamics rather than the outcome 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 sustained 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 education sector towards corporate participation can offer some insights into the kind
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training and development culture, the standard of education compared internationally, etc. can lead to some valuable insights regarding future possibilities. For infrastructure, some of the areas that companies 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 parameters will provide insights to the current state and future trends of the outsourcing industry growth. 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 undertaken 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 parameters that need to be considered are: stability 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.
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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, companies must take cognizance of the policies and their impact. An understanding of the existing political system will provide insights to business continuity. While the ruling political parties are an obvious choice for due diligence, 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 countrys
need for A cuSToMIzed SoluTIon

Just like other outsourcing solutions that are customized to enhance benefits, destination evaluation has to be in accordance with company needs. Though cost cutting continues to be the major driver for outsourcing, 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 preparedness and lower chances of failure. If destination strategy feeds into selection of vendors, who anyway are ultimately responsible for delivery and maintaining customer satisfaction, the rate of success of outsourcing deals will improve. GS
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Bridging the Near shore- Offshore Divide
Compete or Cooperate?
Lalit Dhingra
President, NIIT Technologies Inc.
utsourcing service providers began establishing near shore delivery centers 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 variety 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 conducting 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 decisions needed to be made, fearing both loss of speed and context if key contacts were located only in India
E X P E R T S
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 moving 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 replicating Indias IT services delivery model and already had the same time zone value proposition With these factors and increased competition 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 unexpectedly 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 maturity 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 providers. 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 nearshore 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 witnessed a cross-pollination of resources from India and near shore countries to shorten the learning curve. This in turn resulted in good professional middle management growth in many near shore and offshore companies. The result of this compulsory competing 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/disaster recovery plan. And vendors will increasingly be forced to adopt and provide 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 increasingly shift to innovation, automation and non-linear service offerings. GS
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the Right Offshoring Destination
Choosing
LN Balaji
President of ITC Infotech
oday, businesses are using offshoring extensively as a strategy to compete and expand in the global market. This is an economical way to meet market challenges such as rapid globalization, increasing competition and technological sophistication 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 benefits 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 programming, whereas Filipino graduates are known for their proficiency in English language. Thus, when looking for an outsourcing 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 protection. 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 vendors 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 preparedness, together with a robust regulatory and enforcement environment, makes for a compelling proposition in deciding the location. Government support- Government support is a crucial factor that determines the success of an offshoring process. A high level of support from the Government translates 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 excellent 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 services 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 personal 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 management difficult, leading to improper integration 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 operational costs, choosing the right offshoring partner allows companies to focus better on their core competencies and strategic priorities.
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Bangalore: Indias Ideal Offshoring Destination
Among Indian off shoring destinations, Bangalore tops the list followed by Chennai, Delhi , Mumbai and many others. The technology 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 lowcost technology services in diverse areas. Its Silicon Valley like combination of talent 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 workforce 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 leaders 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.
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GLOBAL SERVICES MAGAzINE Past Issues
2011 September Issue
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Comparative analysis of the most preferred offshoring destinations - India Vs China Factors Software quality Advanced Business Skills India CMM Level 5 Vast experience in catering to the requirements of western IT services clients Better skills like project management, business analysis, etc. English/Hindi Expansion to Latin America, U.S., Eastern Europe, and China Excellent IT infrastructure within technology parks Ranked as the best destination for offshore IT services by Western buyers China CMM Level 3 Limited experience and therefore, plenty of room for skill enhancement
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Business Languages Global Reach
Mandarin/Mandarin Limited reach beyond China $10,095 Good IT infrastructure but not as robust as in India Ranked #3 for the Eastern Europe regions
Average IT Staffer Salaries $9,896 Technology Infrastructure
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Offshoring Still Make Sense?
Does Captive
Nigel hughes
Compass Management Consulting
ummary: Captive offshore operations have evolved significantly over the past decade in response to a changing global sourcing landscape. A recent TPI study examined the state of the captive operation and assessed the operational performance 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 relative 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
E X P E R T S
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 sourcing providers in India and elsewhere has closed the skills gap between in-house and external staff. These doubts notwithstanding, the offshore captive operation remains essential to the sourcing strategy of many business organizations. TPI (owned by ISG, Inc., the same parent company that owns Compass) recently completed a benchmark 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 context, 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 initiatives and optimizing efficiency, productivity, 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 realization that offshoring in and of itself is not enough to gain a competitive edge. In todays sourcing environment, any strategy requires effective operational management. One key finding of the analysis: 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 locations.) Companies taking this approach tend to identify specific cities to source best-of-breed skills for their operations, so that, for example, knowledge processes might be based in Delhi, application 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 captive 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 optimization. Captives are integrating third-party 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 captive and third-party units coexist at the same location, or where the captive operation uses use third parties to augment their teams, while retaining overall project management responsibility. To address the constant challenge of cost efficiency, captives reducing technology and telecom costs by adopting cloud and virtualization solutions and by utilizing thin clients. Captives are also proving to be a valuable source of talent for the global business, and are enabling their parents to successfully acquire domain experts and talent for their core business operations globally. For example, the analysis observed situations where captive personnel with demonstrated expertise have moved across parent entities to either lead operations in other geographies or to assist in scaling up such operations.
E X P E R T S
oTher oBServATIonS:
Parent entities are taking advantage of captives familiarity with local business conditions and opportunities to deliver services within domestic markets. By leveraging the same platform to support both international and domestic operations, the parent organizations achieve economies of scale and ensure consistency on regulatory compliance and internal 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 rationalization, 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 certification continues to be an important 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 component of a comprehensive sourcing strategy. GS
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Outsourcing Juggernaut set Sails
Africa Rising
Dr. P.K. Mukherji

President & Managing Partner, Avasant
ver the past few years countries in Africa have been trying to position themselves on the global sourcing map as competitive destinations for service delivery. The efforts and initiatives of countries in the region are paying off with several multinational companies making investments in the last few quarters, to both service the regional market and also to use the geography as a global service delivery hub! African nations have realized the potential of the IT/BPO sector as an integral pillar to foster economic growth in an inclusive 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 business 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 improvement in the infrastructure, noticeably
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Improved Mobile & Broadband Telecom. New Technology Parks
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subscribers, making the Infrasructure Government Growing Market Size continent the fastestgrow Government ing ICT marHuman Incentives Multinational ICT Capacity ket in the Corporations Private Sector Industry Development initiatives world. The public Tax Breaks and private Impact Incentives Sourcing Subsidies sector has also made in the telecommunication & technology considerable progress in improving fiber parks and human capital development. connectivity. Since the fiber optic SEACOM These improvements have resulted in a subsea cable went live in 2009 and the draconstantly growing IT/BPO market. matic reduction in Internet costs that followed (prices in some parts of East Africa InfrASTrucTure IMproveMenTS: fell from $4,000 to under $500 per megabit), broadband consumption has jumped in key To SuSTAIned GrowTh Infrastructure development projects are some cases almost 10 fold within the first on an upswing in many locations within year of commercial service. In the 2010 ITU Africa with increased participation from report, out of the top ten countries showboth public and private sector. A huge ing the steepest decline in prices worldimprovement can be seen especially in the wide, nine of them were African countries. communication sector and the commercial Along with the development in the real estate with multiple IT parks becom- telecom landscape many technology ing operational. parks have been developed to promote Large Telecom operators like Bharti the growth of the IT/BPO industry in Airtel are looking to harness this large Africa. Parks like Smart Village in Egypt, untapped market as well as contribute Innovation hub & Softline Technology Park to the infrastructure development thereby in South Africa, Casablanca Technopark making it a more conducive outsourcing in Morocco provide state of the art facililocation. Airtel has already invested $ 11 ties and incubation centers to the IT/BPO Billion in Africa which has led to almost industry. Tunisia, for instance, has recently a 50% reduction in mobile telecom tariffs. announced an ambitious plan to build 10 During the past five years, Africa s cellular technopolis to disseminate digital culture market has grown 5000% to over 400 million and new technologies within the next ten
E X P E R T S
years. Kenya also has outlined an ambitious plan of developing a 5,000 acre East African technopolis. These developments and plans pave the road ahead for a sustainable growth in the ICT sector of Africa. education levels in Africa to fulfill the requirements of growing ICT industries. Apart from the government initiatives in improving the education system and providing training grants to corporations, a lot of initiative has been taken up by private companies. Some of the recent initiatives such as the Microsofts South African Innovation Centers to promote the job enablement program have started yielding results. The AfDB has invested in information 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 language programs in partnerships with leading cultural institutes in Egypt to enhance availability of talent for technical support with proficiency in French, Spanish, German and Italian. These initiatives by both the government and the private sector have increased the employable population in the African continent resulting in an improved IT/BPO market.
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GovernMenT IncenTIveS: foSTerInG GrowTh

Governments in most African nations have been actively engaged in developing the IT/BPO industry and from time to time have released attractive incentive plans. These incentives by the government 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.
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 marhuMAn cApITAl developMenT ket has seen an increase in not just third There have been considerable efforts, party service providers but also captives of in the past few years, to improve the major MNCs. In order to tap the potential
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at the bottom of Chart 1 - FDI and ODA flows to Africa the pyramid, 80 *ODA CAGR 12% Impact Sourcing *FDI CAGR 18% 70 as a method of 60 outsourcing has 50 become a lead40 ing phenomenon taking cues from 30 the rural sourc20 ing initiatives 10 in countries like 0 India. 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 DDA FDI Ranking Source: DECD/DAC for ODA, UNCAD for FDI 2000-2010. of countries Projections for 2011: FDI: IMF; ODA: Simple forecast like Egypt has improved significantly from a 13 in 2007 to setting up Copyright 2011 All Rights 4 in 2011 on the AT Kearney Global Service Reserved, Avasant LLC Page 4 of 5 shop in Location index and the Government is the country in the last two years. Genpact projecting revenue of $ 2 Billion from the Ltd, Aegis Communications Group Inc. IT/BPO industry by 2013. Faced with and IBM have started operations, while intense competition and eroding margins Mahindra Satyam is planning to open a due to inflation in India, Spanco a tech- center of its own. Entry of these large IT/ nology firm expanded in Africa and now BPO companies in the African market is a earns nearly half its profit from the African testimonial of the traction the industry has region in 2 years employing nearly 2500 gained over the last couple of years. people here. In Kenya, for instance the Shared Service Centers of Multinationals number of IT/BPO companies has grown have forayed into the African market not from just 1 in 2005 to over 25 in 2010. just to create value through outsourcTele Tech entered the Ghana BPO space ing services to a low cost destination but in October 2010 with the acquisition of to enter into the huge untapped African Vodafones call center and now has a 600 Market. Nestle, for instance, has strengthseat center in Ghana, making it one of the ened its presence in Africa by setting up a bigger third party players in the African shared service center in Accra (Ghana) to market. Over 200,000 South Africans are support back office operations to 40 African already employed in the BPO sector, with nations and is expected to employ 150 peofive of the worlds top 10 BPO firms ple by 2012. Entry of large multinationals
USD Billion
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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 digitization projects. The Governments in countries like Ghana and Kenya are not just promoting this industry through aids and infrastructure development but also have become the users of these services, creating an anchor demand essential for the growth of this industry. 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 trainable skills have enabled development of specific skill based training to increase the employable population in these countries. Corporations around the world and governments in Africa are beginning to realize the huge potential this segment of the outsourcing market offers and have started to make investments.
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concluSIon
Africa has always been perceived as geography with huge potential but in the recent years, significant progress in realizing the potential has been observed. Infrastructure improvements and reduction in ICT costs have fostered the growth of the IT/BPO industry. Significant inflow of FDI and foray of service provider companies 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 initiated by the African nations will enhance the pace of growth and pave the road ahead for further expanding the IT/BPO industry in the region. GS
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 chart1, demonstrates an active participation of various organizations and governments 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
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A Ripe Terrain for Impact Sourcing
Africa :
Pumela Salela
BPO Consultant
s 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 people 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 cant we create 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. Prahalads 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?
Sourcing is currently $4.5 billion and has the Impact Sourcing employs individu- potential to reach $20 billion and employ als with limited opportunity for sustain- 780,000 by 2015. The report, conducted by able employment as principal workers in Monitor Group, suggests a strong business Business Process Outsourcing (BPO) centers case for Impact Sourcing, which can provide to provide high-quality, information-based high-quality, reliable services at prices that services to domestic and international public are at least competitive with traditional BPO 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 centers and, in countries. Different some cases, almost 40 organizations refer percent lower than what tradito this new movetional providers can offer. It states that ment in different ways : The Rockefeller today, the total global IS market (which genFoundation calls it Impact Sourcing (IS) erates an estimated $4.5 billion in revenues whilst the Global Sourcing Council refers to as indicated above) represents 3.8 percent it as 3S, which stands for Socially responsi- of the entire $119 billion BPO industry and ble and Sustainable Sourcing. Regardless of directly employs about 144,000 people across the names given to this new form of sourc- all segments.Of this, $1.2 billion is estimated ing social revolution,the unifying principle to reach IS workers as employment income. is that Outsourcing work must be given to Analysis suggests that the share of IS in total those communities who are poor as a means BPO could increase and , more than $10 bilof stirring up economic growth in the areas lion will reach IS workers through employwhere they live. ment income in the few years to come.
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whAT IS The SIze of The MArkeT And ITS poTenTIAl?
The role of GovernMenT
Governments need to come up with A new report funded by the Rockefeller government policies that create an enaFoundation estimates that the field of Impact bling environment for Impact Investing.
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Governments need to direct the market and industry to be socially responsible and sustainable. 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 financial 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 designated 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.
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The role of prIvATe SecTor/InduSTry
Impact Investors on the other hand, need to find a balance between making profits and philanthropy. The private sector need to create a private market that supports socially responsible and sustainable sourcing. Industry should start outsourcing to the severely economically distressed areas. One of the demand constraints that are faced with Impact Sourcing Service Providers (ISSPs) 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 SocIeTy

Ordinary 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 communities. 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 sometimes lacking in these communities. 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 unemployment 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 opportunities 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 employment opportunities are not only for the educated, but the poor and the downtrodden continues to be the obstacle to Africas development. Sometimes you find a combination of the two, whereby individuals are educated yet poor. In Africa there is also a large young population 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 & FIGURES Africas collective GP will be $2.6 trillion by 2020 Africas consumer spending will be $1.4 trillion by 2020 The number of Africans of working age will be 1.1 billion in 2040 The number of African households with discretionary income will be 128 million by 2020
Source: McKinsey Global Institute(2010), Lions on the move: The progress and potential of African economies.
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why AfrIcA ?
The Rockefeller Foundations Poverty Reduction through Information and Digital Employment (PRIDE) work aims to harness the global outsourcing sectors innovative employment and efficient service 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 employment. PRIDE is aimed at creating sustainable 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.
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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 company has been able to provide a living to communities which were living on less than $2 a day by giving them income that is as high as $10 an hour. Samasource works with companies 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, grassroots businesses, and educational institutions that work with people living in poverty. Service Partners, which are in charge of managing and paying Samasource's workers, must meet a range of criteria in line with Samasource's social mission. The Global Sourcing Council has outsourced 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 qualify. 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). 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, governments, 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. whAT IS The fuTure ? The positive future economic growth The future provides hope. potential of the African continent cannot be South Africa will host the first Impact disputed. What it needs is sincere partnerSourcing conference in the country in the ships with organizations who have the first week of December 2011. It will be an development of Africa deeply imbedded in African wide conference with the aim of their thinking , actions and operations. It drawing delegates from across the African needs individuals and organizations who Continent with world renowned speakers can walk the talk. GS
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Business Transformation
and the Expansion into Asia

he markets in Asia, particularly China, present a wealth of new business and growth opportunities for Australian organisations 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.
Sudhir Narang
Managing Director, BT India
A new Breed of cIo

Whether through mergers and acquisitions 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 divisions. IT is critical to successful international 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 deployment 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 professional development and CIOs 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 management profiles to deliver professional service 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 operations to achieve greater efficiencies around resource allocation and costs. Regardless of whether youre in the business of providing 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 communications 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 endpoint they are using. It is here where conversations around transitioning to the cloud are coming in to question, with many CIOs 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 multiple cloud offerings, provide more tailored 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 CIOs 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.
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services much more effectively and IT is a central component of this process, delivering services in the most technologically advanced way possible. As such, questions 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 attitudes 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 todays highly connected and competitive world, being at the forefront of communication is one of the most critical factors for business success, especially 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 corner and the pace of technological change enSurInG The lonGevITy of IT shows no signs of abating, businesses ASSeTS must react quickly or risk falling behind Business models have to evolve to the competition a fate no organisation remain competitive. They must deliver wishes to fall victim to. GS
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Location Strategy
For Indian Delivery Centers

ith the threat of a meltdown looming over global economies, 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 business 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 recession 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
Viral Thakker
Executive Director Head Shared Services and Outsourcing Advisory KPMG in India
Jehil Thakkar
Executive Director Head Global Location and Expansion Services Advisory KPMG in India
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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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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 location strategy believe that they will find a location which is perfect. However, this is an unrealistic expectation. A perfect 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 business unit heads. A well-defined location strategy not only has the potential to reduce operating costs, but could also be an answer to many other business problems.
even further so as to manage the lowering of margins. Since over a decade IT-ITES companies have been considering emerging locations 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 Indias economic progress as they are being considered in the location selection strategies of many Indian IT-ITES firms.
GeTTInG locATIon rIGhT

1. 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
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Some of the challenges/ business requirements that could be addressed are:
Common requirements for IT-ITES companies: An Illustration
Grow the domestic business Many IT-ITES companies are looking at Indias growing domestic market to hedge against risks such as exchange rate fluctuations, declining international business, etc. Operations that have been set up in emerging Tier II and II destinations in India would help the companies 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 Strategic Objectives 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 advantage 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 strategy 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 Lower operating costs Operational Objectives 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 locations 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
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2. Location Assessment Once 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 organization. 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 Selection Even after a location is selected, the exercise is not complete. Identifying potential micro-sITeS within the city/ location is an important step to the location 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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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.
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.
concluSIon
While Tier II, III and IV cities are constantly being talked of as upcoming IT-ITES locations, organizations must bear in mind the distinct advantages as well as drawbacks of moving to such locations. Cost of operations is one important
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 organizations pulling out after making significant investments/losses. Companies need to therefore understand that a cookie-cutter or me-too approach can no longer be used for location 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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Global City Competitiveness: Summarizing the Dynamics

THE TOP 100 CITIES

70 76 86 90 94 96 100 103 108 114 117

the top 100 cities

Neo Group & Global Services

Global Services Destinations

2012 Top 100