Offshore IT and India François Hucher – CGEY IDATE – Nov 19th, 2003 India is a large, fast-growing market for providing IT services. More than 350.000 people currently working in IT services & outsourcing in India, expected to pass: – 1 million before 2008 – 3 millions in 2015 IT Services exports from India (USD billion): – 4 in 1999, – 10 in 2002, – 18 in 2005 – grown by over 36% on average “India dominates, and will continue to dominate, the offshore market, with approximately 80 percent percent of total revenue.” - Gartner, December 2000 FH – IDATE Nov 19th, 2003 © 2003 Cap Gemini Ernst & Young - All right reserved India leads the off-shore market with a 80% market share India exports already 4% of NA and 2% of WE IT markets IT Services - Apr’ 02 to Mar ’03 (Figures in USD Billions) Region Total Market India's Exports Market Share North America 171 7 4% Western Europe 110 2 2% Japan 35 0 1% Asia Pacific 16 1 4% Rest of the World 18 1 3% 349 10 3% FH – IDATE Nov 19th, 2003 © 2003 Cap Gemini Ernst & Young - All right reserved Most top companies outsource their software requirements to India… General Motors Coca Cola Daimler Chrysler General Electric Pepsi Ericsson United Airlines Boeing Philips Sears CitiGroup Wal-Mart American Express Oracle AT&T Walt Disney SAP Marks & Spencers Visteon Integrators... More than 300 of the Fortune 1000 companies outsource their software requirements to India… FH – IDATE Nov 19th, 2003 © 2003 Cap Gemini Ernst & Young - All right reserved Rightshore – Offshore IT services from India (Source: McKinsey Quarterly, 2001) Low Growth in Indian IT Services Exports (Figures in USD Billions) 12.00 9.88 10.00 2006 +36% CGAR 7.65 8.00 “By the end of 2004, 10% of IT resources from US IT vendors and services providers will be provided offshore” •Russie Russia ? •Chine China ? •Philippines Philippines ? ?Malaisie • Malaysia ?Hongrie • Hungary Cost 6.22 •Mexique Mexico ? 6.00 2.00 ?Singapour • Singapore 3.96 4.00 1.76 2.60 OS IM 1% 0.00 1997 1998 1999 ? •Inde India 2000 2001 TS Packages 6% •Ireland Ireland ? Low 2002 •Israël Israel ? High Quality High OS AM 36% Penetration of Offshore IT Services (Current Usage or Planned Usage) by Industry Industry High-Tech Manufacturing Communications Financial Services Services Transportation Healthcare Other Manufacturing Utilities Retail Wholesale Total Penetration of Offshore Services (%) 21,1 9,1 7,6 6,0 4,8 4,0 3,9 3,7 2,2 1,1 5,0 Source: Gartner Dataquest (August 2002) FH – IDATE Nov 19th, 2003 “40% of the annual growth in the offshore market will come from Western Europe by 2004” TS AD&I 57% Offshore IT Services By Discipline “60% of Fortune 500 companies already work with Indian offshore companies” Region North America Western Europe Source: Gartner Dataquest (February 2003) © 2003 Cap Gemini Ernst & Young - All right reserved IT Services - Apr’ 02 to Mar ’03 (Figures in USD Billions) Total Market India's Exports Market Share 171,1 6,69 3,91% 109,6 2,10 1,92% Several factors strengthen the business case for remote services in India... Factor cost differential – Wage costs about 20% of US levels; real estate costs about 25% of US levels Time zone advantage – The nearly 12-hour time zone difference between US and India enables ‘follow the sun’ 24x7 coverage Robust telecom infrastructure – India’s telecom infrastructure today is world-class and cost-competitive, with various long-distance connectivity options, high-bandwidth local loop networks and high-speed Internet access Government incentives – The government of India is keenly promoting offshore services, by setting up technology parks and other infrastructure, speeding up investment approvals and providing attractive tax incentives FH – IDATE Nov 19th, 2003 © 2003 Cap Gemini Ernst & Young - All right reserved …Including the size and quality of its resource pool CMM qualifications 2001/2002 • Second largest pool of English-speaking professionals in the world 0 • Generates 80,000 engineers each year FH – IDATE Nov 19th, 2003 1000 1500 2000 1707 +20% 1498 (58 level 5/6) US • Currently has 400,000 IT professionals • Large base of graduates (16 million) and postgraduates (5 million) 500 238 India 158 +50% (74 level 5/6) 110 France 103 © 2003 Cap Gemini Ernst & Young - All right reserved We have to disconnect the place where we sell from the place where we deliver Average COR per region in 2001 Nordic 55 BE 45 US 100 UK 105 CE 58 France 49 India 23 SE 40 North America COR = base 100 FH – IDATE Nov 19th, 2003 © 2003 Cap Gemini Ernst & Young - All right reserved IT companies Positions People Pure India Players 25000 20000 15000 People Multinational Players 7000 6000 India Other 10000 5000 4000 3000 5000 2000 1000 0 FH – IDATE Nov 19th, 2003 0 © 2003 Cap Gemini Ernst & Young - All right reserved CGEY in India Discipline TS OS Total Staff-strength Current Status Dec’ 03 650 700 350 500 1 000 1 200 OS IM 3% OS AM 31% Dec’ 03 Dec’ 04 Force North America 650 1500 10 Outsourcing Europe 300 1000 UK 150 500 2 France 100 300 2 Netherlands 50 200 1 200 400 UK 150 200 1 Netherlands 50 100 1 100 1 50 100 1 1 200 3 000 20 Region Dec’ 04 1 500 1 500 3 000 TS Packages 39% N Europe & Asia Pacific AP Central & Southern Europe Sales France Central Europe TS AD&I 27% Italy Iberia • • • • • • • Our Global Delivery Model, Rightshore Our Global Network of Industrialized Centres: ASEs, ADCs, AMSCs, IMSCs, BPOs Our Methodology: • End-to-End CMM Value Delivery • Single set of integrated methods, tools and standards used across FO/BO Remote Development with Local Execution Local Intimate Business Know-how From Initial Creation to Long Term Evolution Win Centers FH – IDATE Nov 19th, 2003 Total © 2003 Cap Gemini Ernst & Young - All right reserved VISTEON VERIZON JP MORGAN DELMAS TOTAL Offshore AM Delivery Model Of course, the split of responsibilities between front and back offices may change! Front Office CGE&Y / Customer 1st level Help Desk User Community 2nd and 3rd Level Support Front Office Back Office Functional Functional Responsibilities Responsibilities Common tool-sets and Process - DELIVERTM Knowledge Base Service Management Quality Management Technical Infrastructure FH – IDATE Nov 19th, 2003 Back Office CGE&Y AMSC INDIA © 2003 Cap Gemini Ernst & Young - All right reserved External Agencies Sample Workflow CGE&Y Service Delivery Manager monitoring AM operations Periodic face to face meetings Client Client’s Business Users Front Office Back Office * 4 1 Log ticket Client’s Helpdesk Ticket assigned to CGE&Y 2 CGE&Y Front Office Ticket assigned to Back office 3 *Even though the client’s business users are shown along with the client and the help desk, it must be noted that these users may be located anywhere in the world Client’s Systems Onsite FH – IDATE Nov 19th, 2003 Back Office Mumbai Support Team Offshore © 2003 Cap Gemini Ernst & Young - All right reserved CGE&Y Competitor Profile CGE&Y faces competition from both local and MNC companies The top 5 local competitors include: Tata Consultancy Services Wipro Infosys Satyam Patni Computer Systems The MNC’s currently in the market include: Accenture IBM/PwC EDS/A.T. Kerney In this section we will try to profile some of the above companies… FH – IDATE Nov 19th, 2003 © 2003 Cap Gemini Ernst & Young - All right reserved TATA CONSULTANCY SERVICES (TCS) Key Highlights: Strengths and Weaknesses: Projects for over 1000 clients in more than 55 countries Strengths: More than 100,000 person years of experience in diverse business domains and technology areas Giant size – over 21000 employees Ability to cut prices and play on volumes Major projects won: United Utilities Water; UK 30 million Pounds GE $120 million – largest deal in Indian IT services history Weaknesses: Dearth of value added offerings Up to 70% of revenues come from on-site work in the US – too much reliance on one market Growth Strategy: Expansion / Acquisition Strategy:: Price aggression Takeover of CMC a local player has enhanced local presence especially in the Government sector Increase in Onsite work Geographical diversification by setting up global development centers in Hungary, Australia, Uruguay, Japan, Mexico, USA, UK and China FH – IDATE Nov 19th, 2003 Company IPO expected to come through shortly – this will increase the resources available with the company for further investment / acquisitions © 2003 Cap Gemini Ernst & Young - All right reserved INFOSYS TECHNOLOGIES Key Highlights: Strengths and Weaknesses: Company’s brand name is major plus in both domestic and international market diverse business domains and technology areas Strengths: Over 10,000 IT practitioners and domain consultants and presence in 14 countries worldwide Ranked as No. 1 among Indian IT organizations Infosys claims 293 clients with 85% repeat business Finacle, BankAway and PayAway – the banking products of the company, now contribute to 4% of the company’s Turnover Ability to predict and react quickly to market trends Ability to cut prices and play on volumes Known for reliability and fair business practice Weaknesses: Low focus on R&D and high-end high value added work Too skewed in favour of the US market Growth Strategy: Expansion / Acquisition Strategy:: Price aggression Banking, FSI & Retail verticals will have more focus as per future strategy Focus on offshore delivery model and BPO services to international clients Partnership with leading local companies of the targeted country FH – IDATE Nov 19th, 2003 Building up presence in Europe and Latin America Plans to move up the value chain by building its Management Consulting practice © 2003 Cap Gemini Ernst & Young - All right reserved WIPRO TECHNOLOGIES Key Highlights: Strengths and Weaknesses: Ranked 7th among the software services companies in the world by Businessweek (2002) Strengths: 30 offices worldwide, 13,000 IT practitioners and domain consultants World's first PCMM, CMMi and CMM level 5 company More than 300 customers across USA, Europe and Japan (50 of these are Fortune 500 companies) Perceived as a ‘trustworthy’ and ‘fair business practices’ company Ability to predict and react quickly to market trends Ability to cut prices and play on volumes Availability of 13000 skilled IT resources skilled in international projects Weaknesses: Constant Organizational Restructuring can hamper quick decision making APAC business has not grown as fast as it should have Growth Strategy: Expansion / Acquisition Strategy:: Price aggression Banking, FSI & Retail verticals will have more focus as per future strategy Increase in Onsite work Provide end-to-end IT solution including network, hardware/Software and SI services Partnership with leading local companies of the targeted country for market entry. FH – IDATE Nov 19th, 2003 Entered in Call Center Business through acquisition of Spectramind Ltd. - this is now one of the major thrust area © 2003 Cap Gemini Ernst & Young - All right reserved Investments in the Indian IT Sector According to a Mckinsey Survey 80 percent of the top 40 global IT services firms have a presence in India … Accenture: Has announced plans to invest close to $180m over the next four years towards providing Business Process Outsourcing (BPO) service Plans to hire another 1,500 employees to make its Indian technology centre a strategic hub, and double its Indian software and back-office staff to 2,500 within two years EDS: Has announced plans to move about 700 jobs to India. EDS said it will spend $12 million on a new customer call center in Mumbai, India, next year, resulting in a phased transfer of 700 jobs to that region. IBM / IBM Global Services: IBM Global has over 3000 professionals across 6 development centers in the country. It is aiming at adding 7000 professionals over the next 3 years IBM Global Services in Bangalore has bagged a mammoth outsourcing project from AT&T. The work, pertaining to application development, enhancement and maintenance, has been contracted for a 10-year period. IBM will increase its workforce dedicated to this project by 250 people by the end of next year. Eventually, there could be around 5,000 people working on this project. Deloitte Consulting Has now a 450-people centre in India, providing BPO and SAP Support services FH – IDATE Nov 19th, 2003 © 2003 Cap Gemini Ernst & Young - All right reserved Investments in the Indian IT Sector..(contd.) Computer Science Corporation: Is setting up two development centers in Noida and Hyderabad with manpower strengths ranging from 300-400 personnel. The company will be creating solutions for segments such as insurance, financial services, ERP, CRM, e-commerce, and databases. CSC is also planning to acquire a company in the Southern region, to expand its operations in that market. Cognizant: The company added more than 900 professionals to its existing staff in 2001-02. It had plans to cross the 5000 mark by end 2002. Has announced that its fresh round of investments in the Indian market are likely to be directed towards the InfoTech sector. Software exports from India are expected to rise to $3 billion by 2004 with software outsourcing expected to account for a third of the export targets GE has 11,000 employees in 3 centres in India – this is to be expanded to 27,000 employees in 9 centres GE: In addition to the above a few others such as Perot Systems, Deloitte & Touche and Groupe Bull are either sub-contracting work to Indian companies or have formed joint ventures with local players. Valtech is subcontracting to Hexaware, Deloitte & Touche has a joint venture with Mastek, and Perot with HCL. FH – IDATE Nov 19th, 2003 © 2003 Cap Gemini Ernst & Young - All right reserved Consequences Off shore production and maintenance for software creates a real risk of loss of skills and jobs for the most advanced countries : whereas for manufacturing it’s generally admitted that it takes 10 years for a subcontractor to gain full knowledge and to be able to design by himself, in the software industry, this times is probably reduced by a factor 3, because there is almost no boarder between the design and the production itself. Subcontracting the production then means exporting the know how. IT Indian companies are now strong global players Large (US) integrators will take advantage of the off shore IT production Need for Europe to organize near shore in Eastern Europe FH – IDATE Nov 19th, 2003 © 2003 Cap Gemini Ernst & Young - All right reserved