Offshore IT and India

Offshore IT and India

François Hucher – CGEYIDATE – Nov 19th, 2003

© 2003 Cap Gemini Ernst & Young - All right reservedFH – 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


India leads the off-shore market with a 80% market share

India exports already 4% of NA and 2% of WE IT markets

Region Total Market India's Exports Market ShareNorth 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%

IT Services - Apr’ 02 to Mar ’03 (Figures in USD Billions)


Most top companies outsource their software requirements to India…

General Motors

General Electric

United Airlines

Sears

Wal-Mart

AT&T

Marks & Spencers

Coca Cola

Pepsi

Boeing

CitiGroup

American Express

Walt Disney

Visteon

More than 300 of the Fortune 1000 companies outsource their software requirements to India…

Daimler Chrysler

Ericsson

Philips

Oracle

SAP

Integrators...


Rightshore – Offshore IT services from India

IndustryPenetration of

Offshore Services (%)

High-Tech Manufacturing 21,1Communications 9,1Financial Services 7,6Services 6,0Transportation 4,8Healthcare 4,0Other Manufacturing 3,9Utilities 3,7Retail 2,2Wholesale 1,1Total 5,0

IndustryPenetration of

Offshore Services (%)

High-Tech Manufacturing 21,1Communications 9,1Financial Services 7,6Services 6,0Transportation 4,8Healthcare 4,0Other Manufacturing 3,9Utilities 3,7Retail 2,2Wholesale 1,1Total 5,0

Penetration of Offshore IT Services (Current Usage or Planned Usage) by Industry

Source: Gartner Dataquest (August 2002)

Low

HighLow High

CostMexique ?

Ireland ? Israël ?

?Singapour

?Hongrie

Inde ??Malaisie

Philippines ?

Chine ?Russie ?

Quality

• Mexico

• Ireland • Israel

• Singapore

• Hungary

• India• Malaysia

• Philippines

• China • Russia

(Source: McKinsey Quarterly, 2001)

“60% of Fortune 500 companies already work

with Indian offshore companies”

Source: Gartner Dataquest (February 2003)

“60% of Fortune 500 companies already work

with Indian offshore companies”

Source: Gartner Dataquest (February 2003)

Region Total Market India's Exports Market ShareNorth America 171,1 6,69 3,91%Western Europe 109,6 2,10 1,92%

Region Total Market India's Exports Market ShareNorth America 171,1 6,69 3,91%Western Europe 109,6 2,10 1,92%

IT Services - Apr’ 02 to Mar ’03

(Figures in USD Billions)

“40% of the annual growth in the offshore market will

come from Western Europe by 2004”

“40% of the annual growth in the offshore market will

come from Western Europe by 2004”

Growth in Indian IT Services Exports(Figures in USD Billions)

1.762.60

3.96

6.227.65

9.88

0.00

2.00

4.00

6.00

8.00

10.00

12.00

1997 1998 1999 2000 2001 2002

2006+36%CGAR

“By the end of 2004, 10% of IT resources from US IT vendors and services providers will be

provided offshore”

“By the end of 2004, 10% of IT resources from US IT vendors and services providers will be

provided offshore”

TS Packages6%

TS AD&I57%

OS AM36%

OS IM1%

Offshore IT Services

By Discipline


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


…Including the size and quality of its resource pool

• Second largest pool of English-speaking professionals in the world

• Currently has 400,000 IT professionals

• Large base of graduates (16 million) and post-graduates (5 million)

• Generates 80,000 engineers each year

1707

238

110

1498

158

103

0 500 1000 1500 2000

US

India

France

CMM qualifications 2001/2002

+20% (58 level 5/6)

+50% (74 level 5/6)


Nordic55

CE58

BE45

UK105

US100

France49

SE40

India23

We have to disconnect the place where we sell from the place where we deliver

Average COR per region in 2001

North America COR = base 100


0

5000

10000

15000

20000

25000

IT companies Positions Pure India PlayersPeople

Multinational PlayersPeople

0

1000

2000

3000

4000

5000

6000

7000

India Other


CGEY in India

Current Status Dec’ 03 Dec’ 04TS 650 700 1 500OS 350 500 1 500Total 1 000 1 200 3 000

Staff-strengthDiscipline

RegionDec’ 03

Dec’ 04

Sales

Force

North America 650 1500 10

Outsourcing Europe 300 1000

UK 150 500 2

France 100 300 2

Netherlands 50 200 1

N Europe & Asia Pacific 200 400

UK 150 200 1

Netherlands 50 100 1

AP 100 1

Central & Southern Europe 50 100 1

France

Central Europe

Italy

Iberia

Total 1 200 3 000 20

TS Packages

39%

TS AD&I27%

OS AM31%

OS IM3%

• 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

VISTEONVERIZONJP MORGANDELMASTOTAL


Offshore AM Delivery Model

User Community

Front OfficeCGE&Y / Customer

Back OfficeCGE&Y AMSC INDIA

1s

t lev

el H

elp

D

es

k

2nd and 3rd Level Support

Front Office

Functional

Responsibilities

Back Office

Functional

Responsibilities

Common tool-sets and Process - DELIVERTM

Knowledge Base

Service Management

Quality Management

Technical Infrastructure

External Agencies

Of course, the split of responsibilities

between front and back offices may

change!


1

Client’s Business Users*

Client’s HelpdeskCGE&Y Front

OfficeBack Office Mumbai

Support Team

Client’s Systems

Onsite Offshore

2 3

4

Client Front Office Back Office

Log ticket

Ticket assigned to CGE&Y

Ticket assigned to Back office

Access Client’s Applications for Problem

Resolution

Periodic face to face meetingsCGE&Y Service Delivery Manager monitoring

AM operations

*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

Establish 2-way communication with user and work

collaboratively till the ticket is closed

Manage Contingencies

Sample Workflow

3

Manage Contingencies


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…


TATA CONSULTANCY SERVICES (TCS)Key Highlights:

Projects for over 1000 clients in more than 55 countries

More than 100,000 person years of experience in

diverse business domains and technology areas

Major projects won:

United Utilities Water; UK 30 million Pounds

GE $120 million – largest deal in Indian IT

services history

Growth Strategy:

Price aggression

Increase in Onsite work

Geographical diversification by setting up global

development centers in Hungary, Australia, Uruguay,

Japan, Mexico, USA, UK and China

Strengths and Weaknesses:

Strengths: Giant size – over 21000 employees

Ability to cut prices and play on volumes

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

Expansion / Acquisition Strategy::

Takeover of CMC a local player has enhanced local presence especially in the Government sector

Company IPO expected to come through shortly – this will increase the resources available with the company for further investment / acquisitions


INFOSYS TECHNOLOGIESKey Highlights:

Company’s brand name is major plus in both domestic and international market diverse business domains and technology areas

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

Growth Strategy:

Price aggression

Focus on offshore delivery model and BPO services to international clients

Partnership with leading local companies of the targeted country


Strengths: Ability to predict and react quickly to market trends


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


Banking, FSI & Retail verticals will have more focus as per future strategy

Building up presence in Europe and Latin America

Plans to move up the value chain by building its Management Consulting practice


WIPRO TECHNOLOGIESKey Highlights:

Ranked 7th among the software services companies in the world by Businessweek (2002)

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

Growth Strategy:

Price aggression

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.


Strengths: Ability to predict and react quickly to market trends


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


Banking, FSI & Retail verticals will have more focus as per future strategy

Entered in Call Center Business through acquisition of Spectramind Ltd. - this is now one of the major thrust area


Investments in the Indian IT SectorAccording 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


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.

GE: 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

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.


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 sub-contractor 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

Documents

Offshore IT and India