EDITOR’S NOTE
The 2010 GS100 Compendium
‘‘
2009 was a tough year for the outsourcing industry. Service providers in the GS100 list DUH W\SL͕HG E\ their resilience to weather the economic downturn, the ability to retain market leadership, DQG WKH ͖H[LELOLW\ to play by the changed rules of the industry.
This compendium is the complete compilation of the 2010 GS100 research by Global Services and NeoAdvisory. This year, the study underwent a major makeover to include several new elements and the results were discussed in multiple formats. The compendium is one such format aimed at tying up the various parts into one package that is easy and ready to refer. We would continue to build on this work to make it more valuable to the industry. In 2011, we will pull back the exercise by one quarter: the survey would be done in the JFM quarter and the results would be announced in the AMJ quarter. Many thanks to the service providers who participated in the 2010 GS100 survey and shared valuable data and information that helped us achieve the objectives of the research. The GS100 is a benchmark in the global ITO and BPO industry. Therefore, WKRVH VHUYLFH SURYLGHUV ZKR FKRVH WR VWD\ DZD\ VKRXOG ͕QG HYHU\ reason to participate next year, provided they help the project with data. Good luck and enjoy the 2010 GS100 Compendium. Ed Nair ed@cybermedia.co.in Editor
2010 GLOBAL SERVICES 100 STUDY
3
CONTENTS Editor’s note
03
INDUSTRY ANALYSIS AND OUTLOOK Shaping the Battleground for GS100 Service Providers
07
Outlook 2010: Slow Start, Great Prospects
14
SURVEY ANALYSIS The Growth Story
21
Contract Sizes: The Lifeline of Business
25
Spread of Global Delivery Centers
28
Analysis of Risk Management Across Segments
30
HR and Employees Segment Analysis
34
Analysis of Mergers & Acquisistionsin IT Services & BPO
37
ITO ANALYSIS AND TRENDS Development Declines, Maintenance Promises to Grow
43
Enterprise Applications: Depressed and Challenged
49
OPD: New Products and New Markets Are the Growth Areas
54
IM: Infrastructure Management Continues to Be Hot
63
ESO: Service Providers See Promising Prospects in Engineering Services Outsourcing
70
2010 GLOBAL SERVICES 100 STUDY
BPO ANALYSIS AND TRENDS FAO: Could 2010 Be the Year for FAO?
76
3URFXUHPHQW 2XWVRXUFLQJ &KDQJLQJ 'HDO 7HUPV DQG 5LVNV 'H͕QH 0DUNHW
80
HRO: Buyers Choose Short-term Single-function Deals
85
Customer Care: Focus on Customer Value, Bundled Services, and Virtual Contact Centers 89 ,QGXVWU\ VSHFL͕F %32 :LOO (YROYH 6WURQJHU 7KDQ +RUL]RQWDO %32
96
GS100 LISTS AND CATEGORIES The GS100 Survey Metholology
107
7KH *6 /LVW &RPSDQLHV 7KDW 'H͕QH *OREDO 2XWVRXUFLQJ
109
The 2010 GS100 Category Lists
112
Acknowledgment
119
CREDITS E. Abraham Mathew President Ed Nair Editor ed@cybermedia.co.in Satish Gupta Associate Vice President satishg@cybermedia.co.in Ashwin Razdan ashwinr@cybermedia.co.in Pratibha Verma pratibhav@cybermedia.co.in Sruthi Ramakrishnan sruthir@cybermedia.co.in Niketa Chauhan niketac@cybermedia.co.in Research Partner NEO Advisory
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GS100 COMPENDIUM SPONSORS
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2010 GLOBAL SERVICES 100 STUDY
HCL
Inside Front Cover
Intetics Co.
9
EXL Service
11
Xchanging
13
EPAM
15
Sonata Software
17
IBA Group
31
Tata Consultancy Services
97
)UHHERUGHUV :HELQDU 6SRQVRU Disclaimer All rights reserved. No part of this publication may be reproduced by any means without prior written permission from the publisher.
INDUSTRY ANALYSIS
and Outlook
Shaping the Battleground for GS100 Service Providers The recession changed several rules in global sourcing. The GS100 is a study in how service providers withstood the shocks and adapted. ED NAIR
When the economy buckled down into a recession in 2008, the global outsourcing industry still seemed very robust. Slowly, but surely, the impact of the recession was felt by the industry during 2009. Companies clammed up on ambitious technology projects that required huge outlays in investment and CIOs were forced to operate on constrained IT budgets which largely focused on squeezing more bang from the bucks that were spent in the earlier years. Spending was guided by discretion into areas that were necessary to ‘keep the lights on’ and saving costs became the driving factor in decisions. Outsourcing’s potential to save costs actually helped. Service providers (vendors) were forced to operate in a new environment in which they got paid for business outcomes UDWKHU WKDQ HĚ?RUW 2Q WKH %32 VLGH D IHZ RI WKH SURFHVVHV UHODWHG WR LQGXVWULHV GLUHFWO\ DĚ?HFWHG E\ WKH UHFHVVLRQ RU industries directly responsible for recession (like mortgage processing, title management, etc.) almost vanished. In other DUHDV ZKHUH %32 SDUWQHUVKLSV ZHUH DOUHDG\ XQGHU ZD\ WKH service providers were tasked with delivering business outcomes
2010 GLOBAL SERVICES 100 STUDY
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LQ HĚ?HFW LV about setting the ‘new agenda’ or realizing the ‘new normal’
at lower cost. There were very few bright spots, if at all, in both ,7 VHUYLFHV DQG %32 7KH PDUNHW KLW ERWWRP LQ WKH ͕UVW KDOI RI DQG WKHQ VWDUWHG recovering in the second half of 2009. In fact, the industry put up an impressive performance in the last quarter of 2009, with the PDUNHWpV WRWDO FRQWUDFW YDOXH 7&9 UHDFKLQJ % DQ LQFUHDVH of 47 percent sequentially and 8 percent year-over-year and the best quarterly performance since the second quarter of 2008, DFFRUGLQJ WR ͕JXUHV IURP 73, +RZHYHU 73,pV UHSRUW VWDWHG “Full-year 2009 results could not overcome the market’s weak VKRZLQJ GXULQJ WKH ͕UVW WZR TXDUWHUV 7&9 IRU WKH \HDU GHFOLQHG SHUFHQW WR % LWV ORZHVW SRLQW VLQFH r
FRUITS OF A CRISIS
A monumental crisis has a monumental impact on the dynamics of industry. So did the recession change several rules in global sourcing, which led to new behaviors both on the clients’ and on the service providers’ end. In 2010, we see the permanence RI WKHVH EHKDYLRUV ZKLFK LQ HĚ?HFW LV DERXW VHWWLQJ WKH oQHZ agenda’ or realizing the ‘new normal’, whatever you call it. )URP DQ HĚžFLHQF\ SRLQW RI YLHZ EX\HUV KDYH EHHQ ORRNLQJ DW consolidating the number of vendors they have to deal with. At
GLOBAL COVERAGE
86 DQG &DQDGD ,QGLD &KLQD (XURSH /DWLQ $PHULFD $VLD
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Category 1M-10M
Aggregate Revenue 2009 (in $M) 55
10M-100M
1393
0 %
12917
%
58999
Total
GLOBAL COVERAGE
0 WR 0 0 WR 0 0 WR % %
the same time, buyers have also started splitting their scope and engaging with a broader set of specialist vendors. This trend, known as multisourcing, has given access and opportunity to many mid-tier vendors but it has also led to reduction in value and duration of outsourcing contracts. This has led to more competition amongst vendors. The recession also brought into focus many issues related to FRQWUDFWV 6/$V SHUIRUPDQFH PDQDJHPHQW DQG SULFLQJ 3ULFH renegotiations became all too common. More importantly, most vendors had to deliver on outcome-based pricing. Along with pricing, practices about risk management and governance became topics of interest, moving from being concepts to practices. Other factors not related to recession, like the
2010 GLOBAL SERVICES 100 STUDY
Gain agility. Propel your competitive advantage. Our outsourcing and transformation solutions help organizations gain agility-the agility to innovate, adapt to the changing business climate and to respond proactively to customers. We analyze, model and deploy the right combination of capabilities, people and tools to achieve the desired results. EXL’s customized solutions leverage deep domain knowledge, global delivery network, onshore and offshore resources and capabilities in operations management, analytics, risk and financial management, process reengineering to help companies get to the next level of excellence. Outsourcing # Finance and Accounting # Legal Processes Outsourcing # Collections # Customer Service # Transaction Processing Transformation # Decision Analytics # Operations and Process Excellence # Risk and Financial Management To know more, visit us at www.exlservice.com or write to us at: marketing@exlservice.com 280 Park Avenue, 38th Floor, New York, NY 10017, U.S.A. T: +1.212.277.7100, F: +1.212.277.7111 www.exlservice.com
Š ExlService Holdings, Inc. 2006-2010
potential of cloud computing and its impact on delivery of VHUYLFHV LQWHJUDWLRQ RU FRQYHUJHQFH RI ,7 DQG %32 0 $V between service providers, maturing of service providers from Central and Eastern Europe, Latin America and China, threatened to change the landscape of the services industry. During this entire episode, the service provider community was both resilient and adaptive. The storms they braved were far more severe than the ones faced by the buyers. These are the Global Services 100 companies, the list of 100 companies that will be released in the last phase of this study.
GS100: RECOGNIZING AND CELEBRATING SERVICE PROVIDER EXCELLENCE
7KH *OREDO 6HUYLFHV LV DQ HĚ?RUW WR UHFRJQL]H DQG FHOHEUDWH service provider excellence. It enlists service providers who possess the maturity to deliver high standard services in IT DQG %32 XVLQJ WKH JOREDO GHOLYHU\ PRGHO 7KH *6 VHUYLFH providers possess many other attributes that lead to market leadership and the study is intended to take a closer look at these. This year we had over 150 companies that participated in the study and voluntarily shared a lot of quantitative and qualitative information about themselves. The absence of a few Tier 1 companies like Accenture, ,%0 + 3 DQG &RJQL]DQW DPRQJVW RWKHUV is explained either by their unwillingness to share data due to policy or by their XQZLOOLQJQHVV WR SXW LQ WKH HĚ?RUW UHTXLUHG WR SDUWLFLSDWH )URP D VWDWLVWLFDO VLJQLÍ•FDQFH point of view, the study represents relevant samples across all categories (revenue bands) of companies. Therefore, the REVHUYDWLRQV UHPDLQ VWDWLVWLFDOO\ VLJQLÍ•FDQW and conclusive.
2010 GLOBAL SERVICES 100 STUDY
Clear blue water…between you and your competitors When the moment comes to step up the stroke rate, your whole team needs to respond in perfect harmony…maximising performance together. Winning as a team. We see ourselves as part of the team, the engine room – giving you the most effective business processing services across the functions you need, precisely when you need them.
Xchanging provides procurement, accounting, human resources and technology services across industries. These include banking, insurance, manufacturing, retail and real estate among others. We combine functional expertise with deep industry domain knowledge to provide specific outcomes for our customers.
Xchanging is one of the largest and fastest growing business processors. With a wide range of multinational customers in 42 countries and employing over 8,000 people, we are a truly global company.
Xchanging – Sponsor of the Oxford and Cambridge University Boat Race The 2011 Xchanging Boat Race takes place on Saturday 26 March 2011. Watch the 157th Race live on BBC1
Global Business Processing
www.xchanging.com
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2008 (in $M)
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0 0
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0 0
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1B+
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2010 GLOBAL SERVICES 100 STUDY
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FIG.2 Country Revenues North America Latin/ South America EMEA Asia Japan Australia
0 0
0 0
0 %
1B+
4
7
29
27
14
7
9
10
1
0
1
0
3
1
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2010 GLOBAL SERVICES 100 STUDY
3
FIG. 3: TOP 5 FASTEST GROWING COMPANIES ($10M TO $100M)
No
Company
Country
1
%OHXP ,QF
China
2
Corbus
86$
3
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No
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Country
1
+LOGHEUDQGR
0H[LFR
2
$HJLV /LPLWHG
,QGLD
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2010 GLOBAL SERVICES 100 STUDY
4
Contract Sizes: The Lifeline of the Business Contracts below $25M continue to be the most important, even as ITO and BPO contract sizes are shrinking. ED NAIR
Contracts are the lifeline of the outsourcing business: the number RI FRQWUDFWV VLJQLÍ•HV WKH JHQHUDO pace of business and the size of contracts (in terms of total contract value and annual contract value) denotes the overall momentum of the industry. It is very clear that contract sizes of less than $50 M (total contract value) are the mainstay of the industry. This is more so for companies in the mid-tier. The dynamics of the band of contract sizes less than $50M are far more interesting. Unfortunately, this UHVHDUFK GRHV QRW RĚ?HU PXFK visibility into that band. Hence, we look at some published research from TPI Inc., a sourcing research and advisory company that tracks contracts on a quarterly basis. From this, we can infer that contract sizes less than $25M are important for not only the mid-tier
2010 GLOBAL SERVICES 100 STUDY
‘‘
There were nearly 600 contracts with total contract value of more than $25M in 2009. ITO contracts clearly led the way.
FIG.1 AREA
ITO
Company Size
BPO
1M10M
10M100M
100M1B
1B+
1M-10M
10M100M
100M1B
1B+
Less than $50M
197
1203
6260
396
76
337
2404
534
$51-$99M
5
26
52
16
2
1
44
52
0
16
8
0
0
4
10
Contract Size
$100M$299M
companies but also for Tier 1 companies. There were nearly 600 contracts with total contract value of more than $25M in 2009. ITO contracts clearly led the way with at least three out of four contracts being an ITO contract, though this is not the case in Fig.1 in the $1B plus category because the study sample includes more BPO companies in the $1B plus category. Relative Percent of Total ContractsAwarded by TCV Band
2005
2006 2007
2008
2009
66% 68% 67% 69% 53%
24%
Less than $100M
16% 15% 18% 16%
$100M-$199M
23%
18% 18% 16% 15%
Greater than $200M
Average TCV ($M) of Industrywide Contracts > $25 M
2005
2006 2007
2008
2009
231 201 145
148 140 127
All Industrywide Contracts
173 161 147 142
157 105
ITO
2010 GLOBAL SERVICES 100 STUDY
126 128 97
BPO
2
The above slide from TPI’s presentation clearly shows that from 2006 onwards contract sizes have been shrinking. For example, in 2009, nearly 70 percent of the contracts were less than $100M in 7&9 FRPSDUHG WR SHUFHQW LQ 7KH ͕JXUH DOVR VKRZV WKDW 2009 was a tough year with both ITO and BPO at lowest average 7&9 OHYHO LQ WKH SDVW ͕YH \HDUV
FIG.2 Quarter
# of Contracts > $25 M TCV
Area ITO
BPO
1Q2009
141
101
40
2Q2009
148
118
30
3Q2009
140
108
32
4Q2009
168
110
58
Total
597
437
160 Source: TPI
2010 GLOBAL SERVICES 100 STUDY
Spread of Global Delivery Centers India, Philippines and the U.S. are the three largest locations in terms of number of people deployed. ED NAIR
‘‘
The number of people deployed in India is far higher than the total number deployed in the other 32 countries.
India, Philippines and the U.S. are the three largest locations in terms of number of people deployed. India has a gigantic majority and heavily polarizes the distribution to the extent that the number of people deployed in India is far higher than the total number in the other 32 countries. On an industry-wide basis, this would again hold true because companies like IBM, Accenture, HP, Cognizant, Capgemini, which are not part of this sample also have India as their largest locations.
2010 GLOBAL SERVICES 100 STUDY
FIG. 1: TOP 20 LOCATIONS Rank
Country
Total
1
India
514157
2
Philippines
97740
3
United States
42808
4
China
34672
5
Canada
32690
6
England/UK
23494
7
Brazil
10213
8
Germany
9269
9
Australia
8544
10
Mexico
8412
11
Ukraine
5816
12
Russia
5113
13
Belarus
4534
14
Chile
3572
15
Sri Lanka
3317
16
Argentina
3241
17
Malaysia
2868
18
South Africa
2855
19
Singapore
2833
20
Poland
1963
FIG. 1: NEXT 10 TOP LOCATIONS Rank
Country
21
Costa Rica
22
Japan
23
Hungary
24
Romania
25
Bulgaria
26
Czech Republic
27
Vietnam
28
Uruguay
29
Ireland
30
Egypt
2010 GLOBAL SERVICES 100 STUDY
2
Analysis of Risk Management Across Segments Cross-border project development and management system, automated production control, reusable assets, and focus on ‘people’ is the new mantra for managing risks. ASHWIN RAZDAN
The last decade witnessed a substantial growth in outsourcing. Existing service providers evolved into becoming market leaders and many new ones took birth to address the need of niche markets. The dawn of recession compelled the industry to adopt new practices and embrace automation to improve productivity at various stages in a project lifecycle. The patience level of the customer dropped. It was important to deliver. Hence, service providers (at all levels) began analyzing risks more seriously and built impressive mitigation strategies. Most Band 1 (with annual revenue between $1M-10M) companies continue WR GHSHQG RQ WKLUG SDUW\ FHUWL͕FDWLRQ (like ISO) to manage security risks. 46 percent of survey respondents in this category claimed to have unique employee assessment systems, proprietary career development systems, DQG IUHH FHUWL͕FDWLRQ DQG HGXFDWLRQ IRU their employees to manage increasing attrition rates. A common practice
2010 GLOBAL SERVICES 100 STUDY
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Over 80 percent of Band 4 ($1B+ revenue) companies have PDGH VLJQLÍ•FDQW investments in multiple areas to mitigate risks associated with labor and nonlabor operations costs.
noticed across this band is the usage of reward program for employees. 15 percent routed projects to delivery centers at cheaper locations when labor costs went up, one of the favorite destinations for this being China’s tier 2 cities. The trend noticed in Band 2 (companies with annual revenues EHWZHHQ 0 0 ZDV VLJQLÍ•FDQWO\ GLĚ?HUHQW &RPSDQLHV depend highly on technology to manage risks associated with labor and non-labor operations costs. Over 70 percent have a system for production control where cost of services, projects DQG EDFN RĚžFH LV UHJLVWHUHG 7KLV LQIRUPDWLRQ LV SHULRGLFDOO\ analyzed and contrasted with the estimated budgets for each operation, and actions are established to control the cost level, avoiding deviations from the established thresholds. 18 percent maintain a dedicated audit team that ensures every project team complies with all policies set by the company and its clients. Employees working for this band are often subject to desktop inspections at any time, and the audit group performs random inspections periodically. All employees are required to sign an LQWHUQDO 1'$ DQG DOVR FOLHQW VSHFLÍ•F 1'$V Most service providers manage risks by adhering to global standards such as ISO, COPC, CMM and PCMM. Adopting WKHVH PRGHOV HQVXUHV WKDW WKHUH DUH PHFKDQLVPV GHÍ•QHG WR capture any failures or non-performances proactively. These monitoring mechanisms include tools such as internal and external audits, dashboards, quality score cards, management reviews etc. which ensure failure avoidance in the standard procedures. A few use online HR systems to statistically predict and analyze the labor cost. These costs are monitored and analyzed in real time at corporate level. Band 3 (with annual revenue between $100M-1B) and Band 4 (with annual revenue of over $1B) companies OD\ VLJQLÍ•FDQW IRFXV RQ WKH JOREDO GHOLYHU\ PRGHO Excellent coordination is maintained between RQVLWH RĚ?VLWH DQG RĚ?VKRUH GHOLYHU\ ORFDWLRQV WR SURGXFH D ORZ ULVN FRVW HĚ?HFWLYH SUHGLFWDEOH
2010 GLOBAL SERVICES 100 STUDY
3
project outcome. Over 80 percent of Band 4 companies KDYH PDGH VLJQL͕FDQW LQYHVWPHQWV LQ PXOWLSOH DUHDV WR mitigate the risks associated with labor and non-labor RSHUDWLRQV FRVWV 5HXVH KDV EHHQ LGHQWL͕HG DV DQ integral part of the organization strategy to improve productivity. Development of tools, assets, prototypes and references to the single source of ‘legacy’ information ensures that the project teams continually deliver high quality and consistent services leading to a lower cost of software delivery. Further, 40 percent of respondents continue to hire fresh talent in great numbers from local universities to keep labor costs low. Only a handful use proprietary tools that accurately identify and mitigate risk as well as determine appropriate contingency dollar estimates. 5 percent also use key performance indicators that provide comprehensive real-time data and statistical analysis on individual performances.
2010 GLOBAL SERVICES 100 STUDY
3
HR and Employees Segment Analysis While increase in head count, and emphasis on rewards and recognition programs remain the highlights this year; cultural compatibility/acclimatization for expats and lodging cost, are the primary restraining factors for moving human resource globally. ASHWIN RAZDAN
The analysis of HR practices and employees during the GS100 study clearly shows signs of a recovering economy. Last year there was a substantial increase in hiring across the service provider landscape. While the average increase in head count has been 23 percent across survey respondents; Band 1 (with annual revenue between $1M-10M) companies saw the highest growth at 31 percent and Band 3 (with annual revenue between $100M-1B) had the least with 16 percent. 2YHU WKH ODVW RQH \HDU VHUYLFH SURYLGHUV PDGH VLJQLÍ•FDQW investments to decrease the attrition rate, the top two areas
2010 GLOBAL SERVICES 100 STUDY
‘‘
Last year service providers made significant investments to decrease attrition rate, mostly through a more comprehensive reward and recognition program, and bonuses.
for this being a more comprehensive reward and recognition program, and increase in bonuses. This was closely followed by healthcare benefits and rotation among project teams. Nearly 63 percent in Band 1, focused on community service programs while equity or stock ownership programs led the way in Bands 2 (with annual revenue between $10M-100M) and 3. While over 70 percent of companies have an initial training program of over 3 weeks and nearly 55 percent have an annual ongoing training program for 10 days and above; nearly 5 percent still continue to have the same for less than 4 days. The ratio of employees to HR personnel stands at 74:1. It is significantly higher in the case of Band 4 (with annual revenue of over $1B+) with 117 employees to a single HR personnel, and 49:1 for Band 1 companies.
Number of days of ongoing training per year 35 30 25 20 15 10 5 0
Over 15 days
10-15 days
5-9 days
2010 Global Services 100 Study
3-4 days
Less than 3 days
Increasingly, companies have realized the potential of rotating their project team across destinations. It has not only decreased attrition rates but in many ways enhanced the skill-sets of high performing individuals. However, there are a number of restraining factors for such a campaign. Almost 57 percent companies believe that cultural compatibility/ acclimatization for expats is the leading constraint followed closely by lodging costs. Though these factors continued to be a restraining factor amongst companies in Band 1, 2 and 3, it was not the case in majority of the Band 4 companies. 33 percent of companies in the latter category thought of housing availability, quality and security for expats as the prime restraining factor.
restraining factors for moving human resource globally 40
30
20
10
0
1. Loading Cost
2. Cultural Compatibility/ Acclimatization for Expats
2010 Global Services 100 Study
3. Housing availability, quality & security for Expats
4. Access to health care/ Insurance Planning
36
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2010 GLOBAL SERVICES 100 STUDY
ITO ANALYSIS
and Trends
Development Declines, Maintenance Promises to Grow Agile methodologies, the pressure of using the cloud, rising customer expectations, and the need for a multi-sourcing strategy kept vendors on their toes last year. ASHWIN RAZDAN
‘‘
The larger portion of the UHFRYHU\ ZLOO EH FRQWULEXWHG E\ the application management and maintenance contracts VFKHGXOHG WR EH renewed this year.
The year 2009 pushed the vendors to a variety of limits. Apart IURP UHGXFLQJ FRVW WKH\ ZHUH FRPSHOOHG WR RĚ?HU PRUH IRU OHVV EH LQQRYDWLYH ZKHWKHU WKH FOLHQW FROODERUDWHG IRU WKH LQQRYDWLRQ RU not), and focus on enhanced governance and risk management. :KLOH SULFLQJ FRQWLQXHG WR SOD\ D VLJQLÍ•FDQW UROH LQ WKH UHFHVVLRQDU\ HQYLURQPHQW VHUYLFH SURYLGHUV ZLWK JUHDWHU VWDELOLW\ strong existing relationships, improved technology and multiVKRUH RSHUDWLRQV WR GHFUHDVH ULVN VDZ D UHDVRQDEOH LQFUHDVH LQ their revenue.
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Last year truly set new rules for the game; larger long term GHDOV ZHUH EURNHQ DQG DZDUGHG LQ VPDOOHU SDUWV :KLOH WKLV ZLOO XQGRXEWHGO\ DGG HQRUPRXVO\ WR WKH YROXPH RI FRQWUDFWV VLJQHG annually, it will also give smaller vendors a chance to compete on D OHYHO SOD\LQJ Í•HOG ZLWK WKH ODUJHU ODERU LQWHQVLYH FRPSDQLHV A leading trend in the ADM industry is the rise of specialized YHQGRUV $ QXPEHU RI VHUYLFH SURYLGHUV LQ (DVWHUQ (XURSH DQG Russia continue to specialize in selected areas of ADM and are JLYLQJ WKH ELJJHU $VLDQ SOD\HUV D UXQ IRU WKHLU PRQH\ 2Ě?VKRULQJ LV QRW WKH RQO\ RSWLRQ WKH EX\HUV KDYH DQ\PRUH The application development industry is getting more dynamic DQG DJLOH LQ QDWXUH 7KLV LV PDNLQJ URRP IRU Í–H[LEOH OHVV oULJLGp process oriented vendors. This includes onshoring, using the SRWHQWLDO RI WKH FURZG JOREDO FURZGVRXUFLQJ DQG UXUDO VKRULQJ :LWK JUHDWHU LQYHVWPHQW E\ WKH JRYHUQPHQW RI WKH 8QLWHG 6WDWHV RQ VSUHDGLQJ EURDGEDQG WR UXUDO DUHDV DQG WKH FXOWXUH RI KRPH EDVHG MREV UXUDO VKRULQJ LV EHFRPLQJ SRVVLEOH DQG KHOSLQJ \RXQJ $PHULFDQV ZLQ EDFN MREV *UHDW HĚ?RUW LV EHLQJ SXW LQ E\ FRPSDQLHV VXFK DV 5XUDO $PHULFD 2QVKRUH 6RXUFLQJ ,QF 6\VWHPV ,Q 0RWLRQ LQ WKLV DUHD &KULVWRSKHU +\WU\ 'HUULQJWRQ &(2 5XUDO $PHULFD 2QVKRUH 6RXUFLQJ ,QF VD\V q7KH DYDLODELOLW\ RI UXUDO $PHULFDQ WDOHQW ZKLFK FDQ EH DFTXLUHG DW D FRVW SHUFHQW OHVVHU WKDQ LQ WKH XUEDQ DUHDV QRZ PDNHV UXUDO $PHULFD DQ H[FHOOHQW RXWVRXUFLQJ YHQXH 7KLV KDV EHHQ PDGH SRVVLEOH E\ WKH VSUHDG RI EURDGEDQG ,QWHUQHW VHUYLFHV 7R IXUWKHU HQFRXUDJH WKH JURZLQJ WUHQG WKH JRYHUQPHQW KDV DOORFDWHG % WR LPSOHPHQW EURDGEDQG in rural areas. Over the next few years, you will see millions of UXUDO EDVHG ORZ FRVW $PHULFDQV HQWHULQJ WKH YLUWXDO ZRUNIRUFH r
2010 GLOBAL SERVICES 100 STUDY
These new strategic low-cost outsourcing models (along ZLWK GHFOLQH LQ WKH JOREDO GHYHORSPHQW RI DSSOLFDWLRQV DUH slowly eating into the market share of the traditional service SURYLGHUV )RU LQVWDQFH %DQG FRPSDQLHV ZLWK % WXUQRYHU UHVSRQGHQWV WR WKH *6 VXUYH\ H[SHULHQFHG DQ DJJUHJDWHG GHFOLQH RI SHUFHQW LQ UHYHQXH JHQHUDWHG IURP DSSOLFDWLRQ development and maintenance. A similar negative growth was REVHUYHG LQ %DQG FRPSDQLHV ZLWK 0 % WXUQRYHU LQVSLWH RI D PDUJLQDO JURZWK RI SHUFHQW LQ WKH UHYHQXH IRU ,7 VHUYLFHV $ 73, UHSRUW LQGLFDWHG VHUYLFH SURYLGHUV ZLOO FRQWLQXH WR QHHG GLĚ?HUHQW JR WR PDUNHW VWUDWHJLHV IRU HDFK JHRJUDSKLF UHJLRQ :KLOH WKH ,72 PDUNHW LQ WKH $PHULFDV KDV EHHQ IDLUO\ FRQVLVWHQW IRU WKH ODVW WKUHH \HDUV (XURSH KDV QRZ VXUSDVVHG LW VHWWLQJ a record for the highest spending in RQH \HDU DQG $VLD 3DFLÍ•F KDG LWV Í•IWK consecutive year of growth. $QRWKHU UHFHQW UHVHDUFK E\ 9DOXHVKRUH 6SDLQ WKH 6SDQLVK *RYHUQPHQW EDFNHG JURXS RI ,7 FRQVXOWDQFLHV KDV IRXQG that custom application development DQG PDLQWHQDQFH LV VHW WR EH WKH ELJJHVW RXWVRXUFLQJ IRFXV IRU 8 . EXVLQHVVHV RYHU WKH QH[W PRQWKV SHUFHQW RI ,7 GLUHFWRUV TXHVWLRQHG VDLG WKDW WKH\ already were, or planning to, outsource FXVWRP DSSOLFDWLRQV DV EXVLQHVVHV ORRN WR UHLQYHVW LQ ,7 IROORZLQJ WKH UHFHVVLRQ $ UHSRUW E\ ,'& DOVR LQGLFDWHG WKDW WKH (XURSHDQ ,7 VHUYLFHV PDUNHW LV GXH WR JURZ E\ SHUFHQW LQ ZLWK RXWVRXUFLQJ VHW WR EH D PDMRU FRQWULEXWRU
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:KLOH UHPDLQHG UHODWLYHO\ GU\ EURXJKW ZLWK LW UHFRYHU\ and many reasons to smile. The year so far has witnessed a QXPEHU RI VLJQLÍ•FDQW GHDOV LQ DSSOLFDWLRQ GHYHORSPHQW DQG maintenance. 6RPH RI WKH VLJQLĘŁFDQW GHDOV ZHUH DV IROORZV 2QH RI WKH ELJJHVW GHDOV WKLV \HDU ZDV DZDUGHG WR $YLQHRQ D UHODWLYHO\ OLWWOH NQRZQ VXSSOLHU RI ,7 VHUYLFHV WR 8 6 IHGHUDO
2010 GLOBAL SERVICES 100 STUDY
JRYHUQPHQW DJHQFLHV ,W VHFXUHG D VHYHQ \HDU agreement with a ceiling value of $2B from the Federal Aviation Administration (FAA). The deal is SDUW RI WKH )$$pV H)$67 FRQWUDFW YHKLFOH ZKLFK LV WKH DJHQF\pV SUHIHUUHG PHWKRG RI SDUWQHULQJ ZLWK VPDOOHU YHQGRUV ,Q -DQXDU\ WKH )$$ DZDUGHG D VLPLODU GHDO WR ,DQ (YDQ DQG $OH[DQGHU D VHUYLFH GLVDEOHG YHWHUDQ RZQHG EXVLQHVV 2WKHU VLJQL͕FDQW 8 6 SXEOLF VHFWRU FRQWUDFW ZLQV LQFOXGH WKRVH E\ GHIHQVH VSHFLDOLVWV 6$,& DQG &$&, ,QWHUQDWLRQDO ERWK IURP GLYLVLRQV RI WKH 86 1DY\ DQG 65$ ,QWHUQDWLRQDO IURP WKH 'HSDUWPHQW RI $JULFXOWXUH 65$pV WHDP RI VXEFRQWUDFWRUV RQ LWV 0 SURMHFW LQFOXGHV &6& ,%0 DQG 6$3 &RQVXOWLQJ $OVR D 86 SXEOLF VHFWRU FRQWUDFW DZDUG ZHQW WR 1RUWKURS *UXPPDQ ZKLFK SLFNHG XS D GHDO ZLWK WKH 1DWLRQDO *HRVSDWLDO ,QWHOOLJHQFH $JHQF\ WR ZRUN RQ LWV 7RWDO $SSOLFDWLRQ 6HUYLFHV IRU (QWHUSULVH 5HTXLUHPHQWV 7$6(5 SURJUDP 2XWVLGH RI WKH 8 6 SXEOLF VHFWRU WKLV \HDU DOVR VDZ D QXPEHU RI ODUJH ,7 VHUYLFHV GHDOV DQQRXQFHG LQ (XURSH 0XFK RI WKH DFWLYLW\ ZDV FHQWHUHG RQ WKH 1RUGLF UHJLRQ ZLWK PDMRU ZLQV IRU ORFDO YHQGRUV ('% %XVLQHVV 3DUWQHU (UJR*URXS DQG 7LHWR ('%pV GHDO YDOXHG DW RYHU 0 ZDV DZDUGHG E\ WHOHFRPPXQLFDWLRQV provider Telenor, and will see the companies working together to consolidate and virtualize a new technology platform that will GHOLYHU D PRUH ͖H[LEOH FRVW VWUXFWXUH DV ZHOO DV PRUH H̞FLHQW V\VWHPV IRU XVHUV (UJR*URXS PHDQZKLOH VHFXUHG D IRXU \HDU FRQWUDFW H[WHQVLRQ IURP LWV SDUHQW FRPSDQ\ 3RVWHQ 1RUJH WKH 1RUZHJLDQ 3RVWDO 6HUYLFH WR SURYLGH DSSOLFDWLRQ PDQDJHPHQW VHUYLFHV &RLQFLGHQWDOO\ ('% DQG (UJR*URXS DOVR DQQRXQFHG SODQV WR PHUJH FUHDWLQJ D FRPELQHG FRPSDQ\ ZLWK DQQXDO VDOHV of close to $2B. The ADM industry will continue to induce fresh skills and HYROYH RYHU WLPH WR WUDQVIRUP IURP VWULFWO\ R̝HULQJ D oVROXWLRQ WR WKH SUREOHPp WR D PRUH WKRXJKW RULHQWHG VWUDWHJLF VROXWLRQ 2QO\ WKHQ ZLOO VHUYLFH SURYLGHUV EH DEOH WR DGG YDOXH WR WKHLU FXUUHQW R̝HULQJV DQG KHOS WKHLU FXVWRPHUV JDLQ D FRPSHWLWLYH DGYDQWDJH 7KLV PD\ QRW EH DQ HDV\ VWHS WR DFFRPSOLVK DQG PDQ\ EX\HUV DUH DZDNHQLQJ WR UHDOL]H WKH SRWHQWLDO RI FROODERUDWLYH UH HQJLQHHULQJ IRU WKH PXWXDO EHQH͕W RI ERWK
2010 GLOBAL SERVICES 100 STUDY
4
GROWTH DRIVERS
6RPH RI WKH NH\ IDFWRU WKDW OHG WR WKH JURZWK RI WKH $'0 LQGXVWU\ DUH 0XOWL VKRUH GHOLYHU\ SUHVHQFH $ JUHDWHU QXPEHU RI VHUYLFH SURYLGHUV DUH QRZ ZLOOLQJ WR RĚ?HU D JOREDO GHOLYHU\ PRGHO WR FDVK LQ RQ WKH JOREDO H[SHUWLVH DQG WDOHQW WR DFKLHYH WKH FRVW EHQHÍ•WV their customers want. &ORXG FRPSXWLQJ ,W LV XQGRXEWHGO\ WKH QH[W VWHS WR PDNH DSSOLFDWLRQ GHYHORSPHQW DQG XVDJH PRUH FRVW HĚ?HFWLYH ,QFUHDVLQJO\ YHQGRUV DUH W\LQJ XS ZLWK FORXG VHUYLFH SURYLGHUV VXFK DV $PD]RQ *RRJOH 0LFURVRIW HWF WR RĚ?HU FXVWRP EXLOW applications on a virtual server. /HDQ SURFHVVHV The processes continue to evolve and will never get out of fashion. The leaner, the EHWWHU LV WKH QHZ PDQWUD $JLOLW\ DQG ʤH[LELOLW\ The deal VL]HV DUH EHJLQQLQJ WR VKULQN /DUJHU SURMHFWV ZLOO EH GLYLGHG LQWR D QXPEHU RI SDUWV 7KH UHTXLUHPHQWV ZLOO FRQVWDQWO\ change. The need for agility and Í–H[LELOLW\ KDV QHYHU EHHQ JUHDWHU 6HUYLFH SURYLGHUV FRQWLQXH WR adopt and emphasize on agile methodology and technology.
CHALLENGES & RISKS
Buyers expect vendors to share the risk. ,Q WKH FXUUHQW VFHQDULR RI HFRQRPLF UHFRYHU\ FOLHQWV DUH EHLQJ RYHU FDXWLRXV ,Q DGGLWLRQ WR ORZ FRVW WKH EX\HUV DUH HYDOXDWLQJ WKH YHQGRUVp FDSDELOLW\ WR LQQRYDWH DQG DEVRUE ULVN 7KDW LV YHQGRUV QRW RQO\ ZLOO KDYH WR SRUWUD\ H[SHUWLVH EXW VWDELOLW\ DQG WKH ZLOOLQJQHVV WR VKDUH ULVN GXULQJ WKH GHYHORSPHQW SKDVH ,QFUHDVLQJO\ WKH FXVWRPHU YHQGRU UHODWLRQVKLS LV transforming into one of partnership that focusses on usage of smart technologies like cloud computing, improvisation to meet FKDQJLQJ WUHQGV DQG VKDULQJ SURÍ•WV
2010 GLOBAL SERVICES 100 STUDY
MARKET RISK
$V FRPSDUHG WR ,7 VWRFNV DUH QHDUO\ SHUFHQW KLJKHU WKLV \HDU 2XWVRXUFLQJ JLDQWV OLNH ,QIRV\V DQG :LSUR KDYH PDUNHW YDOXHV RI % HDFK +RZHYHU DQDO\VWV ZDUQ WKDW ,7 VWRFNV PD\ EH UHDG\ IRU D EUHDN 6WRFN YDOXDWLRQV XQWLO QRZ KDYH VXUSDVVHG FRPSDQ\ JURZWK UDWHV VD\ UHSRUWV 7KRXJK ,QGLD LV H[SHFWHG WR restrict credit in the near future, it has a high price/earnings ratio RI :LSUR IRU LQVWDQFH WUDGHV WLPHV LWV HDUQLQJV DQG KDV D SURMHFWHG ORQJ WHUP JURZWK RI SHUFHQW 6LPLODUO\ 7&6 WUDGHV WLPHV LWV HDUQLQJV ZKLOH ,QIRV\V WUDGHV WLPHV LWV HDUQLQJV t WKLV LV DOPRVW WZLFH ,QIRV\Vp ORQJ WHUP JURZWK RI SHUFHQW OTHER RISKS
6RPH RI WKH RWKHU ULVNV WKDW FRQWLQXH WR GLVWXUE WKH VWDELOLW\ RI WKH RĚ?VKRUH $'0 LQGXVWU\ LQFOXGH SURWHFWLRQLVP LQ WKH 8QLWHG 6WDWHV RUGHU GHOD\V HFRQRPLF XQFHUWDLQW\ DQG D SUREDEOH decline in the dollar. Further, governance of processes and talent, DFURVV GLĚ?HUHQW ORFDWLRQV ZLWK D YDULHW\ RI FXOWXUHV ODQJXDJHV and time zones is proving critical for smooth operations. An LQHĚžFLHQW VWUDWHJ\ DQG ODFN RI DGHTXDWH UXOHV IRU JRYHUQDQFH PD\ GLVLQWHJUDWH WKH JOREDO GHOLYHU\ PRGHO ,Q VSLWH RI D QXPEHU RI IDFWRUV DQG XQFHUWDLQW\ WKH GHPDQG VWLOO H[LVWV DQG WKH $'0 PDUNHW LV UREXVW HQRXJK WR SRVW D KHDOWK\ UHFRYHU\ LQ +RZHYHU WKH ODUJHU SRUWLRQ RI WKLV UHFRYHU\ ZLOO EH FRQWULEXWHG E\ WKH DSSOLFDWLRQ PDQDJHPHQW DQG PDLQWHQDQFH FRQWUDFWV VFKHGXOHG WR EH UHQHZHG WKLV \HDU :KLOH EX\HUV continue to take genuine cost cutting measures, application development is expected to fall (as compared to most years in the last decade). 7KH \HDU VHHPV WR EH WKDW RI higher maintenance contracts (of course, negotiated), reduced pricing, SDUWQHUVKLS EDVHG UHODWLRQVKLSV increased use of innovation for delivery, relaxation in volume commitments and the maturity of a JOREDO GHOLYHU\ PHFKDQLVP
2010 GLOBAL SERVICES 100 STUDY
Enterprise Applications: Depressed and Challenged 2009 was not a great year for the enterprise applications industry. While the bigger players did barely better than 2008, the industry atlarge underperformed. While we take a closer look at what happened; undoubtedly, its time to leverage the subscription-based revenue model. ASHWIN RAZDAN
The decline in the global economy led the enterprise application software market to shrink by 6 percent. Like the rest of the industry, business leaders implemented cost containment and reduction strategies as consolidation occurred across customers and suppliers. Some applications fared better than others. ERP, supply chain, and product lifecycle management (PLM) saw declines above 7 percent, while supply management, human capital management (HCM), and CRM saw declines of less than 4 percent. According to a recent AMR research report, there were also a mixed bag of winners and losers within each application segment. ERP suite vendors like SAP, Oracle, and Lawson, with high revenue shares, weighed the markets down
2010 GLOBAL SERVICES 100 STUDY
‘‘
The year 2010 may not be one of the best years for new deals in this sector, but the industry can indeed expect increased activity in the maintenance of installed applications and their upgradation.
with dismal license numbers. In most cases, they were able to keep their steady maintenance revenue at or slightly above 2008 levels, which helped mitigate overall revenue declines. Conversely, companies like salesforce.com, Descartes, Ariba, and Concur posted positive revenue gains that are attributed to the appeal of their subscription models. :KLOH WKH OHDGHUV LQ WKH LQGXVWU\ VWURYH DQG MXJJOHG WR Í•QG more customers, service providers re-packaged enterprise applications, bundled with a number of home-grown features. These ‘enriched’ enterprise applications not only served the purpose but also assured greater value for the investment. 9HQGRUV RĚ?HUHG LPSOHPHQWDWLRQ RI WKH DSSOLFDWLRQ UROORXW upgrade, and migration and support for various products like SAP R/3, SAP ERP, SAP CRM, SAP SRM, SAP SCM, SAP BI, BO, NetWeaver. Many also provided the full spectrum of ecommerce services on SAP R/3 / SAP ERP, including SAP consulting analytics and portals. 7KHVH VR FDOOHG oHQULFKHGp VROXWLRQV ZHUH RĚ?HUHG ODUJHO\ around the two largest product suites,SAP & Oracle. Many a times they also covered IBM Maximo, TIBCO, WebMethods, Pega, Savvion, SalesForce.com, Clarify, Amdocs as well as Microsoft Dynamics. The range of such services included evaluation of the ‘need’, providing training and support in their implementation, global rollout and supporting their upgrades and maintenance on an ongoing basis. 7KHVH RĚ?HULQJV OD\ WKH EDVLV IRU LQQRYDWLRQ DQG HQDEOHG business transformation by leveraging packaged software to process re-engineering, re-designing of application architecture and organization change management. Services continued to evolve in areas such as Customer Relationship Management (CRM), Supply Chain Management (SCM), Human Capital Management (HCM), Corporate Performance Management (CPM), Business Process Management (BPM) and Enterprise Application Integration. Some of the companies that engaged such vendors include a leading global agrochemical company, a Fortune 100 wireless and broadband communications company, a leading sportswear and sports equipment manufacturer, insurance, banking and manufacturing & logistics sectors. Other specialized industries
2010 GLOBAL SERVICES 100 STUDY
WKDW FRQWLQXHG WR EHQH͕W ZHUH LURQ VWHHO LQGXVWU\ WREDFFR High-tech, consumer commodities, retail, electronics, car, garments, and mechanics. Not surprisingly, manufacturers remain the primary customers of the enterprise services industry. With the recession behind us now, government data is showing progress in GDP, manufacturing, and retail sales. This is a moment (not prolonged, of course) to rejoice. The year 2010 may not be one of the best years for new deals in this sector, but the industry can indeed expect increased activity in the maintenance of installed applications and their upgradation. These initiatives will help transform people, process, technology and systems to deliver more value. 287͆2)͆7+(͆%2;
Service providers continue to help clients with comprehensive, HĚžFLHQW DQG UREXVW VROXWLRQV that meet their unique requirements right from managing supply chains, devising CRM strategies, and deploying content management solutions to integrating enterprise-wide functions. Innovation will be demonstrated through a high level of application architecture and business process expertise in GHYHORSLQJ D KLJKO\ FRQÍ•JXUDEOH
2010 GLOBAL SERVICES 100 STUDY
system that allows organizations to automate their processes without customizing the software. TOP DELIVERY LOCATIONS
The GS100 study reveals the following as the most popular delivery locations for enterprise applications: O India O U.S. O Brazil The four fundamental factors that drive organizations to have a strategy for implementation of enterprise solutions is cost, collaboration, compliance and continuity. Greater cost pressure DQG VWLĚ? PDUJLQV LV FUHDWLQJ D PDUNHW IRU VXEVFULSWLRQ VRIWZDUHV ,QFUHDVLQJO\ ,7 FRVW UHGXFWLRQ LQ FDSLWDO DQG VWDĚžQJ VLPSOLÍ•HG upgrades and functionality additions, standardization, and initial and long-term cost savings are looking attractive, more so in a post-recessionary scenario. Subscription pricing models will continue to grow at a faster rate as compared to license models. The subscription model will
2010 GLOBAL SERVICES 100 STUDY
expand beyond the SMB market to larger corporations that are increasingly becoming more comfortable and willing to evaluate on-demand delivery options. It remains to be seen whether buyers will return to purchasing perpetual license of ERP integrated suites, or if they will move on to a model of buying departmental applications and monthly license fees. The outlook for capital spending is improving, with modest growth for IT spending anticipated in 2010. And while enterprise software lags behind overall IT, the outlook again looks bright for the enterprise software market. Geographically, emerging markets, especially Brazil, Russia, India, and China (BRIC), are expected to maintain their momentum, with their growth outpacing North America and Western Europe. Russia is lagging due to weaker demand. The 0LGGOH (DVW $VLD 3DFL͕F DQG /DWLQ $PHULFD DUH VHW WR FRQWLQXH their upward course. The midmarket remains a major growth avenue for enterprise application software, especially in the emerging markets. For now, vendors will have to treat an organization’s business processes as assets that can be designed, reused and exploited. Next-generation solutions, frameworks and accelerators are the need of the hour; in addition to adopting an iterative Agile development methodology.
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Use of plug-in, plug-out framework based on modular design and proprietary models like Value Realization Method (VRM™) are helping customers mea sure clear business value from their transformational programs.
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development and support capabilities. O 0DQ\ DUH RĚ?HULQJ 2Q 'HPDQG PRGHO WR KHOS FXVWRPHUV UHDOL]H EHWWHU YDOXH IRU
their investments.
2010 GLOBAL SERVICES 100 STUDY
5
New Products and New Markets Are the Growth Areas With increasing competition and availability of similar types of products DQG VHUYLFHV LQ WKH PDUNHWSODFH LQQRYDWLRQ DQG GLĚ?HUHQWLDWLRQ DUH JRLQJ to be critical factors for an organization to create a unique place and leapfrog the competition. Small and Medium enterprises (SMEs) are coming up as a huge market in the emerging geographies and one of the key growth drivers. SRUTHI RAMAKRISHNAN
The sharp downturn in the economy, belatedly hitting the outsourcing industry last year, forced the latter to reconsider their approach towards outsourced product development (OPD). Since early 2009, companies are shifting focus from cutting costs to retaining customers and enhancing existing relationships. 7KHUH LV JUHDWHU Í–H[LELOLW\ LQ RĚ?HULQJV IURP RXWVRXUFHG VHUYLFH
2010 GLOBAL SERVICES 100 STUDY
GATEWAY to the Global Sourcing of IT and BPO Services Connecting the global buyers and providers of IT and business process outsourcing services. Global Services, your own global media platform, not only helps you to choose your partner but also enables you to leverage its media solutions to make your outsourcing relationship work. Global Services’ authentic and on-time content facilitates right outsourcing partnerships. Our portfolio includes aQ H magazine, website, newsletters, events custom solutions.
The gateway to the global sourcing of IT and BPO services
globalservicesmedia.com
R&D SPEND OF COMPANIES IN SOFTWARE PRODUCT VERTICAL Global Software Product Market USD 300-320 Billion Total R&D Spend (15%) USD 45-48 Billion
A
Others (85%) USD 272-285 Billion
B
C
D
Concept (8%) USD 3.6 - 3.8 Billion
United States (73%) USD 32.9 - 35.0 Billion
Mature Products (75%) USD 33.8 - 36.0 Billion
Total In- House (95%) USD 42.8 - 45.6 Billion
Development (37%) USD 16.7 - 17.8 Billion
*Other Developed (12%) USD 5.4 - 5.8 Billion
New Products (25%) USD 11.3 - 12.0 Billion
Total Outsourced (5%) USD 2.3 - 2.4 Billion
QA/Testing (31%) USD 14.0 - 14.9 Billion
**Emerging Geo (15%) USD 6.8 - 7.2 Billion
Support/ Sustenance (23%) USD 10.4 - 11.0 Billion
India= USD 3.8 - 4.2 Billion China= USD 2.0 - 2.4 Billion
Note: 1. In- house includes offshoring to captive centers 2. Outsourced is only to 3rd party service providers * Western European countries and companies ** India, China, South East Asia, Central and Eastern European countries, Russia and others Source: Zinnov Analysis
providers, and an overall increased receptiveness to outsourcing in general. Globalization has resulted in product companies seeking new ways of doing business, learning new techniques, optimizing software manufacturing process, and making funds available for global initiatives. On the client side, now that every enterprise practices offshoring, cost advantage is no more a competitive advantage. Now companies are looking at gaining additional offshoring value, by reducing their R&D budget, or getting higher return on the same or incremental investments. The changing needs of customers towards SLA based assurance for software products, ubiquity, adoption of payper-use and integration of social media tools in enterprise environment are the primary drivers for software product
2010 GLOBAL SERVICES 100 STUDY
56
development companies today. With the increasing competition and availability of similar types of products and services in the marketplace, LQQRYDWLRQ DQG GLĚ?HUHQWLDWLRQ DUH JRLQJ WR EH FULWLFDO IDFWRUV for an organization to create a unique place and leapfrog the competition. Innovation could be in business models, products, frameworks all adding up to the creation of indispensable value to clients.
CHALLENGES FACED
Though independent software vendors (ISVs) maintained their spending in the early phase of the slowdown towards the end of 2008, the severity in the downturn forced many to freeze investments on new product development during 2009. +RZHYHU VLQFH WKH Í•UVW TXDUWHU RI 2XWVRXUFHG SURGXFW GHYHORSPHQW Í•UPV WKDW EXLOG SURGXFWV IRU ,69V DUH EHJLQQLQJ to see an increase in new project starts as customers start investing in next generation product development. According to Kaufman Brothers Equity Research, this could be, in part, due to temporary pent-up demand from projects frozen in 2009. Buyers are still being cautious about making any major upfront investments or undertaking any perceived high risk outsourcing HĚ?RUWV GXH WR ZHDN UHYHQXH JURZWK ISVs are facing multifaceted challenges- an intensely competitive market with ever shrinking product life cycles, growing technical complexities, shorter release cycles and a demand for faster time to market. Besides, in the aftermath of recession, they are now aiming at improving the quality of the product without increasing the cost of quality. Consequently, ISVs are actively considering outsourcing non-core functions like testing to cut costs quickly, avoid new capital investment, and improve product quality. In the production process they have to face several challenges at multiple levels: managing global design requirements, distributed design teams and vendors in diverse countries, and ensuring that localized products meet necessary statutes. Protecting product IP is also a major issue. Whilst coping up with all these issues, organizations need to focus on their core competencies.
2010 GLOBAL SERVICES 100 STUDY
GS100 VENDOR SPEAK O
Agile methodology being tailored to suit distributed development of products. At the same time continuously improving and updating older versions.
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Products being made Cloud/ SaaS enabled.
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Working on products which harness the convergence of computing and communications technologies. Looking into ‘greening’ technology.
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quickly ramp up in new markets. Aim to strike the right balance between proven and cutting-edge technologies, and thus considerably decrease time to market while ensuring high level of quality, reliability, and security. O
Relations with clients moving beyond the conventional vendor- client engagements to having a shared vision and joint investment in building partnership value, thus helping vendors expand their geographic reach.
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Best practices: adherence to internationally accepted and recognized quality standards like ISO9000:2000 and PMI. Strong emphasis on IP protection of customers/ clients with strong contractual agreements protecting IP rights.
NEW AVENUES OF GROWTH
The OPD industry is set to grow in the domains of analytical services, embedded software and engineering design services. The current economic situation has made Outsourced Product Testing more appropriate and attractive, while the WHVWLQJ SURFHVV LWVHOI KDV EHFRPH PDWXUH DQG PRUH RĚ?HULQJV DUH available from service providers. Besides, customers’ intolerance towards product quality issues, and new competition are leading more product companies to adopt the outsourced product testing initiative. Outsourced testing service providers are going up the value chain by developing reusable IP in the form of automated testing frameworks and employing the necessary skilled resources to serve customers and maintain their FRPSHWLWLYH HGJH 6HUYLFH SURYLGHUV KDYH EHFRPH PRUH HĚžFLHQW RYHU D SHULRG RI WLPH DQG RĚ?HU VHUYLFHV IDVWHU EHWWHU DQG PRUH FRVW HĚ?HFWLYHO\ FRPSDUHG WR DQ LQ KRXVH IXQFWLRQ 2XWVRXUFHG SURGXFW WHVWLQJ RĚ?HUV D VWUDWHJLF RSWLRQ WR ,69V to be prepared to scale new heights when market conditions improve. Software engineering teams are increasingly operating in a distributed environment. OPDs are realizing the need to invest in the intimate collaboration and goal alignment that true R&D requires. Most
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Companies currently earn only about 5-15 percent from new products, but this is expected to grow owing to the ease of delivery/ business through SaaS, SoA, software appliance etc.
,7 VHUYLFHV Í•UPV PDNH SRRU SURGXFW GHYHORSPHQW SDUWQHUV because they focus on compliance and optimization, which suppresses innovation.
FOCUS ON NEW PRODUCTS
R &D spend of companies in software product vertical is currently in the range of $ 45B – 48B i.e. 15 percent of their company revenue, according to a Zinnov research (based on annual company reports). Some of the small to mid sized companies (less than $1B in revenue) have been able to NHHS WKH 5 ' LQYHVWPHQWV ORZ DV WKH\ RĚ?VKRUH D VLJQLÍ•FDQW portion of their R&D to low cost destinations such as India and China. Such companies have more cost pressure and hence they are willing to move even the high end of the PDLC value chain towards emerging locations, says the study. But larger companies continue to keep most of the R&D investments (about 80 percent of total R&D investment in software) in the US as they believe that high quality talent to work on next JHQHUDWLRQ SURGXFWV LV WRXJK WR Í•QG LQ UHPRWH ORFDWLRQV This brings us to the phenomenon of increasing focus on new products. ISVs are today investing in developing new products in areas such as cloud computing, social networking, virtualisation and software-as-a-service (SaaS) among others. Companies currently earn only about 5-15 percent from new products, but the expectation from new products going forward is much higher owing to the ease of delivery/ business through SaaS, SoA, software appliance etc. This has led them to reduce spend on existing/ mature products, the Zinnov study says. The same study says that more development and QA/ testing work (low end of the value chain) related to mature products LV EHLQJ VHQW WR RĚ?VKRUH ORFDWLRQV KHQFH UHGXFLQJ WKH WRWDO investment on them. This has seen majority of companies increasing R&D spend in emerging geographies such as India, &KLQD 5XVVLD DQG (DVWHUQ (XURSH EHFDXVH RI WKH VLJQLÍ•FDQW FRVW advantage, availability of talent, maturity of vendor eco-system, SURFHVV LQQRYDWLRQV FROODERUDWLRQ WRROV HWF WKDW WKH ODWWHU RĚ?HU Besides, as they grow at a rapid pace, companies believe that these markets will play a critical role in their revenue growth as well.
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Thus management of mature products is set to provide immense opportunities of growth for third-party providers.
NEW TECHNOLOGIES AND PROCESSES
The ever competitive software product industry continues to witness new technologies sweeping the market, heightened consolidation waves and a move to utility based software delivery through Software as a Service (SaaS) and Web 2.0 technologies. SaaS has revolutionized the way ISVs deliver, manage and support software. According to an EquaTerra report, Saas as a hosted delivery model is appealing because of low upfront investment costs, ease of deployment, more robust functionality than existing buyer legacy or commercial software and continual and less burdensome upgrade process. Besides, SaaS can deliver services globally and support users from remote, RĚ?VKRUH JOREDO VHUYLFH GHOLYHU\ ORFDWLRQV The increasing pace of innovation has in turn shortened the life cycle of software products. Buyers today are more often employing a broader range of FKDQJH LQLWLDWLYHV VXFK DV LQWHUQDO SURFHVV LPSURYHPHQW HĚ?RUWV shared services centers and software as a service (SaaS) as a complementary or alternative means to outsourcing. More rapid and continual change, and even more diligent focus on SURFHVV HĚžFLHQF\ LV DQRWKHU aspect of the ‘new normal’, says the EquaTerra Echo: 1Q10 Edition report.
PARTNERSHIP MODELS
Industry leaders have realized the importance of collaboration to stay competitive and have started building their global product development ecosystem to
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6
outdo competitors. OPDs are using risk-reward partnership models and focus on transparent, metrics-driven value delivery so as to ensure complete alignment with clients’ business and R&D objectives. Through them they are touting their ability to move beyond service-level agreements to deliver services tied to customers’ business results--higher sales, lower costs, reduced errors. Service providers are establishing partnerships with global R&D product companies to help them enter into newer geographies. Larger companies are set to gain more investments in the Hub and Spoke model, whereby the captive plays the role of the hub and works with the partner ‘spokes’. THE ROAD AHEAD
Focus on end-market innovation requirements will help ISVs retain their competitive edge. To achieve their vision more ISVs will start using their engineering vendors as their value partners. The global delivery model is one of the key strategies being evaluated by providers, according to Zinnov. In the past 15 years, many R&D companies have successfully leveraged global sourcing to optimize their bottom line and improve their top line revenue. Due to these successes, more and more companies across the revenue spectrum are willing to leverage the R̝VKRULQJ RXWVRXUFLQJ PRGHOV IRU RSWLPL]DWLRQ Small and Medium enterprises (SMEs) are emerging as a huge market in the emerging geographies and one of the key growth drivers for IT services vendors. Deals are coming from vendors ZKR DUH ORRNLQJ WR R̝HU WKHLU HQWHUSULVH DSSOLFDWLRQ SURGXFWV on the SaaS model to target the small and medium business customers. As customers, SMEs are showing a huge appetite for FXVWRP VRIWZDUH RXWVRXUFLQJ DQG R̝VKRUH VRIWZDUH DSSOLFDWLRQ development. Increasingly new startups are capitalizing on the weightlessness of global-delivery to emerge as serious challengers to well-known organizations. These organizations have no manufacturing capacity of their own but are turning to the growing number of companies that cater to their very VSHFL͕F QHHGV 7KHVH VWDUWXSV QHDWO\ VLGHVWHS H[SHQVLYH
2010 GLOBAL SERVICES 100 STUDY
propositions such as opening development centers in prime ORFDWLRQV VXFK DV %DQJDORUH E\ IRUJLQJ SDUWQHUVKLSV ZLWK Í•UPV that specialize in it. However, industry experts are questioning the wisdom of startups outsourcing product development, citing problems in communicating and understanding customer needs, managing GLYHUVH WHDPV DW PXOWLSOH ORFDWLRQV DQG LQ GLĚ?HUHQW WLPH ]RQHV and intellectual-property protection, that is particularly a strong concern in China. They advise that startups stick to outsourcing testing or ancillary-product development, not core products. The days of OPD deals based on labor arbitrage as the crux are clearly over as buyers look for sourcing partners to help them accelerate new product development, shorten time-to-market and expand into new markets.
2010 GLOBAL SERVICES 100 STUDY
Infrastructure Management Continues to Be Hot The recession, while halting or slowing spending in other outsourcing segments, gave a boost to the outsourcing of critical IT infrastructure management services. But enterprise customers are taking a cautious, phased approach to cloud- based services. SRUTHI RAMAKRISHNAN
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Majority of growth in RIM is expected to come IURP R̝VKRULQJ midrange services, and network towers, likely to account for approximately 70 per cent of the overall opportunity.
Infrastructure outsourcing has been in news for the sheer amount of deal activity in the past two years. HCL signed a $350 M seven-year deal with Readers Digest, apart from similar deals with Nokia and Xerox. Wipro acquired Citi Technology Services for around $127 M, the deal including the latter’s commitment to outsource all future infrastructure management contracts to Wipro, potentially worth almost $1B over six
2010 GLOBAL SERVICES 100 STUDY
years. Year 2010 has already seen bigger names like Thomson Reuters, Singapore Exchange, Merck Sharp and Dohme (MSD) outsourcing their infrastructure installation and management in multi-million dollar deals. The recession, while halting or slowing spending in other outsourcing segments, gave a boost to the outsourcing of critical IT infrastructure management services, with more companies exploring new ways to save dollars. CIOs, over the past one year, have become more willing to take risks because of cost SUHVVXUHV ,7 VHUYLFHV Í•UPV FRQFXU $OVR WKH GHSHQGHQFH RI EXVLQHVV SURFHVVHV u VXFK DV +5 Í•QDQFH DFFRXQWLQJ OHJDO work — has increased on technology and companies want to keep pace with changing business models. The global IT infrastructure market has been growing exponentially over the past few years, across diverse industry verticals, including manufacturing, retail, hi-tech, media/ SXEOLVKLQJ WHOHFRP DQG Í•QDQFLDO LQVWLWXWLRQV 0RVW RI WKH big deals that have happened in IO since last year have come from these verticals. The infrastructure management market is expected to touch $180B by 2013. Industry watchers term LW WKH VHJPHQW ZLWK WKH JUHDWHVW RĚ?VKRUH SRWHQWLDO DKHDG RI application development maintenance and BPO.
GROWTH IN INFRASTRUCTURE OFFSHORING
2YHU WKH SDVW IHZ \HDUV LQFUHDVLQJ FRQÍ•GHQFH LQ UHPRWH management, as well as the spread of low-cost bandwidth and the wider availability of high-speed networks, spurred WKH H[SDQVLRQ RI LQIUDVWUXFWXUH RĚ?VKRULQJ LQ ,QGLD DQG RWKHU SDUWV RI $VLD DQG LQ (XURSH %XR\HG E\ WKHVH DGYDQFHV WKH RĚ?VKRULQJ RI ,7 LQIUDVWUXFWXUH ZRUN KDV JURZQ DW D FRPSRXQG annual rate of 80 percent since 2005, according to a 2009 McKinsey Quarterly report. Everest says that the success of Indian suppliers in extending WKH EHQHÍ•WV RI ODERU DUELWUDJH WR LQIUDVWUXFWXUH RXWVRXUFLQJ KDV translated into high growth rates for them. Industry players admit that until a few years ago, only remote infrastructure PDQDJHPHQW ZRUN ZDV FRQVLGHUHG IRU RĚ?VKRULQJ %XW WKH KLJK quality of work and processes employed by Indian outsourcers
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in delivery of Remote Infrastructure Management or RIM services are enabling them to now deliver end-to-end IT infrastructure management services. The top tier players have invested in training their infrastructure employees in LQGXVWU\ VWDQGDUG FHUWLÍ•FDWLRQV OLNH ,7,/ and ISO 9001:2000, 27001. 1HZHU ORFDWLRQV IRU RĚ?VKRULQJ KDYH DOVR emerged. The McKinsey Quarterly reports that unlike India, whose talent pool for mainframes is limited (though growing rapidly), Brazil has strong capabilities in this area, and a number of global vendors run mainframe centers of excellence there. Pan- European companies that require FrenchRU *HUPDQ VSHDNLQJ VXSSRUW VWDĚ? KDYH WKHLU VRXUFLQJ RSWLRQV LQ $IULFD DQG (DVWHUQ (XURSH ZKLFK PD\ KDYH deeper pools of talent to meet these specialized needs.
OFFSHORING CHALLENGES AND SOLUTIONS
2Ě?VKRULQJ DOVR KDV LWV DVVRFLDWHG SUREOHPV $FFRUGLQJ WR WKH McKinsey Quarterly, these include a tendency to ignore the VSHFLÍ•F QHHGV RI RĚ?VKRULQJ LQIUDVWUXFWXUH ZRUN LQDGHTXDWH ULJRU LQ KDQGOLQJ SURFHVV Í–RZV DQG VHUYLFH KDQG RĚ?V ZLWK partners, and a lack of clarity about the end-state operating model—what the operation will look like in 36 months. These can result in implementation delays, proliferation of service problems, and deferred or minimal savings. To overcome such challenges, companies must take an integrated approach to the global infrastructure delivery model—an approach that fuses long-term operating strategy with the practical mechanics of moving critical infrastructure FRPSRQHQWV RĚ?VKRUH ,Q D UHFHVVLRQDU\ HQYLURQPHQW LQ ZKLFK RĚ?VKRUH SURJUDPV FRXOG EH SROLWLFDOO\ VHQVLWLYH LW LV PRUH important than ever to proceed deliberately. Despite such problems, the report found that some large organizations locate 50 percent or more of their IT infrastructure ZRUNIRUFH RĚ?VKRUH 7KH\ DFKLHYH WKHVH UDWHV E\ VHSDUDWLQJ UROHV
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WKDW DUH VXĚžFLHQWO\ VWDEOH DQG PDWXUH HQRXJK WR EH RĚ?VKRUHG ZLWKRXW PRGLÍ•FDWLRQ IURP WKRVH ZKRVH UHJXODWRU\ VHFXULW\ RU WHFKQLFDO FRQVWUDLQWV PDNH WKHP KDUG RU LPSRVVLEOH WR RĚ?VKRUH
RIM DISPLAYS BIGGEST GROWTH POTENTIAL
Remote Infrastructure Management or RIM is set to emerge as the ELJJHVW PDUNHW RSSRUWXQLW\ DFFRUGLQJ WR D 1$66&20 0F.LQVH\ Report. In the last 10 years, there has been rapid growth of new models of infrastructure services delivery, such as Remote Infrastructure Management (RIM) and Information Management Services. Based on reports from various industry research analysts, the current total market for RIM services is anywhere from $80B to $120B. The IMS industry is moving towards a remote delivery model where services are increasing delivered by vendors and captives from low cost locations. The majority of growth in RIM is likely WR FRPH IURP RĚ?VKRULQJ PLGUDQJH VHUYLFHV DQG QHWZRUN WRZHUV likely to account for approximately 70 per cent of the overall opportunity, according to the report. The report says that it is the convergence of three independent forces-- the rapid evolution in technologies and IT architectures, changes in customer behaviors and GHPDQG SDWWHUQV DQG Í•QDOO\ developments in the vendor and RĚ?VKRUH VXSSO\ HQYLURQPHQW WKDW have propelled the industry at a pace faster than earlier conceived and which will continue to accelerate RIM adoption. $IWHU VHHLQJ ,QGLDQ ,7 companies succeed in RIM outsourcing, providers from China, Philippines, Brazil, Eastern Europe, etc., are trying to enter into RIM outsourcing market.
2010 GLOBAL SERVICES 100 STUDY
NEW IO DELIVERY MODELS
Innovation in new remote management tools and technologies has led to the emergence of the asset light RIMO, in which both the companies and outsource vendors enter into a shortterm contract. Unlike asset-heavy model, asset-light model does not entail transfer of asset ownership and IT personnel to the vendor. The asset-light model is being used proactively by providers to reduce cost and timeframe of implementation. Due to the lower capital investment involved, it has created RSSRUWXQLWLHV IRU ORZ FRVW RĚ?VKRUH SURYLGHUV WR HQWHU WKH 5,02 market. 3URYLGHUV DUH DOVR RĚ?HULQJ PRGHOV VXFK DV Í&#x2022;QDQFLDO OHDVLQJ vendor- managed inventory, etc. which allow customers to convert capital expenditure into operating expenses while giving them strategic control of their IT assets. &/28' 6(59,&(6 ',63/$<,1* 6/2: %87 /21*Í&#x2020;7(50 *52:7+
Over the coming year, cloud infrastructure services will make progress, albeit slowly. New platforms will be released, new DSSOLFDWLRQ SURJUDPPLQJ LQWHUIDFHV $3,V ZLOO EH GHYHORSHG and private clouds will start to make inroads into the enterprise. $W WKH VDPH WLPH FRPSDQLHV ZLOO VWDUW XVLQJ WKH FORXG IRU testing out software and applications, disaster recovery and scaling up new websites. Many startupsâ&#x20AC;&#x201D; particularly in new mediaâ&#x20AC;&#x201D; are already taking advantage of cloud services. But the progress and the growth of this sector will be incremental and marginal compared to the world of IT in general. Forrester believes that cloud computing is a sustainable, longterm IT paradigm and the successor to previous mainframe, client/server, and network computing eras. $ %URDG*URXS UHSRUW o&RPSHWLQJ LQ WKH FORXGV HPHUJLQJ strategies for enterprise data centresâ&#x20AC;&#x2122;, highlights how Private &ORXG HQWHUSULVH DGRSWLRQ ZLOO DFFHOHUDWH RYHU WKH QH[W Í&#x2022;YH years, and how it will boost the opportunity for third party data center outsourcing. However, migrating to cloud services represents a new way of operating, and will require a change LQ PLQGVHW E\ HQWHUSULVH ,7 OHDGHUV EHFDXVH o,7 DV D 6HUYLFHp LQWURGXFHV YHU\ GLĚ?HUHQW EXVLQHVV DQG RSHUDWLRQDO PRGHOV
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GS100 VENDOR SPEAK O 2Ě?HU HQG WR HQG LQIUDVWUXFWXUH PDQDJHPHQW VHUYLFHV IURP VHUYLFH GHVN
remote server and storage systems management, IT infrastructure support to database and application layers. O 2Ě?HU VHUYLFHV LQ PRGXODU IDVKLRQ VR WKDW FXVWRPHUV FDQ SLFN WKH RQHV WKDW
WUXO\ DGGUHVV WKHLU QHHGV 'LĚ?HUHQW VHUYLFH OHYHOV DUH DYDLODEOH ZLWK 6/$V WDLORUHG WR WKH &OLHQWVp VSHFLÍ&#x2022;F QHHGV Using deep infrastructure analytics in combination with automation and autonomics to improve speed and responsiveness; improving ability to meet JURZLQJ GHPDQGV RI HĚ?HFWLYH VFDODELOLW\ DQG PDNLQJ XVH RI WHFKQRORJ\ WR SURYLGH Í&#x2013;H[LELOLW\ UHOLDELOLW\ YLVLELOLW\ DQG FRQWURO WR FXVWRPHUV O
O Collaboration, mobility, virtualization and Cloud Computing are some of WKH VHUYLFHV EHLQJ RĚ?HUHG ZLWK D IXWXUH RXWORRN (QYLVLRQ WKH QH[W JHQHUDWLRQ IT marketplace using Virtual Enterprises through the Global Delivery Model.
Best practices: Combining Six Sigma principles and techniques with ITIL, to achieve new benchmarks in performance and productivity. Making services &00 /HYHO ,62 ,62 DQG %6 FHUWLÍ&#x2022;HG DQG XVLQJ LQGXVWU\ standard tools to facilitate business process improvement. O
For the long-term, the report sees the hybrid cloud as the next PDMRU RSSRUWXQLW\ ZKHUH HĚ&#x17E;FLHQFLHV FDQ EH JDLQHG E\ XVLQJ public cloud for non-critical applications. By 2020, a majority of enterprises will have as little as 10 percent of applications in private clouds.
IO STRENGTHENING AMONG MIDMARKET COMPANIES
$V UHSRUWHG E\ WKH (YHUHVW *URXS VWXG\ 01&V ZLWQHVVHG D continued shift towards mid-sized to smaller IO buyers in 2009. Midmarket companies are making a stronger-than-ever case for LQIUDVWUXFWXUH RXWVRXUFLQJ WRGD\ $ QHZ UHSRUW E\ 5HSRUWOLQNHU com reveals the latest trend is to evolve the practice rapidly, even as there is a dilemma in traditional outsourcing converging ZLWK RĚ?VKRUH YDOXH SURSRVLWLRQV Reportlinker.com found that clients with annual revenues IURP 0 WR % DUH VLJQLÍ&#x2022;FDQWO\ PRUH VDWLVÍ&#x2022;HG ZLWK their infrastructure outsourcers than the larger market cap counterparts are. This may be because midmarket companies can change providers if services are not up to mark, whereas larger enterprises may be locked into long-term contracts.
2010 GLOBAL SERVICES 100 STUDY
Industry players are also observing an increasing willingness on the part of companies to change their model for managing infrastructure. This is especially true in the mid-market segment, which is now focusing on RIMO as a key part of their business transformation initiatives. Reportlinker.comâ&#x20AC;&#x2122;s assessment is that midmarket adoption means there is a â&#x20AC;&#x153;focus on end-to-end infrastructure deals that avoid direct competition or develop variations of a converged >5,0@ 7UDGLWLRQDO ,2 RĚ?HULQJ r
WHAT LIES AHEAD
The economic downturn motivated IT departments to challenge the status quo and explore ways to improve operational HĚ&#x17E;FLHQFLHV 7KH 6DYYLV VSRQVRUHG *OREDO ,7 /HDGHUVKLS Report found that a large percentage of organizations are looking at infrastructure outsourcing as a means of delivering Í&#x2022;UVW FODVV ,7 VXSSRUW WR WKH RUJDQL]DWLRQ )RU WKH ODUJH HQWHUSULVH as much as for the mid-sized organization, cloud is an active source of IT infrastructure management. â&#x20AC;&#x153;The largest companies DUH ORRNLQJ DW UHGXFLQJ LQIUDVWUXFWXUH FRVWVr ZKLOVW WKH PLG VL]HG companies see cloud or virtualization as key. IT departments feel their top three cost savings would come this year from reducing infrastructure costs, infrastructure consolidation and a virtualization or cloud computing strategy. With the outsourcing forecast for the next 10 years set to grow (some two-thirds of organizations surveyed believe the majority of their infrastructure will be outsourced compared with fewer WKDQ RQH LQ Í&#x2022;YH FXUUHQWO\ LW VHHPV WKDW the adoption of cloud services will play an important role in transforming this industry. But by and large, enterprise customers are taking a cautious, phased approach WKDW DOORZV WKHP WR oWHVW GULYHp FORXG EDVHG VHUYLFHV t XVXDOO\ UHVWULFWHG WR D VSHFLÍ&#x2022;F application, workload or business process â&#x20AC;&#x201C; before they commit themselves more substantially.
2010 GLOBAL SERVICES 100 STUDY
Service Providers See Promising Prospects in Engineering Services Outsourcing Engineering work is becoming more and more internationalized and HQJLQHHULQJ FRPSDQLHV DUH EHFRPLQJ LQFUHDVLQJO\ JOREDO 7KHUH LV increasing pressure on the part of European companies to reduce costs, which requires more innovative solutions from suppliers in order to keep D VWDEOH SULFH OHYHO PRATIBHA VERMA
As the global spending on overall engineering services (which LQFOXGHV GHVLJQ PDQXIDFWXULQJ DQG Í&#x2022;HOG HQJLQHHULQJ DUHDV LQFUHDVHV PDQ\ ,7 %32 VHUYLFH SURYLGHUV KDYH DGGHG VSHFLÍ&#x2022;F HQJLQHHULQJ VHUYLFHV WR WKHLU RĚ?HULQJV SRUWIROLR These companies acquired the skill-sets, tools and experience from generic IT software and services, to evolve from providing basic data conversion, through 2D and 3D CAD/CAM/CAE,
2010 GLOBAL SERVICES 100 STUDY
â&#x20AC;&#x2DC;â&#x20AC;&#x2DC;
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advanced simulation, prototyping, testing, PLM, product design HQJLQHHULQJ SURFHVV HQJLQHHULQJ SODQW DXWRPDWLRQ DQG DVVHW PDQDJHPHQW VHUYLFHV Analysts note that companies in the electronics industry have UHFHQWO\ EHFRPH FRPIRUWDEOH ZLWK RXWVRXUFLQJ q,Q WKH SDVW three years, more work is getting outsourced,â&#x20AC;? says Mukesh 'LDODQL 5HVHDUFK 0DQDJHU DW ,'& LQ )UDPLQJKDP 0DVV q$W VRPH OHYHO FRQÍ&#x2022;GHQFH KDV JURZQ LQ ZKDW HQJLQHHULQJ YHQGRUV KDYH WR RĚ?HU 2XWVRXUFHG HQJLQHHULQJ KDV EHHQ YDOLGDWHG ZLWK VXFFHVVIXO RXWVRXUFLQJ HQJDJHPHQWV r For some companies, particularly large manufacturers in the 8QLWHG 6WDWHV GHVLJQ Í&#x2022;UPV KDYH EHFRPH D VRXUFH RI VSHFLDOL]HG H[SHUWLVH q2QH RI WKH NH\ EHQHÍ&#x2022;WV IRU )RUWXQH FRPSDQLHV LV WKH TXDOLÍ&#x2022;HG HQJLQHHULQJ ODERU WKH\ JHW WKURXJK RXWVRXUFLQJ r VD\V 'LDODQL q7KH\ JR WR WKLUG SDUWLHV EHFDXVH WKH\ FDQ JHW TXDOLÍ&#x2022;HG ODERU DQG PDQDJH LW FRVW HĚ?HFWLYHO\ r q,Q VRPH VHFWRUV VXFK DV DHURVSDFH GHIHQVH DQG PHGLFLQH companies are dealing with the aging workforce in the United 6WDWHV r VDLG ,'&pV 'LDODQL q7KH\ GR QRW KDYH WKH SHRSOH WR take over when the older engineers retire, so theyâ&#x20AC;&#x2122;re turning to RXWVRXUFLQJ r $V SHU 'DWDTXHVW UHVHDUFK GXULQJ WKH FDOHQGDU \HDU RXW RI WKH WRWDO (QJLQHHULQJ 5 ' 6HUYLFHV UHYHQXHV SHUFHQW ZDV contributed by third party Indian service providers (HCL Tech, 7&6 :LSUR DQG SHUFHQW E\ FDSWLYH HQJLQHHULQJ VHUYLFHV units, while the remaining 2 percent was by non Indian IT SOD\HUV Some of the largest deals in the last two quarters are as follows: â&#x20AC;˘ Meggitt-UK, an international group specializing in DHURVSDFH HTXLSPHQW VLJQHG DQ HVWLPDWHG 0 \HDU engineering management outsourcing contract with HCL in -DQXDU\ â&#x20AC;˘ Infotech Enterprises and Hamilton Sundstrand signed a \HDU PXOWL PLOOLRQ GROODU DYLRQLFV FRQWUDFW LQ -DQXDU\ WR SURYLGH HPEHGGHG VRIWZDUH DQG HOHFWURQLF HQJLQHHULQJ GHVLJQ VHUYLFHV ZRUOGZLGH s 0DKLQGUD 6DW\DP DQG 6DDE VLJQHG DQ HVWLPDWHG \HDU 0 FRQWUDFW LQ 1RYHPEHU WR GHYHORS VROXWLRQV LQ
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,QGLD IRU WKH JOREDO GHIHQVH DQG KRPHODQG VHFXULW\ PDUNHW â&#x20AC;˘ QuEST Global and Belgian aerospace major SABCA DQQRXQFHG LQ 1RYHPEHU WKDW WKH\ VLJQHG D WHQ \HDU GHDO ZRUWK 0 WR PDQXIDFWXUH PHWDOOLF SDUWV DQG SURYLGH DVVHPEO\ ZRUN IRU $LUEXV $ ;:% DLUFUDIWpV Í&#x2013;DS WUDFN VWUXFWXUHV s ,Q $XJXVW %RPEDUGLHU DQQRXQFHG LWV GHFLVLRQ WR RXWVRXUFH HQJLQHHULQJ VHUYLFHV ZRUWK 0 RYHUVHDV RYHU WKH QH[W IHZ \HDUV $FFRUGLQJ WR D UHVHDUFK UHSRUW E\ FEL FRP WZR GHYHORSPHQWV in the demand for ESO can be observed as a result of the HFRQRPLF FULVLV 2Q WKH RQH KDQG LQWHUHVW LQ RXWVRXUFLQJ LV increasing as companies want to reduce costs to strengthen their FRPSHWLWLYH SRVLWLRQ 2Q WKH RWKHU KDQG WKHUH LV OHVV ZRUN WR RXWVRXUFH DV D UHVXOW RI WKH VKULQNLQJ HFRQRP\ The global spending for engineering services, which is FXUUHQWO\ HVWLPDWHG DW % SHU \HDU LV QHDUO\ HTXDO WR ,QGLDpV HQWLUH *'3 $FFRUGLQJ WR D UHFHQW 1$66&20 %RR] &R UHSRUW the worldwide spend on engineering services is expected to JURZ WR RYHU WULOOLRQ E\ 2I WKH % VSHQW WRGD\ RQO\ % % LV FXUUHQWO\ EHLQJ RĚ?VKRUHG ,QGLD JHWV DERXW SHUFHQW RI RĚ?VKRUHG PDUNHW which it shares with Canada, China, Mexico, and Eastern (XURSH ([SHUWV VD\ WKDW WKHVH RSSRUWXQLWLHV ZLOO QRW RQO\
2010 GLOBAL SERVICES 100 STUDY
be captured by large companies in developing countries, but SMEs will DOVR WDNH PDUNHW VKDUH Good product designs are produced in Asia by large software Í&#x2022;UPV LQ ,QGLD RU 2'0V RULJLQDO GHVLJQ PDQXIDFWXUHUV LQ &KLQD that concentrate on designing and producing high-volume commoditylike products such as cell phones DQG QRWHERRN 3&V :KHUHDV ,QGLD LV developing design services, mostly on the software development side, ODMs are doing their design in Taiwan and WKHLU PDQXIDFWXULQJ LQ &KLQD *OREDO customers are now paying attention to India due to the large number of engineers available here but India needs to work on some areas to SURYLGH HQJLQHHULQJ VHUYLFHV G H Rao, Corporate Vice President and Head, Engineering and R&D 6HUYLFHV +&/ 7HFKQRORJLHV VD\V q,I Indian IT companies increase domain knowledge, the core product development would be outsourced PRUH 6HFWRUV VXFK DV WHOHFRP VHPLFRQGXFWRUV DQG DXWRPRWLYH have been the biggest revenue generators for the industry with HPEHGGHG VRIWZDUH GHVLJQ FRQWULEXWLQJ DOPRVW SHUFHQW WR WKH UHYHQXH EDVH $Q LQGLFDWRU RI WKLV JURZWK LV WKH LQFUHDVH LQ WKH QXPEHU RI RĚ?VKRUH GHYHORSPHQW FHQWHUV 2'&V WKDW SURYLGH GHGLFDWHG (5 ' VHUYLFHV ZKLFK KDV JRQH XS VLJQLÍ&#x2022;FDQWO\ VLQFH r +H DOVR DGGV q7HFKQLFDO FDSDELOLWLHV LQ WKH PHFKDQLFDO HOHFWURQLF DUHDV LQ ,QGLD QHHG VWUHQJWKHQLQJ 6HUYLFH SURYLGHUV are looking at long term strategic partnerships with the buyers WR DGGUHVV WKH VDPH $QRWKHU PDMRU FKDOOHQJH DULVHV IURP RSHUDWLRQDO LVVXHV VXFK DV DWWULWLRQ ZDJH LQÍ&#x2013;DWLRQ ,Q RUGHU to maintain their cost leadership, Indian IT companies are ORRNLQJ DW RSHUDWLRQDO HĚ&#x17E;FLHQFLHV WKURXJK LQWHUQDO H[WHUQDO
2010 GLOBAL SERVICES 100 STUDY
EHQFKPDUNLQJ RU FRQWLQXRXV PRQLWRULQJ RU LPSURYHPHQW r Germany is by far the largest importer and exporter of HQJLQHHULQJ VHUYLFHV 2WKHU ODUJH LPSRUWHUV DUH ,WDO\ %HOJLXP WKH 1HWKHUODQGV WKH 8QLWHG .LQJGRP 3RODQG $XVWULD 6ZHGHQ DQG )UDQFH 7KH FRXQWULHV WKDW H[SRUW WKH PRVW HQJLQHHULQJ VHUYLFHV DUH *HUPDQ\ 8 . ,WDO\ %HOJLXP WKH 1HWKHUODQGV $XVWULD )UDQFH 3RODQG DQG 6ZHGHQ 0DQ\ :HVWHUQ (XURSHDQ companies are making use of engineering services from Eastern (XURSH Engineering work is becoming more and more internationalized and engineering companies are becoming LQFUHDVLQJO\ JOREDO $V (XURSHDQ FRPSDQLHV H[SHULHQFH ORZ SURÍ&#x2022;W PDUJLQV DQG WLJKW FRPSHWLWLRQ LQ (XURSH WKH\ HQWHU WKH GHYHORSLQJ PDUNHWV ZKLFK RĚ?HU ODUJH RSSRUWXQLWLHV WR FDSWXUH FRQVWUXFWLRQ SURMHFWV $FFRUGLQJ WR 81&7$' QRZDGD\V percent of engineering opportunities are found in developing FRXQWULHV HVSHFLDOO\ LQ WKH Í&#x2022;HOG RI LQIUDVWUXFWXUH For the coming years, employee shortages are expected in the (XURSHDQ HQJLQHHULQJ LQGXVWU\ 7KHUH LV LQFUHDVLQJ SUHVVXUH RQ the part of European companies to reduce costs, which requires more innovative solutions from suppliers in order to keep a VWDEOH SULFH OHYHO
2010 GLOBAL SERVICES 100 STUDY
BPO ANALYSIS
and Trends
Could 2010 be the Year for FAO? 2010 promises to be a stronger year for FAO, as the previous year had buyers showing their commitment to the FAO model in the face of a challenging economic environment. ASHWIN RAZDAN
Although the number of contracts signed and the Annual Contract Values (ACV) growth was lower in 2009 compared to recent years, organic growth through contract extensions picked up VLJQL͕FDQWO\ DQG FRQWULEXWHG to almost 40 percent of the ACV growth in 2009, DFFRUGLQJ WR UHVHDUFK ͕UP Everest Group. Only 9 percent of end-of-term contracts were terminated, largely due to macro-economic conditions such as buyer bankruptcies and lower transaction volumes. Established leaders Accenture, ACS-Xerox, Capgemini, Genpact and IBM accounted for nearly 65 percent of the FAO market’s ACV. The year 2010 looks better and service providers continue to improve internal SURFHVVHV WR R̝HU FOLHQWV D better deal. Clients in this space are witnessing a 30-40
2010 GLOBAL SERVICES 100 STUDY
7
â&#x20AC;&#x2DC;â&#x20AC;&#x2DC;
Established leaders Accenture, ACS-Xerox, Capgemini, Genpact and IBM accounted for nearly 65 percent of the FAO marketâ&#x20AC;&#x2122;s ACV.
percent reduction in per invoice cost; 70-80 percent reduction in accounting errors; and nearly 35 percent lower average processing cycle time.
SERVICES OFFERED
While accounts receivable, accounts payable, controllership accounting (including Reconciliation, Cost Accounting, General Ledger Accounting, Provisioning Asset Accounting; Audit Support, Financial Analysis and Reporting and Taxation) continue to remain the favorites to be outsourced; others LQFOXGH FDSLWDO EXGJHWLQJ WUHDVXU\ DQG ULVN PDQDJHPHQW Í&#x2022;[HG asset accounting. Most $1B plus companies in the GS100 list DOVR RĚ?HU SURFXUH WR SD\ RUGHU WR FDVK UHFRUG WR UHSRUW DQG business consulting/ transformation services. A few vendors also combine these processes with call center services, superior customer and vendor support, risk management and continuous LPSURYHPHQW SURJUDPV WR HQKDQFH TXDOLW\ DQG HĚ&#x17E;FLHQF\ 3URGXFW RĚ?HULQJV DUH DOVR HYROYLQJ IURP EHLQJ UXOH EDVHG transactional processes to judgment-based technically complex processes around the F&A domain including joint ventures, entity account management, lease accounting, property accounting and data analytics.
TEAM SIZE
Better forecasts in the F&A space have encouraged even smaller vendors to increase their team size to meet the estimated demand. GS100 reveals that small service providers have an average headcount of 250-1000; Band 2 has 2000-3000 people, while Band 3 and 4 have a team size of nearly 8000 in their F&A business.
TOP DELIVERY LOCATIONS
India continues to top the chart as the most popular destination for F&A outsourcing; with cities like Pune, Bangalore, Chennai and Mumbai housing some of the largest teams in the world. It is closely followed by U.S., China and Poland. Other locations
2010 GLOBAL SERVICES 100 STUDY
7
ZLWK VLJQLÍ&#x2022;FDQW PDQSRZHU include Canada, Panama, Philippines, Bulgaria and parts of Latin America. Approximately 80 percent of F&A work is delivered out RI RĚ?VKRUH DQG QHDUVKRUH locations and the overall FTE strength of FAO grew by over 30 percent in 2009. The year 2009 also witnessed VLJQLÍ&#x2022;FDQW RQVKRUH )7( UDPS ups (especially in US) implying the growth of an onshoreQHDUVKRUH RĚ?VKRUH GHOLYHU\ mix. However, the maximum JURZWK IURP DQ RĚ?VKRUH nearshore standpoint took place in India (both tier 1 and tier 2 locations) and S.E. Asia. It is interesting to note that captives continued to be key M&A targets for suppliers. Industry verticals that saw the largest increase in the value of deals signed during 2009 were the telecoms and pharmaceutical sectors, with the Everest report adding that there was also qVWURQJHU WKDQ H[SHFWHG DFWLYLW\ IURP Í&#x2022;QDQFLDO VHUYLFHVr 7KH FAO market growth continues to see aggressive adoption across manufacturing, consumer packaged goods, retail and high-tech sectors. Industry experts see continued growth in this sector, as VXFFHVVIXO VXSSOLHUV ZLOO FRQWLQXH WR LGHQWLI\ DQG UHÍ&#x2022;QH WDUJHW buyer segments, meet client needs in terms of global delivery capacity and service, bring technology and process solutions that more closely link process operations with business outcomes, and focus on client relationship management.
CLIENT PROFILES
The largest client-base in this sector is based in the U.S. followed by those in UK. The leading segment for FAO was
2010 GLOBAL SERVICES 100 STUDY
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GS100 VENDOR SPEAK O
Vendors geared to achieve higher customer satisfaction ratings.
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6RPH RĚ?HU FDOO FHQWHU VHUYLFHV YHQGRU VXSSRUW ULVN PDQDJHPHQW DQG continuous improvement programs as a part of their end-to-end F&A solutions.
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judgment-based technically complex processes. Many developing proprietary tools for reconciliation and technology HYDOXDWLRQ DQG ZRUNÍ&#x2013;RZ VROXWLRQ IRU Í&#x2022;QDQFLDO WUDQVDFWLRQ
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found to be the manufacturing industry. Some of the others include: O Banks O Consumer electronics O Energy services companies O Insurance companies O /DZ Í&#x2022;UPV O Mining organizations O 3ULYDWH HTXLW\ Í&#x2022;UPV O Print media conglomerate O Pharmaceutical giants O Retail conglomerates O Property management companies O Transportation, logistics and courier companies O The airline industries O Telecom 8QGRXEWHGO\ WKH UHFHQW VLJQLÍ&#x2022;FDQW GHPDQG LQ Í&#x2022;QDQFLDO services will drive growth in the industry. The picture is only set to turn brighter as the global economy revives. Most suppliers are reporting stronger sales pipelines. According to the recent Finance & Accounting Outsourcing Annual Report 2010, business is expected to rebound from pre-recessionary growth levels to 20 percent plus growth to reach $3.7 B. While analysts continue to believe that the services spending will revert to the pre-recession levels, it will immensely depend RQ KRZ WUDQVIRUPDWLRQDO WKH VHUYLFHV RĚ?HUHG FDQ EH )XUWKHU the fear of another recession (in the current volatile market) may also slow down the expected growth.
2010 GLOBAL SERVICES 100 STUDY
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Changing Deal Terms and 5LVNV 'HÍ&#x2022;QH 0DUNHW PO deal pipelines have shown a healthy upward graph since 2000, as buyers are much more accepting of outsourcing as a solution and are becoming more sophisticated in deal developments. PO processes have also improved and transformed during this period. 35$7,%+$ 9(50$
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There is a VLJQLÍ&#x2022;FDQW trend upwards to include the sourcing activity in procurement deals to bring in more business case value.
The procurement outsourcing market has a unique competitive landscape. It is dominated by four market-leading vendors, including two outsourcing giants (IBM and Accenture) and two procurement specialists (ICG Commerce and Ariba). 7KH 32 DJUHHPHQWV DUH DQ HĚ?RUW WR UHGXFH LQGLUHFW FRVWV GULYH bottom line improvements or reinvest to drive growth. Under one
2010 GLOBAL SERVICES 100 STUDY
GS100 VENDOR SPEAK O 2Ě?HU FOLHQWV EHQHÍ&#x2022;WV QRW RQO\ IURP ERWWRP OLQH VDYLQJV EXW DOVR IURP
improved service levels, stronger supplier relationships, and improved
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Optimization of suppliers approach: Providers research the best sources with the lowest price points, and work with clients to improve and manage supplier agreements and terms.
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procurement business platform, which has best of technology (based on SAP SRM), process and BPO all bundled as one solution. Can further be customized based on client needs. The platform is operated on outcome based model and SURYLGHV Í&#x2022;QDQFLDO DQG WHFKQRORJLFDO Í&#x2013;H[LELOLW\ WR FOLHQWV ZKLOH UHGXFLQJ RYHUDOO risk.
Commercial model is also designed to match clientsâ&#x20AC;&#x2122; needs and budgetary requirements.
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Global delivery model enables a customized delivery model based on client-
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is an outcome-based compensation structure which is considered as â&#x20AC;&#x153;pay as you save,â&#x20AC;? not â&#x20AC;&#x153;pay as you use.â&#x20AC;?
of the latest PO deals of Xchanging with CHEP, Xchanging was asked to manage $116.5M of spend per annum ($582M of spend RYHU Í&#x2022;YH \HDUV RQ EHKDOI RI &+(3 (XURSH DQG KHOS LQWHJUDWH and standardize procurement processes for CHEPâ&#x20AC;&#x2122;s business across the U.K., France, Germany and Spain for their non-core categories. Xchanging was also asked to consolidate spend management and help reduce overall non-core procurement costs across CHEPâ&#x20AC;&#x2122;s European businesses. The contract included sourcing of non-core categories and a large proportion of procureto-pay activities. 32 '($/ 7(506
Deal terms are slowly becoming mature, but risks stemming from internal readiness to comply with new policies and LQFRQVLVWHQFLHV LQ PHDVXUHPHQW RI EHQHÍ&#x2022;WV DUH \HW WR EH WDFNOHG The deals have risen steadily with a recent trend towards broadening scope, according to Equaterra. Rick Bertheaud, Managing Director, Equaterra says, â&#x20AC;&#x153;There is an expansion in PO cycle which includes sourcing, procurement
2010 GLOBAL SERVICES 100 STUDY
operation, back-end accounts payable and full source-to-pay. Some people are doing only procure-to-pay, that is, procurement RSHUDWLRQV DQG SD\DEOHV 7KHUH LV D VLJQLÍ&#x2022;FDQW WUHQG XSZDUGV to include the sourcing activity in procurement deals to bring in more business case value.â&#x20AC;? Larger providers are capitalizing on industry experience base like IBM capitalizing on CPG experience, and Accenture FRQWLQXLQJ WR GR ZHOO LQ WKH Í&#x2022;QDQFLDO LQVWLWXWLRQ VHJPHQW The deal activity in 2009 was quite strong. Many were smaller, sourcing-only deals focused on driving short-term savings. â&#x20AC;&#x153;We are seeing broadening of categories in the market where deals are narrowly focused on some indirect procurement activities, but some providers are gaining traction in direct categories, for example, Corbus in manufacturing and Capgemini in the utilities industry. Providers seem to be softening WHFKQRORJ\ SXVK LQ VROXWLRQV 7RROV DUH VWLOO SDUW RI WKH RĚ?HULQJ but a strong push for big technology / transformation investment seems to have waned. The reason is that if it gets delayed, the deal becomes more expensive and clients want quick return on investment,â&#x20AC;? he adds. Despite the expansion of procurement outsourcing, the continued lack of standard deal terms suggests that the market is not yet â&#x20AC;&#x2DC;matureâ&#x20AC;&#x2122; and still has a number of risks in it. 5,6.6 ,1 6(59,&( '(/,9(5<
Change management: The largest risk in doing Source-to-Pay Outsourcing (S2PO) is more around managing change internally within the clientâ&#x20AC;&#x2122;s organization. This is actually true regardless of the delivery model - whether you are building a captive or you do it with an outsourcing provider. q,Q WKH VFKHPH RI WKLQJV LW LV UHODWLYHO\ HDV\ WR JR RXW Í&#x2022;QG new suppliers and negotiate better contracts, which is the sourcing part. The toughest part comes afterwards - getting your LQWHUQDO FXVWRPHUV ZLWKLQ D FOLHQW RUJDQL]DWLRQ WR EX\ RĚ? WKRVH contracts. In fact, non-compliance with negotiated contracts and VSHFLÍ&#x2022;FDWLRQV IURP SUHIHUUHG VXSSOLHUV FDQ FUHDWH VLJQLÍ&#x2022;FDQW YDOXH leakage. In some companies, a culture of â&#x20AC;&#x2DC;rogue buyingâ&#x20AC;&#x2122; persists ZKHUH SHRSOH DFW RQ WKHLU RZQ JR RXW DQG Í&#x2022;QG WKHLU RZQ JRRGV
2010 GLOBAL SERVICES 100 STUDY
DQG VHUYLFHV IURP QRQ YHULÍ&#x2022;HG YHQGRUV ZKR DUH QRW OLVWHG LQ WKH deal. Organizations that manage compliance well â&#x20AC;&#x201C; which can EH VXSSRUWHG ZLWK WRROV DQG SUDFWLFHV RĚ?HUHG E\ SURFXUHPHQW outsourcers, can â&#x20AC;&#x2DC;plug the leaksâ&#x20AC;&#x2122;,â&#x20AC;? Rick says. Financial: In addition to change management risk, sourceWR SD\ 6 3 DOVR FDUULHV JUHDWHU Í&#x2022;QDQFLDO ULVNV WKDQ FDOO FHQWHU procurement operations only, or other BPO deals, which rely heavily on labor arbitrage to create value. 5LFN H[SDQGV q6 32 KDV D YHU\ GLĚ?HUHQW PRGHO 2IWHQ times, clients are underinvested in sourcing operations prior to engagement. Such clients may actually invest more to generate larger savings downstream. S2PO is not about reducing administrative cost of the activity, but it is about generating savings from third party spend. In fact, often you have to spend more in order to generate healthier savings.â&#x20AC;? There is an inconsistency in selection of resource units used to allow variability in base charges like FTEs, spend volume, transaction volume, and savings achieved. In S2PO deals, there is a lot of focus on realizing savings and ensuring deal terms to provide mutual incentives to deliver the desired business case. The challenge is in objectively measuring achieved savings. What seems like a straightforward exercise can quickly get FRPSOLFDWHG ZKHQ QHZ SURGXFWV VHUYLFHV VSHFLÍ&#x2022;FDWLRQV DQG suppliers are added to the mix. To this end, it is critical that deal terms with S2PO providers not only include clear targets and incentives for savings achievement, they also need to address the methodologies to be used in calculating savings. Rick adds, â&#x20AC;&#x153;In the end, deal terms will only go so far. Trust and collaboration between client and PO provider is critical to the success of a S2PO relationship.â&#x20AC;? Not just the absolute savings, the relative savings are also important. Most of this saving is relatively measured; it is more ambiguous, and hence has to be discussed and agreed to as part of the savings calculation methodology between the partners. &216,'(5$7,216 )25 32
Deal terms are maturing, but vary from deal-to-deal. It is to be ensured that contract takes care of the objectives and risks of
2010 GLOBAL SERVICES 100 STUDY
the relationship. In terms of savings assurance service levels, there is a shift from a penaltyonly-model to a balanced-gain-and-pain-share model to encourage providers to exceed targets. Both models require clear rules of engagement and measurement; ensure that VDYLQJV DUH LGHQWLÍ&#x2022;HG FDOFXODWHG DQG WUDFNHG Picking the right PO provider is critical. While buyers should have the necessary diligence to evaluate the providerâ&#x20AC;&#x2122;s technology, delivery model and solution, choosing a partner that aligns culturally to foster an environment of collaboration and trust is even more important. In PO, it is almost entirely about creating an environment of collaboration. Managing savings is important and should be measured beforehand. Adequately addressing the change management issues is also critical. It should also be ensured that one is pulling in the right executive sponsorship, putting in place the processes, tools and communication programs to drive compliance. ,03$&7 2) &/28'
Cloud computing has begun to impact many areas in the services industry. PO vendors are closely looking at the software-asa-service (SaaS) model. Procurement processing is getting increasingly tied to the platform. One of the best examples of 2010 is Capgemini, a PO service provider, which acquired IBX, a procurement services and VRIWZDUH DV D VHUYLFH 6DD6 SURYLGHU ZLWK VHUYLFH RĚ?HULQJV that combine hosted third-party technology (e.g., SAP SRM), internally developed solutions that make up for the functional shortcomings of existing systems and expert services. Capgemini is ready to tackle this new growth opportunity. Service providers are getting themselves ready for the change, despite knowing that WKH EX\HU FRPPXQLW\ LV VWLOO QRW FRQÍ&#x2022;GHQW DERXW FORXG VHFXULW\
2010 GLOBAL SERVICES 100 STUDY
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2010 GLOBAL SERVICES 100 STUDY
Focus on Customer Value, Bundled Services, and Virtual Contact Centers 3HUIRUPDQFH LPSURYHPHQW E\ VHUYLFH SURYLGHUV VLJQLÍ&#x2022;FDQW FRVW UHGXFWLRQ potential, growing executive-level acceptance of outsourcing as a business practice, declining in-house capabilities, and rising customer demand for multiple support channels have been the main growth drivers for CCS outsourcing in the last year. SRUTHI RAMAKRISHNAN
Contact center outsourcing, over the past few years, has JURZQ EH\RQG WKH WUDGLWLRQDO FRUH PDUNHWV RI Í&#x2022;QDQFLDO services, telecommunications and travel. Industries, such as pharmaceutical and brokerage that have traditionally been slow WR DGRSW RXWVRXUFLQJ EHFDXVH RI LQGXVWU\ VSHFLÍ&#x2022;F UHJXODWLRQV RU
2010 GLOBAL SERVICES 100 STUDY
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Focus has shifted from closing the call quickly to doing all that is possible to increase clientsâ&#x20AC;&#x2122; revenue and level of satisfaction.
other challenges, are beginning to outsource at least part of their contact center operations.
CCS OUTSOURCING ON A GROWTH PATH
According to TPIâ&#x20AC;&#x2122;s A Peak Time for Contact Center Outsourcing Report (April 2009), organizationsâ&#x20AC;&#x2122; annual spend for contact centers are estimated to be $300B and are expected to hold despite the economic weakness. Approximately 78 percent of this is spent on in-house operations, with the remaining 22 percent â&#x20AC;&#x201D; more than $66B â&#x20AC;&#x201D; being outsourced. However, outsourcing spend has grown in the past four years, while inKRXVH VSHQGLQJ KDV EHHQ UHODWLYHO\ Í&#x2013;DW In-house contact center operations today are often marked by dated technology platforms, declining budgets, deferred technology investments and a management emphasis on cost containment. At the same time, third party vendors have been implementing fundamental changes in best practices, customer VHUYLFH GHOLYHU\ JOREDO VRXUFLQJ VWUDWHJ\ DQG HĚ?HFWLYH XVH RI WHFKQRORJ\ OHYHUDJH PDNLQJ RXWVRXUFLQJ &&6 D SURÍ&#x2022;WDEOH proposition. 3HUIRUPDQFH LPSURYHPHQW E\ VHUYLFH SURYLGHUV VLJQLÍ&#x2022;FDQW cost reduction potential, growing executive-level acceptance of outsourcing as a business practice, declining in-house capabilities, and rising customer demand for multiple support channels have been the main growth drivers for CCS outsourcing in the last year, the TPI report says.
LESSONS FROM THE RECESSION
Coping with slow recovery from recession, clients want more than to just save money by sending call-center work overseas. According to Gartnerâ&#x20AC;&#x2122;s CEO Concerns: Peering Into 2010 and Beyond report (March 2010), there has been a major shift in CEO priorities since early 2010 from cutting costs to retaining customers and enhancing existing relationships. Client companies are now more conscious about how their customercare calls are handled. Customer satisfaction is back as a top priority. The focus has shifted from closing the call quickly (to
2010 GLOBAL SERVICES 100 STUDY
DFKLHYH HĚ&#x17E;FLHQF\ WDUJHWV and reducing the handle time) to doing all that is possible to increase clientâ&#x20AC;&#x2122;s revenue and level of satisfaction. Outsource partners are now required to add value by meeting Í&#x2022;QDQFLDOO\ UHODWHG .3,V like increasing sales, improving debt collection, enhancing customer loyalty, etc. The trend is leading RXWVRXUFLQJ Í&#x2022;UPV WR JURZ aggressively again in the United States. Highvalue customer calls are increasingly staying within North America, where FRVWV PD\ EH KLJKHU WKDQ RĚ?VKRUH EXW DW KRPH RSHUDWRUV FDQ generate revenue. Simpler and lower-value tasks, which do QRW SUHVHQW VDOHV RSSRUWXQLWLHV DUH EHLQJ URXWHG WR RĚ?VKRUH operators in larger numbers than ever.
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7KH RSWLRQV IRU RĚ?VKRUH GHVWLQDWLRQV KDYH LQFUHDVHG GXH WR changes in the global services marketplace, while preferences in RĚ?VKRUH GHVWLQDWLRQV KDYH FKDQJHG $FFRUGLQJ WR WKH 73, UHSRUW WKH 3KLOLSSLQHV FRQWLQXH WR EH WKH WRS FKRLFH IRU RĚ?VKRULQJ customer service for American English-speaking customers, as a â&#x20AC;&#x153;result of a better cultural alignment with the West and a less VLJQLÍ&#x2022;FDQW DFFHQW LQ WKH 3KLOLSSLQHVr ,QGLD UHPDLQV DQ DWWUDFWLYH choice for technical support work, more complex technical SUREOHP VROYLQJ DQG EDFN RĚ&#x17E;FH IXQFWLRQ VXSSRUW U.S. companies now also enjoy more nearshore options because of the expansion and new capacity in Mexico and Central America. The leading service providers have built
2010 GLOBAL SERVICES 100 STUDY
modern global services delivery infrastructure here and LPSOHPHQWHG EHVW SUDFWLFHV WKDW DOORZ WKHP WR HĚ?HFWLYHO\ DQG HĚ&#x17E;FLHQWO\ OHYHUDJH WKHLU VFDOH YROXPH JOREDO FDSDFLW\ DQG technology to better serve their clients. neoITâ&#x20AC;&#x2122;s 2009 Latin America Contact Center Landscape Report holds changing demographics (increasing Hispanic population) in the U.S. along with cost considerations and overheating RI WUDGLWLRQDO RĚ?VKRUH GHVWLQDWLRQV UHVSRQVLEOH IRU IRUFLQJ U.S. corporations to explore Latin America as an outsourcing GHVWLQDWLRQ IRU WKHLU EDFN RĚ&#x17E;FH DQG FRQWDFW FHQWHU RSHUDWLRQV *HRJUDSKLF SUR[LPLW\ FXOWXUDO DĚ&#x17E;QLW\ DQG VLPLODU WLPH ]RQH with the United States further bolster the case for outsourcing to this region. Latin America scores not only as a large domestic market that contributes to the supply side by serving as a talent pool to recruit from, but also as a market that consumes services. The report concludes that while certain countries such as Mexico, Brazil and Costa Rica have already established themselves in the outsourcing market, a host of other countries, like Panama, Colombia, Jamaica, are attracting business through DJJUHVVLYH PDUNHWLQJ HĚ?RUWV RU E\ RĚ?HULQJ Í&#x2022;QDQFLDO LQFHQWLYHV
ADOPTION OF NEW TECHNOLOGIES
Hosted contact centers are emerging as a solution for companies that have outgrown existing applications and systems, those which are expanding geographically or want to utilize virtual agents. The fastest growing segment of hosted contact center adopters is the large contact centers (more than 500 seats). Outsourcers are also investing heavily in IP-based virtual contact center architectures that enable business applications to be deployed at a single point on their networks but be accessed and used by anyone with access to the network and permission WR XVH WKH DSSOLFDWLRQV $V q1HWZRUN DV D SODWIRUPr EHFRPHV the primary driver, the need to have geographically disparate yet accessible service is becoming key. Virtual contact center technology has not only changed the management of multisite outsourcing operations, it has also opened the way for outsourcers to provide the same technology resources to other organizations.
2010 GLOBAL SERVICES 100 STUDY
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increased sales and extension of the lifetime value of customers by applying technologies like call-routing solutions and workforce optimization. Client solutions comprise People, Infrastructure, Processes and Methods following an appropriate implementation approach, creating customized front RĚ&#x17E;FH DQG EDFN RĚ&#x17E;FH RSHUDWLRQV ,QWHJUDWHG %32 VROXWLRQV KHOS WR UHGXFH service costs, increase revenue and improve customer retention.
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Emerging business models provide dedicated professional resources along with complete infrastructure and administrative services at delivery centers to work exclusively on a clientâ&#x20AC;&#x2122;s projects, whereby clients get their own remote IT department with substantially less investments.
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Solutions are leveraging the SaaS platform for cloud-based predictive services.
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Best practices: regular client meetings, using root cause analysis as standard of improvement, documenting customer issues in an incident tracking system and escalating according to established standard operating procedures, monitoring, scheduling, and prioritizing. Protocols ensure total privacy of clientsâ&#x20AC;&#x2122; data.
In the next few years, enterprises are expected to move beyond contact center to a customer interaction network with hosted contact centers for both enterprise customers and service providers. These hosted contact centers will create a new, high-margin service revenue stream for service providers. They will provide a centralized contact center infrastructure WKDW FDQ GHOLYHU VHUYLFHV WR YDULRXV GLYLVLRQV RU VDWHOOLWH RĚ&#x17E;FHV RI HQWHUSULVH FXVWRPHUV ,Q D FHQWUDO RĚ&#x17E;FH RU GDWD FHQWHU service providers will host the contact center infrastructure software, which will be shared by multiple business customers. Subscribing business customers will have IP or time-division multiplexing (TDM) infrastructures or a combination of the two. The industry is also embracing cloud technology as contact center customers increasingly demand a faster, more responsive service. As applications are delivered over the internet or in â&#x20AC;&#x2DC;the cloudâ&#x20AC;&#x2122;, organizations hope to move away from complicated SK\VLFDO VHW XSV RQ VLWH DQG WKXV PDNH VLJQLÍ&#x2022;FDQW FRVW VDYLQJV Applications can be updated virtually, meaning that agents will always have the most up-to-date customer information in hand. Cloud technology will also create greater scope for home-working, as well as dealing with more unforeseen
2010 GLOBAL SERVICES 100 STUDY
FLUFXPVWDQFHV DV FRQWDFW FHQWHU VWDĚ? ZLOO EH DEOH WR DFFHVV WKH cloud wherever they are in the world. This will make relocation or expansion a seamless experience. 6ROXWLRQV SURYLGLQJ XQLÍ&#x2022;HG FDSDELOLWLHVtDOORZLQJ D VLQJOH agent to support multiple interactions simultaneously, regardless of the communication channel the customer has FKRVHQtDUH JDLQLQJ SRSXODULW\ HVSHFLDOO\ LQ ODUJH VL]H FRQWDFW centers which can support thousands of agents.
CHANGES IN SERVICE OFFERINGS
Most established vendors are now pitching for jobs that do not necessarily need a large workforce but are niche, generate more UHYHQXH DQG UHWXUQ RQ HĚ?RUW 7KH DELOLW\ WR SURYLGH H[SHUWLVH DFURVV D UDQJH RI GLĚ?HUHQW GLVFLSOLQHV ZLOO EHFRPH LQFUHDVLQJO\ important as the contact center outsourcing market matures. 1HZ HQWUDQWV DUH WU\LQJ WR GLĚ?HUHQWLDWH WKHPVHOYHV ZLWK QHZ WHFKQRORJ\ DSSOLFDWLRQV DQG VHUYLFH RĚ?HULQJV 7KH ODWWHU LQFOXGH â&#x20AC;&#x2DC;bundledâ&#x20AC;&#x2122; services: customized service packages consisting people (advisors and management), expertise, processes technology and environment according to the needs and demands of clients. 6PDOO FRPSDQLHV DUH RĚ?HULQJ FRPSOHWH &DD6 &RPPXQLFDWLRQ as a Service) solution for contact center automation and RXWERXQG QRWLÍ&#x2022;FDWLRQV as a scalable service that delivers more functionality and better ROI than in-house communications systems. &DD6 RĚ?HUV Í&#x2013;H[LELOLW\ and expandability that small and medium-sized businesses might not otherwise be able to DĚ?RUG DOORZLQJ IRU WKH addition of devices, modes or coverage on demand. Moreover, the advantage
2010 GLOBAL SERVICES 100 STUDY
of a pay-as-you-go pricing model is only too obvious for todayâ&#x20AC;&#x2122;s enterprise, where budgets are tight but the need to operate with the latest in communication technology is a necessity for competitive advantage. Voice-based contact center services are rapidly moving beyond WUDGLWLRQDO qYRLFHr FRPPXQLFDWLRQ WR LQFOXGH D EOHQG RI YRLFH and live-chat (i.e., text based) engagement. Interactions through text/SMS, video, and Web are becoming the most used channels for inbound interaction. Outsourcers will move to focus heavily on consulting and H[SHUW VXSSRUW VHUYLFHV t IURP FRQWDFW FHQWHU GHVLJQ WR VWDĚ? recruitment and training. This is because though vendors will continue to awe their prospects by adopting the latest in technology, it is the quality (of people and partnerships) that ZLOO GHÍ&#x2022;QH WKH VXFFHVV RI DQ RUJDQL]DWLRQ LQ WKH ORQJ UXQ
CUSTOMER REMAINS THE KING
The industry is seeing increased social media customer interactions. Such interactions through popular social media platforms (Twitter, Facebook, etc.) are used to monitor and extract intelligence to provide better customer service, drive sales and drive customer loyalty. Focus on the customer is set to increase. CCS providers plan WR LQFUHDVH qSURDFWLYH YDOXH DGG FXVWRPHU FRQWDFWr SURJUDPV qVDOHV DQG PDUNHWLQJr SURJUDPV DQG qFROOHFWLRQVr SURJUDPV LQ their outbound customer programs over the next two years. The ability of CCS to contribute to business transformation has been accentuated by investments made by service providers on technology and platforms. In addition, leading service providers have built modern global services delivery infrastructures and LPSOHPHQWHG EHVW SUDFWLFHV WKDW DOORZ WKHP WR HĚ?HFWLYHO\ DQG HĚ&#x17E;FLHQWO\ OHYHUDJH WKHLU VFDOH YROXPH JOREDO FDSDFLW\ DQG technology to better serve their clients. The CCS market is set to grow further as more companies recognize that they have access to suppliers at various price points and with mature skills.
2010 GLOBAL SERVICES 100 STUDY
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The 2010 GS100 Category Lists TOP IT OUTSOURCING VENDORS Company CGI Group, Inc. Collabera Inc. CPM Braxis CSC (Computer Sciences Corporation) HCL Technologies Limited Hexaware Technologies Limited Infosys Technologies Limited Mascon Global Limited MindTree Limited Neoris Ness Technologies, Inc. Neusoft Corporation NIIT Technologies Patni Computer Systems Limited Syntel, Inc. Tata Consultancy Services Limited Tech Mahindra Limited Unisys Corporation UST Global Wipro Technologies
TOP STRATEGIC IT OUTSOURCING VENDORS Company CGI Group, Inc. CSC (Computer Sciences Corporation) Infosys Technologies Limited Tata Consultancy Services Limited Unisys Corporation Wipro Technologies
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TOP ADM VENDORS Company CGI Group, Inc. CSC (Computer Sciences Corporation) Infosys Technologies Limited MindTree Limited Neoris Ness Technologies, Inc. Patni Computer Systems Limited Syntel, Inc. Tata Consultancy Services Limited Wipro Technologies
TOP EMERGING ADM VENDORS Company Collabera Inc. CPM Braxis DBA Engenharia de Sistemas Limited Hexaware Technologies Limited Hildebrando ITC Infotech Luxoft Mastek Limited Neusoft Corporation NIIT Technologies
TOP ENTERPRISE APPLICATIONS VENDORS Company CGI Group, Inc. CSC (Computer Sciences Corporation) HCL Technologies Limited Hexaware Technologies Limited Infosys Technologies Limited Neoris Ness Technologies, Inc. Patni Computer Systems Limited Tata Consultancy Services Limited Wipro Technologies
2010 GLOBAL SERVICES 100 STUDY
TOP INFRASTRUCTURE MANAGEMENT VENDORS Company CGI Group, Inc. CPM Braxis CSC (Computer Sciences Corporation) HCL Technologies Limited Infosys Technologies Limited Microland Limited Tata Consultancy Services Limited Tech Mahindra Limited Unisys Corporation Wipro Technologies
TOP ENGINEERING SERVICES VENDORS Company Infosys Technologies Limited ITC Infotech KPIT Cummins Infosystems Limited Luxoft Mindtree Limited Neilsoft Limited Quality Engineering and Software Technologies Pvt. Limited Synapsis Tata Consultancy Services Limited Wipro Technologies
TOP OUTSOURCED PRODUCT DEVELOPMENT VENDORS Company EPAM Systems, Inc. GlobalLogic India Pvt. Limited HCL Technologies Limited Infosys Technologies Limited Luxoft Ness Technologies, Inc. Sonata Software Limited Tata Consultancy Services Limited VanceInfo Technologies Wipro Technologies
2010 GLOBAL SERVICES 100 STUDY
TOP SPECIALTY PRODUCT ENGINEERING VENDORS Company Applabs Bleum Inc. Cybage Software Pvt. Limited Globant Lionbridge Technologies Inc. Lohika Systems Inc. MindTree Limited Symbio Virtusa Corporation Wipro Technologies
TOP BPO VENDORS Company Aditya Birla Minacs Aegis Limited CGI Group, Inc. Convergys Corporation ExlService Holdings, Inc. Genpact Limited HCL Technologies Limited Hinduja Global Solutions Limited HOV Services Limited Infosys Technologies Limited Intelenet Global Services Lionbridge Technologies, Inc. NCO Group, Inc. Sitel Operating Corporation SPi Global Solutions Stream Global Services Tata Consultancy Services Limited Wipro Technologies WNS Global Services Xchanging plc
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TOP FAO VENDORS Company ExlService Holdings, Inc. Genpact Limited HOV Services Limited Infosys Technologies Limited Intelenet Global Services NCO Group, Inc. Outsource Partners International Tata Consultancy Services Limited Wipro Technologies WNS Global Services
TOP HRO VENDORS Company CGI Group, Inc. Xchanging plc Genpact Limited Hexaware Technologies Limited Symphony BPO Solutions Sdn Bhd (formerly known as Vsource Asia Sdn Bhd) Towers Watson
TOP PROCUREMENT OUTSOURCING VENDORS Company Corbus Genpact Limited Infosys Technologies Limited WNS Global Services Xchanging plc
2010 GLOBAL SERVICES 100 STUDY
TOP CALL CENTER AND CUSTOMER MANAGEMENT VENDORS Company 24/7 Customer Inc. Aditya Birla Minacs Aegis Limited Convergys Corporation Hinduja Global Solutions Limited Intelenet Global Services Sitel Operating Corporation Stream Global Services TELUS International Wipro Technologies
TOP INDUSTRY SPECIFIC BPO VENDORS Company CSC (Computer Sciences Corporation) Aditya Birla Minacs Altisource Porfolio Solutions S.A. Datamatics Global Services Limited eClerx Services Limited ExlService Holdings, Inc. Genpact Limited Hinduja Global Solutions Limited HOV Services Limited Infosys Technologies Limited Innodata Isogen Lionbridge Technologies Inc. SPi Global Solutions Syntel, Inc. Tata Consultancy Services Limited TELUS International Unisys Corporation Wipro Technologies WNS Global Services Xchanging plc
2010 GLOBAL SERVICES 100 STUDY
SOUTH OF THE BORDER Company CPM Braxis DBA Engenharia de Sistemas Limited Globant Grupo ASSA Grupo Prominente Hildebrando Neoris Stefanini IT Solutions Synapsis Transactel S.A.
CENTRAL AND EASTERN EUROPE Company Auriga Inc. Ciklum ApS EPAM Systems, Inc. IBA Group IBS DataFort Luxoft MERA Reksoft SoftServe, Inc.
CHINA OFFSHORING Company Beyondsoft Group Bleum Inc. Freeborders, Inc. Insigma Technology Co. Limited Neusoft Corporation Symbio VanceInfo Technologies
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