2012 Global Services Market Predictions:Context, Growth, Disruption

January 2012

2012 Global Services Market Predictions: Context, Growth, Disruption

Proprietary & Confidential. © 2012, Everest Global, Inc. 2

Key themes relevant for 2012: Context, Growth, Disruption

Next Generation IT and the

“Consumerization” of IT

Service Provider Landscape

Remains Challenging

Uncertain Macro-Economics Continue Shaping Markets

Global sourcing complexity and diversity present new challenges

2012

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Today’s Speakers and Focus Areas

Rishabh Gupta Senior Research Analyst

Anurag Srivastava Senior Research Analyst

Rajat Juneja Research Director

Service Provider Intelligence

Global Sourcing

IT Outsourcing (ITO)

Finance and Accounting Outsourcing (FAO)

Procurement Outsourcing (PO)

Human Resource Outsourcing (HRO)

Banking, Financial Services and Insurance: Application Outsourcing and BPO

Abhishek Menon Research Director

Abhishek Singh Senior Research Analyst

Katrina Menzigian VP, Research Relations


Service Provider Intelligence Predictions for 2012

Pricing pressures will squeeze providers’ margins, especially for offshore resources, forcing investment in newer customer-centric / industry-specific solutions, and deployment of innovative engagement models

Buyers’ focus on business innovation is likely to drive a greater push on domain/micro-vertical expertise, which will in turn drive investments in creation of new products and solution accelerators

Buyer-driven portfolio consolidation will continue, especially by large BFSI organizations that are looking to further rationalize their service providers portfolios

Macro Environment

Smaller/Tier-2 players have to need to demonstrate meaningful differentiation to protect market share – both in terms of capabilities, as well as in engagement and pricing terms

M&A in the provider marketplace is expected to continue, especially in select non-traditional segments (e.g., services companies looking for products) will signal a change in the acquisition appetite of large offshore providers. Tier-2 specialist/niche service providers will be the primary acquisition targets.

Disruption

Momentum in emerging areas such as social media, mobility, green IT, and cloud will continue to drive service providers’ focus on innovation, and foster evolution of niche/ specialist service providers

2012 will witness increased emergence of regional service providers on the global stage through focused efforts on building an offshore play

Growth


Global Sourcing (GS) Predictions for 2012

Global macroeconomic and political uncertainty will result in sluggish outsourcing activity earlier in the year. Business confidence is likely to return towards the end of the year

Financial pressures on buyers will lead to increasing attention to global sourcing management and consolidation initiatives; this will involve tighter discipline in demand planning and in capturing synergies across the organization

The BFSI vertical will continue to be the dominant industry segment; other verticals such as healthcare and Manufacturing Distribution and Retail (MDR) will continue to witness increasing traction. In terms of buyer geographies, North America will continue to dominate. Asia Pacific is likely to grow faster than the industry average

Growth and adoption

In addition to Central and Eastern Europe (CEE) and Latin America, emerging geographies such as Africa will continue to attract interest

Established markets (India and the Philippines) will see easing of labor market pressures in the first few months on the back of softening demand. These pressures may gradually return toward the end of the year as the global economic outlook improves

Locations

Companies will continue their balancing act between the captive and third-party models. There will be focused efforts to improve the value delivered from captives by focusing on high-value processes

Captives will continue to be an integral component of organizations’ global sourcing strategy. Captive investments will continue, and the majority of setups/expansions will be in Asia Pacific and CEE

Sourcing models


Poll Question #1: The world we live in

How are global dynamics (i.e., the European debt crisis, political upheaval in the Middle East, natural disasters in Japan) affecting your company’s attitude towards global services?

13%

34%

53%

We’re likely to put plans on hold and stick to the status quo for now

We continue to adopt global services, but we’re more cautious and our appetite for risk is smaller

We see global services as a strategy for managing unpredictability and risk

Source: Live polling conducted during the “2012 Global Service Market Predictions” webinar on January 19, 2012


Information Technology Outsourcing (ITO) Predictions for 2012

Buyers’ IT budgets may be suppressed: Fears of a second economic slowdown threatens the 2010 recovery Fewer and simpler: The buyers’ ITO spending focus will be on fewer deals with simpler pricing models; more buyers are

expected to stay away from the outsourcing market Margin pressures: Overall, margin pressures will continue to be a challenge for service providers

Macro Environment

ITO spending will be driven by larger buyers and will focus on outsourcing economics and service provider consolidation

Large service providers, both offshore and MNC, will benefit from this consolidation, leading to further growth disparity between large and small service providers

IO deals will increase driven by cloud and RIMO Strategic convergence between the large offshore and MNC service providers will continue

Growth

Cloud: In the past, technical and perception issues caused cloud adoption challenges. Investments in new and sophisticated solutions, and the renewed focus on outsourcing economics, will make cloud adoption more mainstream

Consumerization: Legacy hardware service providers and telecom firms (hosting providers) will create a strong push toward consumerization of IT. Continuous pressure by end users for better consumer devices will also drive buyers towards consumerization

Social networking: Rapidly accelerating use of social networking in workplaces will drive more corporate spend in this area

Disruption: Next Generation IT Adoption


Finance and Accounting Outsourcing (FAO) Predictions for 2012

The FAO sales cycle will continue to be long as buyers are still cautious about the macroeconomic environment Buyers will continue to favour a phased, as opposed to a “big bang”, approach While cost arbitrage continues to be a key driver, the real buyer expectation from FAO now is to transform processes

toward best-in-class performance

Macro Environment

The FAO market will experience ~15% YoY growth to reach US$4.5-5 billion in ACV India-to-India domestic BPO, and the Middle East and APAC regions, will continue their upward growth The demand for analytics and other specialized F&A services (e.g., regulatory compliance, internal audit) will continue

to increase

Growth

Verticalization of FAO services and industry-specific FAO offerings will play a strong role in shaping the FAO value proposition

Mature themes such as outcome-based and transaction-based pricing will find increased instances in FAO contracts 2012 will also see a stronger push for platform and BPaaS-based offerings (primarily catering to small and mid-market

buyers) The M&A activity witnessed in 2011 will continue to an extent in 2012

Disruption


Procurement Outsourcing (PO) Predictions for 2012

Acquisitions/partnerships between P2P-focused providers and S2C-focused providers are expected Adoption of SaaS-based technology solutions will increase The domain of PO deals will expand to cover other areas of supply chain More direct spend categories that are non-core, such as MRO (Maintenance, Repair, and Overhaul), will increasingly

become part of PO deals

Disruption

Buyers will take an end-to-end approach, concentrating on Source-to-Contract (S2C) and Procure-to-Pay (P2P) rather than discrete processes

CFOs will increasingly drive PO conversations, leading to deals with FAO-PO bundling

Macro Environment

The PO market will grow at ~20% YoY to reach US$1.8 billion in ACV The government sector will see activity, especially in the UK market Central and South America will join Asia Pacific as the regions with the fastest growth, albeit on a low base

Growth


Human Resources Outsourcing (HRO) Predictions for 2012

We will also see at least one provider exit the Multi-process HRO (MPHRO) market, creating opportunities for other providers to tap its existing clients

There will be further merger and acquisition activity, particularly in Recruitment Process Outsourcing (RPO) and Benefits Administration Outsourcing (BAO)

Service providers will invest in building robust analytics capability, especially to harness the power of social media

Buyers will increasingly approach HRO with a balanced set of outcomes, and adopt models that both address their short term needs and create a foundation to realize their long term objectives

Instead of auto-renewals, existing buyers will increasingly evaluate (but selectively adopt) alternate provider options Few traditional mid-market providers are likely to pursue large market opportunities

Macro Environment

The MPHRO market will continue to grow at a steady rate, and reach ~US$3.7 billion in terms of ACV We expect the high growth in standalone single process outsourcing, such as multi-country payroll, benefits, and

recruitment Adoption of HRO will gather further steam in emerging markets such as Brazil, Japan, India, and China While BPaaS will continue to be the dominant model in the mid-market, it will gain greater traction in the large market

Growth

Disruption


Poll Question #2: Are “cloudy” skies hanging around your organization?

What’s the overall level of technology “disruption” your organization anticipates experiencing in the next 12-18 months?

18%

32%

10%

40%

What disruption?

Yeah, we’re starting to deal with it

We’re in panic mode because we feel left behind

Got everything under control – moving ahead full steam

Source: Live polling conducted during the “2012 Global Service Market Predictions” webinar on January 19, 2012


Banking, Financial Services, Insurance (BFSI): Predictions for 2012

Multiple factors such as risk diversification, operational flexibility, and regulatory and risk management requirements will cause a higher number of acquisitions and partnerships among service providers

The entire BFSI sector will have to realign its IT environment to face the impact of the wide-scale regulatory reform, and minimize enterprise and credit risk exposure

In an increasingly competitive environment, providers will have to protect market share by enhancing local/regional expertise and capitalize on emerging growth opportunities (new markets, new business models)

There will be an increase in adoption of technology-bundled BPO solutions (BPaaS) and a rise in transactional pricing for BFSI BPO contracts

Disruption

While the U.S. and UK will continue to be the largest markets for BFSI outsourcing, emerging geographies in Asia Pacific and Latin America will contribute significantly more to growth in the segment

Within BFSI, banking will continue to account for the largest share of transactions, while capital markets will be the fastest growing segment at ~15% YoY

Growth

Buyers’ focus on managing costs, tighter regulatory controls, and need for centralized IT-BPO environments will be the key drivers for outsourcing activity in the BFSI sector – overall market expected to grow at 10-15% globally

Financial services buyers will look for balanced outcomes that focus on short-term objectives without compromising long-term growth. This will drive provider portfolio consolidation as buyers opt for fewer and more strategic relationships

BFSI Macro Environment


BFSI-BPO BFSI-AO

Banking, Financial Services, Insurance (BFSI): BPO and AO Predictions for 2012

Banking Within banking BPO, the rising cost of

servicing each loan, is causing lenders to seek out solutions that can help them standardize loan origination and convert fixed to variable costs; this will drive greater adoption of technology-enabled BPO solutions within the lending segment

Restoring growth, improving profitability, and reducing operational complexity will be the primary imperatives for banks, leading to investments in legacy modernization, and ERP initiatives. In addition, adapting to changing customer demands will create demand in areas such as mobility, social media, and channel integration

Capital markets

Beyond the back office, capital markets BPO will see increasing adoption in the mid office (regulatory compliance and reporting/order management and processing) and for some services in the front office (research, analytics)

Managing trade volatility will be a key front office priority in the capital markets domain; mid and back office priorities will be more focused on reference data/position management and modernization

Insurance Within insurance BPO, the L&P segment

will see greater activity than P&C. The growth in L&P will be driven by large Tier-1 insurers, while in the P&C segment it will be driven by Tier-2/Tier-3 insurers

Deteriorating underwriting results across geographies will place increasing pressure on insurance companies to invest in sophisticated underwriting solutions


Implications of our predictions

For Global Services Buyers

“Play the hand you’re dealt”

Providers of global services now better positioned than ever to deliver business value

This disruption wave is driven by you, the “consumer of IT”

Service provider reshuffling likely to continue in 2012

Growth will be tied to how well you engage clients around their challenges

The Next Generation IT market is amorphous and open to interpretation, so stay tuned…

For Global Services Providers


To ask a question during the Q&A session Input your question in the Q&A panel on the right

Be sure to keep the default set to ask “All Panelists”

If your Q&A panel is not visible, click the Q&A tab on the upper right-hand corner to open it

Attendees will receive an email with links to download today’s webinar presentation as well as access a recorded audio version

For more information on the webinar, please contact: – Katrina Menzigian, [email protected], VP, Research Relations – Rishabh Gupta, [email protected], Senior Research Analyst – Rajat Juneja, [email protected], Research Director – Abhishek Menon, [email protected], Research Director – Abhishek Singh, [email protected], Senior Research Analyst – Anurag Srivastava, [email protected] Senior Research Analyst

Q&A

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2012 Global Services Market Predictions:Context, Growth, Disruption

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