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All The World’s A StageThe Offshoring Opportunity for Developing Countries
Randeep SudanGlobal ICT Department
The World Bank
2
Offshoring
• McKinsey & Co.– Addressable market for global offshoring is above $300 billion– Only 10% realized so far ($18.4 billion in IT and $11.4 billion in BPO)– $110 billion by 2010
• Growth– India: BPO exports grew at 44.5% during 2004-05– Philippines: Call center seats increased from 40,000 to 70,000 during 2004-05
• Companies– Progeon grew at 275% during 2003-04 and at 145% during 2004-05– Net margin of 24.3%, gross margin of 44%
3
The Opportunity
“So much more lies ahead. In the next five years, India's offshore industries could generate US$60 billion in export revenues, account for 17 percent of GDP growth, pay for a massive infrastructure build-out, and sustain around 9 million jobs. Saudi oil, Japanese cars, and Indian services—some industries can truly transform a nation.”
Nasscom-McKinsey Report 2005
4
Theoretical Maximum Global Resourcing in Sectors Evaluated is Approximately 18.3 million Jobs
18.34.5
4.6
0.30.22.3
3.3
2.8
0.3
PackagedSoftware
IT Services Banking Insurance Pharma Auto Healthcare Retail Totaltheoretical
maximum inindustriesevaluatedShare of
industry’s total employment percentage
49 44 25 19 13 11 8 3
Source: McKinsey Global Institute
8.7 million
7
Drivers
• New buzzwords– Transformational outsourcing, the totally disaggregated corporation, the virtual
globally distributed corporation
• Processes on sale– Budget airline: Accenture’s Navitaire unit can manage reservations, plan
routes, assign crew and calculate optimal prices for each seat.– Market research: Evalueserve Inc. will within a day assemble a team of Indian
patent attorneys, engineers and business analysts, start mining global databases and call dozens of US experts and wholesalers to provide an independent appraisal
Source: BusinessWeek
8
Potential Across the Value Chain
Source: NASSCOM-KPMG 2004
Finance and Accounts
Product Development
Human Resources Management
Technology ServicesIn
bo
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Lo
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tics
Ma
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fact
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/ O
pe
ratio
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tbo
un
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Ma
rke
ting
an
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Sa
les
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sto
me
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erv
ice
Human Resources• Payroll Processing• Recruitment and
selection support• HRIS
IT Services and Support• Custom development• Systems integration• Hosting / maintenance• Customer help desk /
support
Operations / logistics• Order tracking• Order / claims /
application processing• Payments processing
Sales / Marketing and Customer Service
• Tele-sales• Order Processing• Customer services and
Complaints• Help-desk
Finance and Accounting• Back-office• Accounts
payable/receivable• Financial reporting• Finance accounting• Revenue accounting
Research / Design and Development
• Clinical research• VLSI design• DSP chip design• Avionics research• Engineering design
services• Legal research
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Global Market for IT Enabled Services (Estimates for 2008)Source: NASSCOM-McKinsey Report
41%
19%3%
2%
6%
19%
6% 4%
Customer Interaction Services Finance and Accounting Services
Translation, Transcription and Localization Engineering and Design
HR Services Data Search, Integration and Management
Website Services Market Research
10
Manpower AvailabilityIncludes engineers, finance and accounting analysts, life science researchers and professional generalists with less than 7
years experience. It excludes: doctors, nurses and support staff
1773
727
654
514
427
293285
242232
210
1029
6386
0
1000
2000
3000
4000
5000
6000
7000
India China Russia Philippines Turkey Thailand Poland Brazil Mexico Indonesia 18 otherlow-wagecountries
Totalsuitable
low-wagesupply (28countries)
28
11
10
87
54 4
43
16 100
Source: McKinsey & Co.
11
Wage Increases in India (US$)
4082 4213 4496 5852 6628
0
5000
10000
15000
20000
25000
30000
35000
40000
2000 2001 2002 2003 2004
13585 1465316319
25822
31131
0
5000
10000
15000
20000
25000
30000
35000
40000
2000 2001 2002 2003 2004
Entry Level Software Developer Project Manager
Source: McKinsey & Co.
13%
23%
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Country Strategies
• Russia– Technoparks in St.Petersburg, Novsibirsk, Nizhny Novgorod, Dubna planned– Social Security tax lowered from 26 to 14%, VAT exemption on exports
• Nicaragua– ProNicaragua: $3 million for a 500 seat call center in Managua– Full exemption from income and capital gains tax– No duties, VAT and property taxes
• Botswana– 200% credit on employee training programs– Exemption from VAT, flat corporate tax of 15% until 2020
• eGhana
13
Establishing a niche
• Singapore– Positioned itself as a safe location for sensitive high-end activities, with
particular emphasis on business continuity, IP protection and data privacy
• Israel– Promoting itself as an ideal location for upper-end R&D, as well as multilingual
support centers
14
Andhra Pradesh
• Area: 275,000 sq kms• Population: 80 million• Per capita income: ~$500
37
153
313
520
714
0
100
200
300
400
500
600
700
800
2001 2002 2003 2004 2005
Exports of IT Enabled Services from AP ($mn)
15
Strategy Elements
• Marketing – Annual Meetings of the World Economic Forum at Davos
• Infrastructure – Telecom, office space, power, roads, airport, civic authority
• Talent Pool – Engineering colleges, Indian School of Business, International Institute of IT– Accent neutralization training
• Policy– ITES as essential service– Self Certification– APFIRST
16
The Offshore Imperative
“…if you don’t do it, you won’t survive.” Daniel Marovitz Technology Managing Director, Deutsche Bank quoted in BusinessWeek