Dr. Randhir MishraRegional DirectorCentral and Eastern EuropeSatyam Computer Services Ltdrandhir_mishra@satyam.com

The International ICT Sourcing EcosystemThe International ICT Sourcing EcosystemKey value enablers…Key value enablers…

Agenda

The ICT value enablers Defining the EcosystemUnderstanding the key playersThe underlying economicsSome lessons from IndiaSatyam & international ICT sourcing

ICT international sourcing: Challenges

Offshore outsourcing is costing local jobs. There's a stigma to offshore outsourcing. The cost benefits of outsourcing are overstated. It's a buyer's market for IT workers right now anyway. There are huge cultural barriers. What about the other risks of outsourcing? The ROI of outsourcing hasn't been proved.

How it started: 2001 ICT Sourcing Worldscape

$ 550 Bn Total IT market

International Sourcing: 2003 ScenarioIndia• ITO :$ 9.5 b• BPO : $ 3.1 b

China• ITO :$700m• BPO : $ 210m

Philippines• ITO :$300m• BPO : $ 600m

Russia• ITO:$475m

Czech Republic• ITO :$26 m• BPO : $ 15 m

Hungary• ITO :$22 m• BPO : $ 10m

Canada• ITO:$ 8.0 b• BPO: $ 7.0 b

Mexico• ITO :$150m• BPO : $ 80m

LeadersLeaders

ContendersContendersChallengersChallengers

What does the market look like?

What has changed?

Better Prospects?Normal part of global trade (still controversial)

Controversial topic of public debate

Broader ConfidenceBetter understood and managedRisky

Better focusQuality and competence drivenCost driven

Broader baseLarge and SMBMainly Global 2000 enterprises

Broader acceptanceAcross geographiesMainly US focussed

Broader outlookMultiple location including developed economiesSourced from India

Global standards and acceptance

Multiple including the main consulting firms

Offered mainly by Indian firms

Mainstream activityMore diverse and complicated tasks

Plain application development

Hype to ROISustained value addShort term edge

Risk mitigation and closer controlRange of optionsBinary choice

(onsite/offshore)

Broader canvasGlobal sourcingOffshoreImplicationsPresentPast

CollaborateCollaborate

ConsolidateConsolidate

Y2K validates offshore sourcing

Global Expansion of local playersMove to United States/ EuropeGain “mind share”

New independent Service Providersg Move up IT Value chaing Look to acquire International Firmsg Become global end-to-end playersg Invest in new low-cost countries

Global players use international laborCreate subsidiaries offshoreTie-up with service providers in

Cross-country collaborationDevelopment of offshore BPOGrowth in offshore contact centers ReactReact

ExpandExpand

ValidateValidate

1995 – 1998 2005

Source :Gartner

International Sourcing Comes of Age

The ICT Value Enablers : Key location aspects

Offshore centers Offshore centers ActiOnActiOn sitesite Offsite / NearshoreOffsite / Nearshore

PlanningPlanningPrototypingPrototypingProject ManagementProject ManagementLocalizationLocalizationLanguage and Language and Culture Culture Business continuityBusiness continuity

Requirements Requirements Gathering & Gathering & PrioritizationPrioritizationStatement of Statement of WorkWorkImplementation Implementation signsign--off & off & Launch ApprovalLaunch ApprovalOnsite testingOnsite testingImplementationImplementation

Post implementationPost implementationHelp DeskHelp DeskSystem. Admin.System. Admin.MaintenanceMaintenanceIntegrationIntegration

Project ManagementProject ManagementTechnical DesignTechnical DesignBuild / ProgrammingBuild / ProgrammingUnit/Assembly TeUnit/Assembly TestingstingDocumentationDocumentation

Post Implementation Post Implementation SupportSupport

The answer: Source the service from the right location…

Nearshore:Nearshore:gEasier travelgCultural similaritiesgTime zone

Offshore:Offshore:gLower costsgTime to marketgResourcesgQuality

Onsite/Offsite

Nearshore:Mexico

Nearshore:Canada

Offshore:Ireland

Offshore:India

Offshore:Russia

Offshore:China

Current PrioritiesLonger-Term Prospects

Offshore:Philippines/Malaysia

Source :Gartner

Nearshore:East. EU

… Where It Makes Economic Sense

IndiaIndia• Application

Outsourcing• IT Services• BPO• Product Dev.• Contact Centers

CanadaCanada• Application Dev.• BPO• Contact Centers

IrelandIreland• Packaged Applications• Localization• Product Dev.

IsraelIsrael• High-End Software• Learning Systems

Philippines / Philippines / Malaysia :Malaysia :• BPO• Contact Centers• Animation• Application Dev.

Specialization by Niche in the EcosystemEastern EuropeEastern Europe• Software Engineering / App Dev.• BPO / Contact Centres

ChinaChina• Embedded Software• Hardware Services• Localization• Application Dev.

Source :Gartner

Satellite Based Communication

Near Shore BenefitsNear Shore BenefitsProximity ComfortLocal Language Easy Buy-in

OffshoreNearshore

Satyam Rightsourcing Model The approach:• Optimum mix between onsite,

nearshore, and off-shore • Use of dedicated development

centers around the world• “24 X 7” delivery model

Onsite / Client Location

Value propositionValue propositionBrings the customer the most suitable and optimal combination of Onsite, Offshore and Nearshore delivery capabilities to provide the best cost and time advantage.

A Case – India

Source: Mckinsey Interviews

• Established methodologies and processes being rapidly adopted for better performance

• Well defined quantifiable metrics for quality and process

• Access to highly qualified – skilled pool

• Faster turnaround time • Time zone difference • 24X7 service

• Learning curve effect, given increased activity across companies and increased centralization within company

• 40%-60% cost reduction for offshored process • Differential in wages from the US 0r UK parent location at

approx 70%-80%.• Interaction costs increase 10%-20% bcoz of India being a

remote location….thus net savings of 40%-60%• Labor cost arbitrage, the reason for cost savings likely to exist for

next 20-30 years

QualityQuality ProductivityProductivity

CostCost

Key value Key value propositionproposition

World class quality

Shorter development cycles

Innovative, phased and tailored

approach

Ability to offer Solutions across

the Globe

Expertise and talent across the

globe

Local Language flexibility

Ability to execute strategic

partnership

…Not merely lower cost but also...

How the benefits accrue

Other Sources of Advantage for Buyers

Experience/

Speed

Experience/

Speed

Technology platform* conversions and renewalsProcess standardization and innovationOperations and people management

Access to FinancingAccess to Financing

Ability to variablize fixed costs and smooth out up front expensesAbility to operate with lower costs of capital by leveraging debt financing against cash flows from long term agreements

Proprietary Systems &

Tools

Proprietary Systems &

Tools

Custom applications, tools, and interfaces to increase efficiency

Drivers of Cost Advantage for Buyers

Transaction Volume

Cos

t Per

Tra

nsac

tion

(Inde

x)

58

68

85

100 Impact ofDomain expertiseSig-Sigma process excellenceTechnology infrastructure“Lean and mean” operationsProcess and overhead scale

Impact ofLower labor ratesOffset by higher communication costsRationalized management costs

Client Volume Outsourcer Volume

Client Today

Client With Shared

Services

U.S. Outsourcer

Outsourcer With international

sourcing Capabilities

15%

-25%

10%

-20%

+

* When sourcing business processes, I/T components are also included

Government Role: Laws and RegulationMaking the existing laws more Industry friendly Giving tax exemption for exporting IT enabled software outsourcing services Deregulation & liberalization policiesRemoved restrictions on investment and easier investment processEnactment of Cyber Legislation Developing a stronger data protection and privacy law with industry participationReduced licensing requirements and import subsidies to make foreign technology accessible.All policies are custom made, keeping in mind the need to achieve maximum benefit to the outsourcing industry

Key focus area for industry stimulationInvestments

InfrastructureEducation including vocational trainingGovernment IT usage

PolicyIndustry facilitating tax and regulationSupporting new technologyResearch and DevelopmentEncourage travel

Increase CompetitionOpen foreign tradeEasy immigration and labour movementState level international forums and tie-upsInternational tendering for state-projects

Country level benefitsOverall economic gain

Increased exports and export oriented growthJob creation due to new roles and activitiesEfficiency and productivity gains

Positive and negative impact of IT skills redistributionBalanced human capital developmentEnhanced local skill levelsAccess to new labour marketsAccess to latest technology and process competencies

Global citizens due to IT automation v/s distant IT workersBetter world with enhanced sensitivitiesBetter quality of life

Pioneers in the concept of IT services remoting…

About Us…

21,000 people 47 countries, 20 development centres

Youngest of the pack

Fastest growing 47% + from 1997

Serves 6 of global 10 &104 of F-500

325 plus clients, long standing relationships

Strong learning culture; domain focus

Process innovator (CMU) and quality leader

Multiple national and international recognition

20 development centers spread across the globe Operations in 45 countries across 6 continents and across approximately 25 time zones

Globalization : Infrastructure to support a global delivery model

Dr. Randhir MishraRegional DirectorCentral and Eastern EuropeSatyam Computer Services Ltdrandhir_mishra@satyam.com

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Still needs much nurturing…Still needs much nurturing…