Moustafa Ghanem 26 September 2009

Transcription

1 Outsourcing to Non-BRIC countries Moustafa Ghanem 26 September 2009

2 Talk Outline Motivation How to chose an outsourcing destination Approach of talk Intro to LSE Report Motivation & Methodology: Pros and Cons My motivation: Other Sources I used: AT Kearney, LSE, World Technology Report, Country reports BRIC What and Why: BRIC Pressures & Perceptions Global Trends Non-BRIC What and Why: near shoring, culture fit, costs, quality. Comparisons Recommendations How to choose a Destination 2

3 Motivation Outsourcing on the rise $55 Bn. in 2008 (65% ITO, 43% BPO) at CAGR between 10-20% A lot of hype, a lot of noise BRIC, 120 other destinations, captives, capabilities, bl.. How to chose destination and supplier? Various sources 3

4 Outsourcing League Tables Source ATK Report

5 Supply Market Forecast Various sources 5

6 Approach of Talk Starting from a recent report by LSE Supplementary information from other sources 6

7 What is BRIC Source: Wikipedia 7

8 BRIC outsourcing 1. India (1) $Bn 40 Strong English law system Talented pool of skills Process centric culture & operation Mature Technology Good language skills / complaints on accent Not proficient in other languages Cost has risen dramatically Dominated by big players Good government support 2. China (2), $Bn 4 Strong work ethics Developing new systems expertise Less English proficiency Higher tax rate and more bureaucracy Rising costs Could achieve more Lower level of Government support 3. Brazil (12), $Bn 0.8 Geographically close to USE Educated d Labour pool High inflation and complicated tax structure Concerns about process and delivery Could achieve more More expensive than India Good government support 4. Russia (33), $Bn 3.65 String Process and Delivery Methodology Focus on R&D and S/W development English not Prevalent Cost not low Concerns about political instability Concerns on IPR laws Lack level of Government support 8

9 LSE Report Methodology 6 Criteria, 14 Countries Egypt (6), $750M-$900 Europe 6 countries Romania (19), $100M Bulgaria (13) Poland (38), $500M Slovakia (40) Czech Republic (32), $500M Belarus (-) North Africa 2 countries Morocco (30) Tunisia (17) South America 3 countries Costa Rica (23) Mexico (11) $650M Venezuela (-) Far East 2 countries Vietnam (10) the Philippines (7), $4.1Bn Population 4 BRIC = 2,800 Million Population LSE-14 = 474 Million Land area 4 BRIC = 38 Million Sq M Land area LSE-14 = 5 Million Sq M GDP 4 BRIC = $8.3Trilion GDP LSE-14 = $3.1Trillion 9

10 LSE Report: Outsourcing Trends 1. Rising spend on outsourcing 6. Promise of SaaS model 2. Growth of multi-sourcing 3. India s changing role 7. Growing shortage of skills in west 8. Increasing Near shoring trend 4. China s promise 9. Increasing KPO 5. Emerging country competition 10. Changing role of captives 11. Outsourcing Successes and Disappointments Painfully slow learning, Low margins for suppliers, Lack of client strategy Lax approaches to writing contracts, monitoring and managing deals Over-promising from suppliers who under-deliver deliver 10

11 LSE Report: Outsourcing Trends The impact of the global economic downturn Deferring project decisions Consolidating vendor relationships Delaying making decisions to commit to new contracts Negotiating down rates in current contracts Looking for dramatic cost savings, for example: o In new contracts, reducing the number of suppliers used o Cutting down on the use of outsourcing contractors o Contracting to offshore destinations for cheaper captive outsourced services o Cutting the amount of work carried out in existing deals o Clients looking for better and longer-term financing and asset transfer deals as part of their outsourcing arrangements. 11

12 LSE Factors and Scores: Overview 1. Cost 2. Availability of Skills 3. Environment 4. Quality of Infrastructure 5. Risk Profile 6. Market Potential LSE Case database (1000+) Analyst Surveys (18) Client/Supplier Interviews (50) Perception Analysis Scores 12

13 What other sources: WTR, World Bank database, ATK..? 13

14 Factors: Cost 1. Cost Labour costs (average wages for skilled workers and managers) Infrastructure costs (unit costs for telecom networks, Internet access and power, office rent) Corporate taxes (tax breaks and regulations, and other incentives for local investment) across potential outsourcing locations. Rising trend in European Country Costs Source LSE Report 14

15 Cost Rising trend in European Country Costs Source WTR. Mckinsey 15

16 Cost Monopoly vs Free Market Source WTR. Mckinsey 16

17 Cost Source ITIDA 17

18 2. Availability of Skills Factors: Skills Skill pool (size of labour pool with required skills) which include technical and business knowledge, management skills, languages, and ability to learn new concepts and innovate Vendor landscape (size of local sector providing IT services and other business functions). 18 More science base in European countries Language Skills are important Research base Source LSE Report

19 Skills 19 Source WTR. Mckinsey

20 Skills 20 Source ITIDA

21 Skills: Research Joint R&D Centre for Informatics Science (collaboration with Imperial College) Wireless Networks Centre (collaboration with Miami State) Microelectronic Centers (collaboration with Intel) Nano-electronics Centre (collaboration with IBM).. Industrial Funding for projects (Microsoft, IBM, Outsourcing companies..) Academic Programs ICT: Software Engineering, Informatics Wireless Technology, Cyber Security, EMBA: Advanced Executive Training, EMBA Case Studies & Case Study Development MOT: Education & Research on Competitiveness 21

22 Factors: Environment 3. Environment Government support (policy on foreign investment, labour laws, bureaucratic and regulatory burden, level of corruption) Business environment (compatibility with prevailing business culture and ethics) Living environment (overall quality of life, serious crime per capita) Accessibility (travel time, flight frequency, time difference). Government Support & Incentives Perceptions about corruption, organized crime, etc Source LSE Report 22

23 Environment Time to set-up a business Belarus Brazil Bulgaria China Costa Rica Czeck Egypt India Mexico Moroco Phillipines Poland Romania Russia Slovakia Swiss Tunisia Venzuela Vietnam Time to set Business Time to set Business 23 Source World Bank Database

24 Factors: Infrastructure 4. Quality of Infrastructure Telecoms and IT (network downtime, speed of service restoration, connectivity) Real estate (availability and quality) Transportation (scale and quality of road and rail network) Power (reliability of power supply). Legacy infrastructure vs. new zones Source LSE Report Infrastructure development mainly by Government 24

25 Infrastructure Various Sources 25

26 Infrastructure Source WTR. Mckinsey 26

27 Infrastructure: Internet Access Source: Internet 27

28 5. Risk Profile Factors: Risk Profile Security (personal & property security from fraud, crime and terrorism) Disruptive events (risk of labour uprising, political unrest, natural disasters) Regulatory risks (stability, fairness, efficiency i of legal l framework) Macroeconomic risks (cost inflation, currency fluctuation and capital freedom) Intellectual property risk (strength of data and IP protection regime). European political stability (Belarus exception) History of natural disasters and response Perception of poor IPR protection throughout Source LSE Report 28

29 Egypt IPR Risk Profile Intellectual Property Rights (IPR) for Software & Databases (law No: 82 for the year 2002) Draft Information Security & Cyber Crime Law (through a national task force led by ITIDA) Judicial Independence 29

30 Factors: Market Potential 6. Market Potential As a captive operation using local labour, infrastructure and resources As an outsourced operation using local IT service suppliers As an ITO/BPO supplier to organisations based in the host country and nearby region. Cultural fits, Language Skills, Proximity Links to other countries, Internal Market,.. Source LSE Report 30

31 Market Potential Regional hub linking the Mediterranean, Europe, Africa, Asia and the Arab World Gateway to Middle East & Africa Cultural fit: better relationships with Western European countries Nearshoring: Convenient, cost-effective destination for nearshoring for European companies. Small time zone difference with Europe Established relationship with BRICs Growing BPO/ITO collaboration between India and Egypt 31

32 Challenges & Recommendations For all Improving management skills o Capacity Building o Keep Management in Western Countries o Bring experts from abroad o It is not yet clear what the strategy is to address this on a wide scale. Transportation o Moving out from major cities and centres Working Hours o Synchronous collaboration o Legal working week Education o Synchronous collaboration o Legal working week For Egypt More focus on development work (ITO) Negative perception 32

33 Focus on management Source LSE Report 33

34 LSE Recommendation to Customer Offshoring and outsourcing will retain their criticality through recessionary as well as growth periods. High competitive opportunities in non-bric countries Choose based on right mix of cost, reliable service, Secure location (s). 34

35 Reconsider the Factors on case-by-case Cost Skills Environment Labour Infrastructure Taxes Pool Vendors Gov. Support Business Living Accessibility Infrastructure Risk Profile Market Potential Telecoms Real estate Transportation Power Security Disruptions Regulatory Macro-economic IPR Captive Outsourced BPO/IT Supplier 35

36 Other potential criteria (A. T. Kearney) Source ATK Report 36

37 Further recommendations 37

38 Focus on same Management Challenges Source Logica White paper 38

39 Further Recommendations Source Logica White paper 39

40 More Recommendations Source Logica White paper 40

41 Thank You 41