Global IT-BPO Outsourcing Deals Analysis Annual Analysis for 2013

Transcription

1 Global IT-BPO Outsourcing Deals Analysis Annual Analysis for 2013 January 2014

2 About Global IT-BPO Outsourcing Deals Analysis Global IT-BPO Outsourcing Deals Analysis is a quarterly analysis of IT-BPO outsourcing contracts signed across industries and geographies, with a total contract value (TCV) of USD 5 million and above per deal. The KPMG Shared Services and Outsourcing Advisory (SSOA) publishes this analysis every quarter. Methodology: The analysis and findings presented in this report are based on select third party market research and publicly available outsourcing data as identified throughout this presentation. It does not include contract information gathered from KPMG Sourcing Advisory business engagements. For more information on this market research please get in touch with Shailesh Narwaiye (snarwaiye@kpmg.com). Disclaimer: The information contained here in is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. 1

3 Foreword We wish you a very happy new year. We are at the beginning of the year 2014 and it is worthwhile looking back at the achievements and roadblocks for past year and plan for a better future. It gives us great pleasure to bring to you the year-end 2013 edition of the KPMG Global IT-BPO Outsourcing Deals Analysis. The current edition looks at IT-BPO outsourcing contracts signed in the last four years, from 2010 to 2013, and identifies the major trends influencing the market. This report also includes our regular analysis feature for the latest quarter Q (October December). The IT-BPO market was somewhat weaker in 2013 compared to 2012, as represented by a marginal drop with total deal value decreasing by 3 percent and the total number of deals decreasing by 7 percent. ASPAC results suffered the most from a lack of large deals in the market. Smaller deal sizes have become the new normal in the market with average contract size across all bands continuing to drift downwards. The Unites States fiscal cliff negotiations could add to complexity in the outsourcing sector of the region, especially in the public sector and in the aerospace and defense industry. Buyers seeking greater access to Social media, Mobility, Analytics, and Cloud services will increasingly drive growth in the market though to the benefit of a broader and more diverse range of providers than with traditional outsourcing. 2

4 Contents Section 1: Global Deals Overview of last 4 years Section 2: Deal Analysis: 2013 Section 3: Deals by Geography Section 4: 4Q13 Deal Analysis Section 5: IT-BPO Outsourcing Outlook

5 Section 1 Global Deals Overview of last 4 years

6 4Q13 KPMG Global Shared Services and Outsourcing Pulse Survey Market Overview Macro trends Negative global economic conditions continue to weigh heavily on organizations decisions on how, where, and why they source services globally, though few firms are pulling back from global sourcing of services globalization. Global business services (GBS), combining onshore, nearshore, and offshore shared services and outsourcing, has become the predominant means through which organizations support global operations. Many organizations GBS remain fragmented across functions, geographies, and business units, complicating governance and detracting from potential business benefits. Defined efforts to drive GBS maturity are the norm among more experienced and sophisticated GBS users. Traditional generic and transactional outsourcing continues to commoditize. Cloud and client maturity are major drivers for this, especially in IT. Buyers are seeking more platform solutions tailored to specific industry, geographic, and regulatory needs. There is a growing bifurcation between leaders and laggards in the service provider market based on industry and business process experience and diversity of services mix, including cloud and analytics. Current market trends Talent shortages and talent management challenges have supplanted negative global economic conditions and weak demand for goods and services as the top challenge facing organizations. This is one driving factor for ongoing increased adoption of global service delivery models. The clear top initiative cited for organizations in 2014 remains continuing to drive down operating costs, though many firms face diminishing returns from these efforts. Enhancing global service delivery chains and excelling at GBS as well as finding, attracting, and retaining talent globally are also top priorities for 2014 There is a general sense of pessimism about general market conditions with mixed expectations on global economic growth and growing concerns over inflation and the rising cost of living, especially in Asia Pacific. Overall, buyer organizations appetites to undertake change efforts fell in the quarter after several quarters of improvement. Cautious buyers and the increased focus on process automation, often delivered via cloud services, will create growing challenges for third-party services providers that have relied on high-skilled yet lower-cost labor as a differentiator. Download KPMG s Shared Services and Outsourcing Pulse Surveys at: 5

7 The Summary Key Messages Of the four years ( ) analyzed, the year 2010 was the strongest year for outsourcing demand. Deals signed in 2010 had an average total contract value (TCV) of USD 115 million compared to USD 83 million, USD 95 million and USD 99 million in 2011, 2012 and 2013 respectively Worldwide in 2013, 1,075 ITO contracts worth USD billion and 246 BPO contracts worth USD 20.3 billion were signed Globally, 152 IT-BPO Bundled deals were signed in 2013 with aggregate contract value of USD 13.7 billion Average deal tenure for contracts in 2013 was 4 years 7 months which is almost same as the previous three years, indicating the continuity of the market s proclivity towards smaller tenure deals Defense and Government were the top two consumers of IT-BPO services contributing 42 percent, and 25 percent respectively of the total deal value signed in Telecom and Banking & Financial Services were the next biggest contributors by deal value IT Bundled Services and KPO (Knowledge Process Outsourcing) Services contributed USD 35.1 billion and USD 6.3 billion respectively and were the largest procured services globally within ITO and BPO outsourced services respectively, in 2013 Average annualized contract value in 2013 was USD 21.7 million as compared to USD 19.5 million during 2012 showing an increase of around 11 percent 6

8 Global Quarterly Deal Movements Snapshot Deal Value 4Q12 4Q Number of deals 1, % Total Deal Value USD billion Quarterly movements of global IT-BPO deals* % % 32.4 Number of Deals 1, Total Deal Value USD billion % +24% Number of Deals 1, Total Deal Value USD billion % 516-3% Number of Deals 1, Total Deal Value USD billion No. of deals 4Q12 4Q % Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Value (USD billion) No. of deals *The term deals is interchangeably used with contracts throughout the analysis unless otherwise specified. Deals analyzed are global sourcing contracts of size USD 5.0 million and above only. 4Q13 witnessed an unexpected fall in deal volume with total deal value reducing to nearly one-half and total number of deals decreasing by 37 percent as compared to 4Q12 The average deal value decreased by 21 percent compared to 4Q12 Despite weak performance in the last quarter, the overall deal activity for the year 2013 showed only a marginal decline with total deal value decreasing by 3 percent and number of deals decreasing by 7 percent 7

9 Annualized Contract Value Y-o-Y Comparison Annualized* contract value comparison ,000 30,974 3% increase % increase 4 years 7 months 4 years 7 months ,117 40,901 28% increase 41% decrease years 6 months 4 years 7 months ,500 13,500 23,500 33,500 43,500 Total Annualized Contract Value (USD million) * Annualized contract value = ( total value of a contract / tenure in months ) x 12 Contract value for contracts having tenure less than 1 year is considered as annualized value for the analysis. Graph is not to scale and only represents the division across different parameters 0.55 Minimum annualized contract value Average annualized contract value (USD million) Average tenure per contract 1042 Maximum annualized contract value Note: All values in USD million unless otherwise specified There was a nominal increase of 3 percent in total annualized contract value in 2013 as compared to 2012 There was an 11 percent increase in average annualized contract value in 2013 as against 2012, while the average deal tenure remained constant at 4 years 7 months 8

10 Sector Analysis Y-o-Y Comparison Trends in deal movement from 2009 to 2013 Sector Total Contract Value Total Number of Contracts Average Contract Value 2009-> > > > > > > > > > > >2013 Automotive & Aerospace 762% -41% -48% 5% 80% 44% -15% 5% 379% -59% -38% 1% Banking & Financial Services 44.2% -24.6% -39% 40% -12% -14% -19% 24% 63% -12% -25% 13% Defense 15% -56% 118% 31% 8% -34% 78% 10% 7% -33% 22% 19% Energy & Utilities -6% -47% 46% 10% -21% -16% -12% 29% 18% -37% 66% -15% Government 34% -41% 8% -33% 13% -13% -10% -22% 19% -32% 20% -14% Insurance -67% 44% 39% -72% -33% -37% 39% -41% -51% 126% 0% -52% Manufacturing -14% -63% 28% -48% -36% -38% -6% -5% 34% -39% 36% -45% Pharma & Healthcare -71% 88% -12% -3% -34% 12% -13% -51% -56% 68% 1% 99% Publishing, Media & Entertainment 181% -66% -69% 105% 117% -57% -61% 109% 30% -22% -21% -2% Retail -61% -9% 24% -40% -33% 13% -22% -18% -41% -20% 58% -27% Telecom -90% 307% 85% 26% -71% 30% 170% -23% -66% 212% -31% 63% Travel & Logistics -9% -25% -29% -15% -45% -25% -5% 0% 66% 0% -25% -15% Others* 73% -59% -34% 22% -10% -12% -29% -12% 92% -53% -7% 39% *Others: Construction, Consumer & Recreational Services, Education, Professional services, Securities and investment services, Social services, Trade unions, Technology, Wholesale Decrease >25% Decrease <25% No change Increase <25% Increase >25% Banking & Financial Services, Defense, Publishing, Media & Entertainment and Telecom exhibited > 25 percent growth in terms of value over 2012 while Government, Insurance, Manufacturing and Retail sectors had a >25 percent decrease in total contract value Continuous growth in the total contract value was observed across Defense, Energy & Utilities and Telecom since 2010 Insurance and Pharma & Healthcare displayed >25 percent decrease in number of contracts in 2013 over

11 Deal Analysis Y-o-Y Comparison Trends in deal movement from 2009 to 2013 Deal Type Total Contract Value Total Number of Contracts Average Contract Value 2009-> > > > > > > > > > > >2013 ITO 4% -46% 25% -6% -11% -20% 5% -14% 18% -32% 19% 9% BPO 23.1% -19.9% 9% 4% -21% -13% 6% 9% 55% -8% 3% -4% Bundled 64% -10% 50% 8% 27% -15% 69% 27% 29% 6% -11% -15% Less than USD 100 MN -11% -16% 17% -7% -13% -13% 4% -10% 2% -3% 13% 3% Betw een USD MN 4% -46% 65% 2% -7% -38% 41% 5% 12% -12% 17% -3% More than USD 500 MN 21% -48% -3% -7% 10% -38% -4% -2% 10% -15% 1% -6% Less than 1-year -56% 163% 45% 123% -56% 78% 92% 11% 0% 48% -24% 102% Betw een 1 to 5-years 43% -43% 54% -29% -8% -21% 7% -14% 56% -28% 44% -17% More than 5-years -15% -40% -9% 40% -19% -18% 1% 15% 4% -27% -10% 22% Decrease >25% Decrease <25% No change Increase <25% Increase >25% BPO and bundled deals have grown steadily over the last 2 years in terms of both total contract value and number of contracts but ITO deals declined in 2013 in TCV and numbers over the previous year with decrease being < 25 percent While deals with TCV between USD MN grew, deals less than USD 100 MN and deals more than USD 500 MN decreased in 2013 as compared to 2012 Both deals more than 5-years long and less than 1-year long grew by > 25 percent but deals with tenure between 1 to 5-years had poor deal activity with a decrease > 25 percent in TCV in 2013 over

12 Section 2 Deal Analysis: 2013

13 Deal Value Global sourcing snapshot 2013 Total contract value USD billion IT-BPO deals* signed in 2013 (Total Contract Value = USD billion) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Bundled 13.7 BPO 20.3 ITO * Deals analyzed are USD 5.0 million and above only, throughout the analysis. Graph is not to scale and only represents the division across different parameters. Figures may not add up to 100 percent due to rounding off # Hybrid pricing includes a combination of various pricing mechanisms ASPAC 8.8 EMA 39.1 Americas 97.6 More than USD 500 MN 46.3 Between USD MN 66.3 Less than USD 100 MN 32.9 More than 5-years 73.0 Between 1 to 5-years 69.2 Hybrid 57.2 Fixed Price 82.2 Less than 1-year 3.3 Services Region Contract Value Tenure Pricing 3.3 Others 2.8 Time and Material # ITO deals contributed 77 percent of the total deal value in 2013, a 6 percent drop from 2012 Organizations from the AMERICAS region continue to contribute to the majority of the deals, followed by EMA. Contribution of ASPAC has decreased from 12 percent in 2012 to 6 percent in percent value was contributed by 3 percent of deals of sizes USD 500 MN and above. Deals between USD MN continue to be the majority in 2013 as was the case in

14 Number of Deals Global sourcing snapshot 2013 IT-BPO deals* signed in 2013 (Total Number of Contracts = 1,473) 100% 90% 80% 70% Bundled 152 BPO 246 ASPAC 134 EMA 452 More than USD 500 MN 50 Between USD MN 291 More than 5-years Others 15 Time and Material Hybrid 522 # Total contracts 60% 1,473 50% 40% 30% ITO 1,075 Americas 887 Less than USD 100 MN 1,132 Between 1 to 5-years 1,048 Fixed Price % 10% 0% * Deals analyzed are USD 5.0 million and above only, throughout the analysis. Graph is not to scale and only represents the division across different parameters. Figures may not add up to 100 percent due to rounding off # Hybrid pricing includes a combination of various pricing mechanisms Less than 1-year 102 Services Region Contract Value Tenure Pricing Bundled deals grew the fastest with a 27 percent increase in number of deals in 2013 over 2012 Shorter tenure deals (Less than 1-year) were a minority of overall deals but exhibited an 11 percent increase in contract numbers as compared to percent share by volume was contributed by deals having either Hybrid or Fixed price model 13

15 Sector Analysis IT-BPO deals across sectors by value and numbers TCV : USD billion No. of contracts: 1,473 Deal Value (USD billion) Sector-wise break-up of deals in Banking & Insurance Automotive Travel & Manufacturing Energy & Pharma & Publishing, Financial & Logistics Utilities Healthcare Media & Services Aerospace Entertainment * Others: Business federation, Construction, Education, Lottery company, Professional services, Securities and investment services, Social services, Trade unions, Technology, Wholesale Graph is not to scale and only represents the division across different parameters. Figures may not add up to 100 percent due to rounding off Retail Telecom Others * Defense Government Q Q Q No. of contracts Insurance, Automotive & Aerospace and Publishing, Media & Entertainment sectors exhibited multifold growth in deal values in 4Q13 as compared to 3Q13 While the Defense and Government sectors continue to lead deal activity contributing to 67 percent of the total deal value in 2013, 4Q13 witnessed a sharp drop in their deal activity with 55 percent and 74 percent decrease respectively in total deal value Q

16 Section 3 Deals by Geography

17 Geography Analysis IT-BPO deals across geographies: Y-o-Y Comparison * Deals originating from the geography AMERICAS TCV (%) 61% 57% 64% 67% Total Contract Value (USD billion) Geography-wise break-up of deals* 887 No. of Contracts EMA TCV (%) 34% 38% 24% 27% ASPAC TCV (%) 5% 6% 12% 6% AMERICAS continued to be the major outsourcing region contributing 57 percent of the total deal value in 4Q13. However, the value of deals in the quarter decreased by 59 percent as compared to 4Q12 EMA was the strongest market this quarter in terms of growth with 25 percent increase in deal value as compared to 4Q12, though the number of deals decreased marginally by 9 percent ASPAC was the worst hit market this quarter with a decrease of 75 percent in value of deals as compared to 4Q12, but number of deals increased by 10 percent over the same period. It was the only region that observed a significant drop in deal value in the year 2013 with a decrease of 53 percent as compared to the year

18 AMERICAS

19 Geography Analysis IT-BPO deals in AMERICAS: Value & Number of deals Geography-wise break-up of deals* Total Contract Value (USD billion) ($68.6 billion) ($95.7 billion) ($97.6 billion) After a sharp dip in 1Q13, the IT-BPO market recovered in 2Q13 and 3Q13, but slowed significantly in 4Q13 * Deals originating from the geography Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q ITO BPO Bundled While BPO and bundled deals showed a substantial increase in deal value in 4Q13 over 3Q13, a sharp drop of 69 percent was observed in deal activity of ITO deals The region showed a slight growth of 2 percent in 2013 over 2012 Number of Contracts Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q (720) (916) (887) ITO BPO Bundled 18

20 Geography Analysis IT-BPO deals in AMERICAS: Sector-wise break-up Sector-wise break-up of deals Banking & Financial Services Insurance Automotive & Aerospace Travel & Logistics Manufacturing Energy & Utilities Pharma & Publishing, Healthcare Media & Entertainment Retail Telecom Others* Defense Government * Others: Business federation, Construction, Education, Lottery company, Professional services, Securities and investment services, Social services, Trade unions, Technology, Wholesale Graph is not to scale and only represents the division across different parameters. Figures may not add up to 100 percent due to rounding off All figures in USD billion No. of deals Government and Defense sector of AMERICAS region remain the strongest users of outsourcing in 2013 Despite 38 percent growth in deal value in Defense in 2013, which was the largest contributing sector, the region exhibited a nominal growth of 2 percent in TCV in 2013 over

21 EMA

22 Geography Analysis IT-BPO deals in EMA: Value & Number of deals Total Contract Value (USD billion) ($45.4 billion) ($35.9 billion) ($39.1 billion) While bundled deals exhibited multifold growth (although low in numbers), both ITO and BPO deals declined in 4Q13 over 3Q Geography-wise break-up of deals* Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q ITO BPO Bundled The deal movement by category (ITO, BPO, Bundled) in EMA was similar to AMERICAS in 4Q13 as compared to 3Q13 with 41 percent drop in ITO deal value Deal values in EMA showed better growth than AMERICAS with an increase of 9 percent in 2013 as compared to Number of Contracts Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q * Deals originating from the geography (597) (508) (452) ITO BPO Bundled 21

23 Geography Analysis IT-BPO deals in EMA: Sector-wise break-up Sector-wise break-up of deals Banking & Financial Services Insurance Automotive & Aerospace Travel & Logistics Manufacturing Energy & Utilities Pharma & Publishing, Healthcare Media & Entertainment Retail Telecom Others* Defense Government * Others: Business federation, Construction, Education, Lottery company, Professional services, Securities and investment services, Social services, Trade unions, Technology, Wholesale Graph is not to scale and only represents the division across different parameters. Figures may not add up to 100 percent due to rounding off All figures in USD billion No. of deals The Government continues to be the dominant consumer of IT-BPO services in the EMA region, however, 2013 saw the bounce back of the Telecom and the Banking & Financial Services sectors Banking & Financial Services, Publishing, Media & Entertainment and Telecom exhibited >100 percent growth in deal value over

24 ASPAC

25 Geography Analysis IT-BPO deals in ASPAC: Value & Number of deals Geography-wise break-up of deals* Total Contract Value (USD billion) ASPAC was the only region where the volume of IT- BPO contracts increased in 4Q13 as compared to 3Q13 With TCV of contracts signed in the region remaining nearly same in last two quarters of 2013 and volumes increasing by 38 percent between same quarters, small value contracts are a key trend in 4Q13 as compared to 3Q13 * Deals originating from the geography ($7.0 billion) ($18.8 billion) ($8.8 billion) ITO BPO Bundled Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q ASPAC has been worst hit in 2013 with a decrease of 53 percent in overall deal value as compared to 2012 Unlike other regions, ITO deals in ASPAC showed a marginal growth of 3 percent in deal value in 4Q13 over 3Q Number of Contracts Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q (147) (166) (134) ITO BPO Bundled

26 Geography Analysis IT-BPO deals in ASPAC: Sector-wise break-up Sector-wise break-up of deals , ,079 5, , ,423 1,969 1, Banking & Financial Services Insurance Automotive & Aerospace Travel & Logistics Manufacturing Energy & Utilities Pharma & Publishing, Healthcare Media & Entertainment * Others: Business federation, Construction, Education, Lottery company, Professional services, Securities and investment services, Social services, Trade unions, Technology, Wholesale Graph is not to scale and only represents the division across different parameters. Figures may not add up to 100 percent due to rounding off Retail Telecom Others* Defense Government All figures in USD million No. of deals The Government and Telecom are the top outsourcing sectors in the ASPAC region Y-o-Y. In 2013 these sectors together contributed 72 percent of the TCV for the region Automotive & Aerospace and Manufacturing Sectors demonstrated multifold increase in TCV in 2013 over Travel & Logistics sector exhibited a growth of 39 percent over same period while all other sectors showed a drop 25

27 Section 4 4Q13 Deal Analysis

28 Deal Value Global sourcing snapshot Oct to Dec 2013 IT-BPO deals* signed in 4Q13 (Total Contract Value = USD 28.0 billion) 100% 90% 80% 70% Bundled 1.9 BPO 6.4 ASPAC 2.2 EMA 9.7 More than USD 500 MN 6.6 More than 5-years Others 1.0 Transactional Hybrid# 5.3 Total contract value USD 28.0 billion 60% 50% 40% 30% 20% 10% 0% ITO 19.7 Americas 16.0 Between USD MN 14.1 Less than USD 100 MN 7.3 Between 1 to 5-years 15.4 Less than 1-year 1.9 Fixed Price 21.6 Services Region Contract Value Tenure Pricing * Deals analyzed are USD 5.0 million and above only, throughout the analysis. Graph is not to scale and only represents the division across different parameters. Figures may not add up to 100 percent due to rounding off # Hybrid pricing includes a combination of various pricing mechanisms While ITO deals continue to dominate the outsourcing space, the total ITO deal value has declined by 59 percent in 4Q13 over 3Q13. Contribution of BPO deals have increased from 9 percent in 3Q13 to 23 percent in 4Q13 Though AMERICAS is the largest outsourcing region contributing 57 percent of the total deal value in 4Q13, the deal value has declined 56 percent as compared to 3Q13 4Q13 saw the continued dominance of Fixed Price contracting model, contributing 77 percent of the deal value, followed by Hybrid model, contributing 19 percent 27

29 Number of Deals Global sourcing snapshot Oct to Dec 2013 IT-BPO deals* signed in 4Q13 (Total Number of Contracts = 326) 100% 90% 80% Bundled 17 BPO 48 ASPAC 44 More than USD 500 MN 10 Between USD MN 62 More than 5-years 46 6 Others 4 Transactional Hybrid# 85 Total contracts % 60% 50% 40% 30% 20% ITO 261 EMA 113 Americas 169 Less than USD 100 MN 254 Between 1 to 5-years 246 Fixed Price % 0% Less than 1-year 34 Services Region Contract Value Tenure Pricing * Deals analyzed are USD 5.0 million and above only, throughout the analysis. Graph is not to scale and only represents the division across different parameters. Figures may not add up to 100 percent due to rounding off # Hybrid pricing includes a combination of various pricing mechanisms Though the contracts under USD 100 million in size have decreased by 15 percent in volume in 4Q13 over 3Q13, their contribution has increased to 78 percent from 71 percent in 3Q13 While both longer tenure deals (tenure more than 5 years) and deals with tenure between 1 to 5 years have exhibited substantial decrease in deal count as compared to 3Q13, shorter deals with tenure less than 1 year have increased by 26 percent during the same period 28

30 Services Segmentation ITO Services Analysis of ITO deals 4Q13 Total Value of contracts (USD Billion) ERP 2.7% IT Products 3.1% SI 6.1% IT Infrastructure 17.6% ADM 13.4% ICT Services 25.3% IT Bundled services 26.8% Other IT Services IT Consulting 3.1% 1.9% ADM ERP ICT IT IT IT IT SI Other IT Total Bundled Conslt. Infra. Products Services ITO Number of Deals Note: Size of bubble indicates percentage share of the total number of ITO deals SI System Integration, Other IT services Software testing, IT helpdesk support services, Cyber security Value of contracts (USD Billion) Note: All values in USD billion. Scale of graph is just representative to illustrate the division across different parameters. Figures may not add up to 100 percent due to rounding off. Refer L.H.S. figure for legend IT Bundled services, ICT Services, IT Infrastructure and ADM together contributed 92 percent of all ITO deals in terms of value during 4Q13 Despite the multifold increase of deal values in ADM and IT Products, the overall ITO deal value decreased by 59 percent in 4Q13 as compared to 3Q13 A 20 percent decline in deal count over the 3Q13 was observed with maximum drop of 73 percent occurring across System Integration contracts 29

31 Services Segmentation BPO Services 5,000 Analysis of BPO deals 4Q13 Total Value of contracts (USD Million) 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Content Management 2.1% F&A 4.2% Transactional Services 12.5% BPO Bundled services CRM 10.4% 8.3% Number of Deals Note: Size of bubble indicates percentage share of the total number of BPO deals Other BPO services Service desk monitoring services, Procurement KPO 35.4% Other BPO Services % 0 HRO % BPO Content Bundled Mgmt. Services , ,011 CRM F&A HRO KPO Other Transactional BPO Services Services Value of contracts (USD Million) 6,419 Total BPO Note: All values in USD million. Scale of graph is just representative to illustrate the division across different parameters. Figures may not add up to 100 percent due to rounding off. Refer L.H.S. figure for legend Although the overall IT-BPO market performance was poor in 4Q13 as against 3Q13, BPO activity managed to grow with 38 percent increase in total deal value KPO and Transactional Services are the BPO services which have exhibited multi-fold growth in terms of value as well as average deal size over 3Q13 30

32 Section 5 IT-BPO Outsourcing Outlook

33 Outlook Global Outsourcing Industry Global IT-BPO deals showed a sharp upturn in 2Q13 with a 116 percent increase over 1Q13 and a double digit increase in 3Q13. However, 4Q13 witnessed a decline in deal movements with total deal value reducing to nearly half as compared to 3Q13. Next year will be one of continued challenge for the market with an expected growth between 4 to 6 percent Government and Defense sectors are expected to continue being the largest outsourcers in 2014 compared to other industries Buyers are still cautious on models that include outcome based pricing while hybrid* and fixed pricing model remain preferred, contributing to more than 95 percent of the deal value over the last two years is likely to continue in the same trend AMERICAS continue to lead the global outsourcing scene in 2013 with ~ 67 percent contribution to total deal value, though the traditionally strong market observed nominal growth over 2012 Talent shortages and talent management challenges have supplanted negative global economic conditions and weak demand for goods and services as the top challenge facing organizations, despite high unemployment rates in most Western markets. Emerging market competitors to Western firms is an ongoing concern in the AMERICAS and in EMEA while in the United States concern over the negative impact of political and economic gridlock continues to grow Big data analytics, Engineering and R&D services and Cloud technologies are expected to fuel the growth in upcoming quarters * Hybrid pricing includes a combination of various pricing mechanisms 32

34 KPMG Shared Services and Outsourcing Advisory (SSOA) Research Latest from the KPMG Shared Services and Outsourcing Institute In Transition 2014 Shared Services and Outsourcing Outlook Part 1: It s Time for Enterprises to Stop Being Really Good at Irrelevant Stuff Services Integration: Maximizing the Benefits, and Minimizing the Risks, of a Multi-Sourced IT Environment About KPMG Institutes KPMG Institutes is dedicated to helping organizations and their stakeholders identify and understand emerging trends, risks and opportunities. We do this by creating an open forum where peers can exchange insights, share leading practices, and access the latest thought leadership. As a result, corporate executives, business managers, industry leaders, government officials, academics, and others have access to the thought leadership and knowledge they can use to make better informed decisions and meet their marketplace challenges. To learn more log on to Advice Worth Keeping Blog: Advice Worth Keeping podcast series: 33

35 Your KPMG contacts Stan Lepeak Director Global Research, Management Consulting KPMG in the US Viral Thakker Partner Advisory Services KPMG in India Rajiv Gupta Partner Advisory Services KPMG in India Jehil Thakkar Partner Advisory Services KPMG in India

36 KPMG Shared Services and Outsourcing Advisory (SSOA) Analyst Team Contact: Shailesh Narwaiye KPMG in India Analysts: Harish Baliga Swati Kumari 2014 KPMG International Cooperative ( KPMG International ), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm visà-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International Cooperative ( KPMG International ).