Achieving Sustainable and Inclusive Growth Through Global Sourcing of Services

Transcription

1 Achieving Sustainable and Inclusive Growth Through Global Sourcing of Services World Bank, PREM Conference 2008 April 16, 2008 This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from McKinsey & Company. This material was used by McKinsey & Company during an oral presentation; it is not a complete record of the discussion.

2 TOPICS Perspectives on the IT/BPO offshore industry The transformational role of the IT/BPO industry Concluding remarks 1 1

3 PERSPECTIVES ON THE IT/BPO OFFSHORING INDUSTRY 1 Significant latent demand for offshore IT/BPO; less than 15% of the US$ 450 billion plus addressable market penetrated 2 Adoption of offshore IT/BPO expected to accelerate given high client satisfaction, strong business case for offshoring 3 While many specialist destinations emerging, India continues to lead the offshore IT/BPO industry given superior supply of suitable talent 2 2

4 1 SIGNIFICANT HEAD-ROOM FOR GROWTH OF OFFSHORE IT, BPO AND R&D SERVICES ESTIMATES Potential market for offshore IT, BPO and R&D services is at least US $450 billion Others* India Global offshore IT exports, FY*** 2007 US$ billion ~ Global BPO exports**, FY 2007 US$ billion ~150 R&D/engg services exports, FY 2007 US$ billion ~ x x x Current size Addressable market Current size Addressable market Current size Addressable market * Includes Philippines, China, Russia, Eastern Europe, Ireland, Mexico; ** Includes addressable markets in currently offshoring industries *** Financial year Source: McKinsey Outsourcing & Offshoring practice; McKinsey Global Institute; Gartner 2005 database; IDC; NASSCOM Strategic Review

5 2 SIGNIFICANT INCREASE EXPECTED IN ADOPTION OF OFFSHORE IT SERVICES CIO response to question: What fraction of your IT infrastructure services are offshore? Per cent of respondents 2007 CIO survey Today In 3 years Per cent of IT infra structure offshored Per cent of respondents Per cent of IT infra structure offshored Per cent of respondents Average 27 Average 34 * Estimated weighted average of budget offshored Source: McKinsey CIO survey 2006 and 2007; McKinsey Analysis 4 4

6 2. CLIENTS.. AND RISING SATISFACTION WITH OFFSHORE IT/BPO SERVICES IS HIGH Client satisfaction (Average satisfaction level on a scale of 1 to 100) BPO units IT units Change in satisfied clients in 2007 vs 2006 Not satisfied Satisfied Not satisfied Satisfied Basic voice Application development Basic data Application maintenance Rules-based decisioning Specialised voice Package implementation support Source: P360 benchmarking, High performing IT O&O contracts survey 5 5

7 2 QUALITY IS LARGELY BEING MAINTAINED FOR OFFSHORE SERVICES-BPO EXAMPLE SLA compliance (quarter before last) Per cent SLA compliance (last quarter) Per cent Basic data Rules-based decisioning Basic voice Specialised voice Source: McKinsey P360º Benchmarking Phase II (Jan 2007 till date) 6 6

8 2 RATIONALE FOR OFFSHORING WILL REMAIN STRONG US$/FTE/Hour Key assumptions Offshore salary costs at each level increase based on historical growth rates No changes in delivery pyramid (ratio between developer, analysts, PL, PMs) Other costs include all physical infrastructure costs No increase in G&A costs for both India and US- based units India-based unit (100% offshore) US-based unit (100% onsite) India-based unit Other direct costs Direct people costs US-based unit Source: Watson Wyatt; NASSCOM-Hewitt Compensation Benchmarking; Project360 metrics database for offshore units; team analysis 7 7

9 3 INDIA HAS INCREASED ITS SHARE IN THE GLOBAL OFFSHORE IT AND BPO INDUSTRIES IT BPO Share in global offshore industry Per cent Share in global offshore industry Per cent 100% = US$8.5 bn US$27 bn 100% = US$2.3 bn US$18 bn Others* Others* India India * Includes Philippines, China, Russia, Eastern Europe, Ireland, Mexico Source: NASSCOM Strategic Review 2007; McKinsey Global Institute 2005; neoit; press articles 8 8

10 3 DRIVEN BY IT S SUPERIOR SUPPLY OF SUITABLE LOW- WAGE TALENT Aggregate suitable* graduate talent pool for offshore IT and BPO industries Thousand 15% 100% 13% 13% 1,020 7% 586 6% 473 5% 408 4% 355 4% 324 4% 308 3% 232 1,175 8,043 26% 1,084 2,078 India*** Russia China Philippines Turkey** Poland Brazil Thailand** Mexico Indonesia 18 other Lowwage countries Total supply of suitable low-wage talent (28 countries) * Graduates with skills for direct employment (does not consider willingness and accessibility of talent) ** Number derived via extrapolation *** As of 2007 Source: HR interviews; country labour and graduation statistics; McKinsey Global Institute 9 9

11 TOPICS Perspectives on the IT/BPO offshore industry The transformational role of the IT/BPO industry Concluding remarks 10 10

12 OFFSHORE IT/BPO INDUSTRY HAS THE POTENTIAL TO TRANSFORM INDIA OVER THE NEXT 10 YEARS What the IT/BPO industry can do for India Economic growth engines US$ billion Contribution to GDP Per cent Potential size of India s offshore IT/BPO industry (2015) Taiwan s engineering and electronics industry (2004) Saudi Arabia s Oil (2004) Source: SAMA; EIU Viewswire; CMIE; Goldman Sachs; global Insights; Deutsche Bank; World Bank; Energy Information Administration (EIA) 11 11

13 THE OFFSHORE IT/BPO INDUSTRY IS ON TRACK TO ACHIEVING IT S MEDIUM TERM ASPIRATIONS US$ billion in export revenues The IT/BPO industry expected to have significant impact on India s economy IT/BPO exports expected to continue strong growth 60.0 GDP growth 17% Estimated 17% of India s incremental GDP growth over the five year period ( ) 25.0 Export growth 8x Over 80% of the growth in exports will be between 2005 to 2010 BPO IT FY FY FY 2010 E Employment creation Estimated 10 million total employment by 2010 Source: NASSCOM McKinsey 2005 Report 12 12

14 OFFSHORE IT/BPO INDUSTRY IS A MAJOR EMPLOYMENT CREATION ENGINE ESTIMATES Net impact on employment in India Million jobs, 2010 >9 >6.5 >2.8x 2.3 Direct employment Indirect and induced employment Total employment generated Source: Monthly Review of Indian Economy (Centre for Monitoring Indian Economy (CMIE)); National Council of Applied Economic Research (NCAER), National Sample Survey Organization, McKinsey Global Institute 13 13

15 THE IT/BPO INDUSTRY IS TRANSFORMING THE QUALITY OF TALENT IN INDIA Increase capacity of higher education system self regulating associations of private higher education institutes Output-based ranking of colleges Develop scalable e-learning programs BPO awareness building initiatives Industryowned integrated skill development program Faculty quality and coverage improvement initiatives Encourage people to join the offshore IT and BPO industries Improve suitability of graduates for IT/BPO jobs 14 14

16 THE IT/BPO INDUSTRY HAS TRANSFORMED INDIA S COMMERCIAL REAL ESTATE From... From... to to 75-80% of additional Class A office space demand in India comes from the IT/ BPO industry 15 15

17 THE IT/BPO INDUSTRY HAS TRANSFORMED INDIA S WORK ENVIRONMENT From... From... to to Improved work environment with modern facilities 16 16

18 THE IT/BPO INDUSTRY HAS RAISED INDIA S DISPOSABLE INCOMES From... From... to to Starting salaries at IT and BPO units (>US$ 300 per month) exceed the retirement salaries of the previous generation 17 17

19 THE IT/BPO INDUSTRY HAS TRANSFORMED INDIA S CIVIC SERVICES From... From... to to Improved citizen services (e.g., registrations, payments) through e-governance 18 18

20 TOPICS Perspectives on the IT/BPO offshore industry The transformational role of the IT/BPO industry Concluding remarks 19 19

21 CONCLUDING REMARKS 1 We are only at the start, and not at a mature state, of the offshore industry evolution 2 The pace, breadth, and depth of offshore services is rising 3 Global demand will exceed near-term suitable talent supply in every country 4 It is not India or but India and 5 The IT/BPO industry has the potential to transform a nation 6 Can trigger fundamental changes in basic areas (e.g., education, infrastructure, capabilities of players) 7 Powerful engine to drive sustainable and inclusive growth 20 20