The BPO market in France

CBI market survey The BPO market in France Publication date: August 2008 Report summary This CBI market survey discusses, among other things, the following issues for the Business Process Outsourcing (BPO) market in France: BPO and outsourcing become increasingly important as French companies concentrate more on their core business. The overall growth rate of the total BPO value in France (+8%) lags behind the average growth rate of 10% in the EU, thus growing from 6.65 billion in 2007 to 9.25 billion in 2011. Strategic and complex business processes are also outsourced, beside administrative processes. Access to a large pool of highly skilled personnel is the most important driver for offshore outsourcing as well as for onshore outsourcing. The offshoring market in France is handicapped by the social and political view on outsourcing and offshoring that is still a factor. The share of nearshoring is much larger than offshoring. Language is a major issue in offshoring in France. The French-speaking Northern African countries are therefore important nearshore destinations. In Eastern Europe, Poland and Romania are the most important destinations. There is a strong need for close cultural ties when offshoring / nearshoring business processes. This survey provides exporters of BPO services with sector-specific market information related to gaining access to France. By focusing on a specific country, this survey provides additional information, complementary to the more general information and data provided in the CBI market survey The Business Process Outsourcing market in the EU, which covers the EU market in general. That survey also contains an overview and explanation of the selected services dealt with, some general remarks on the statistics used, as well as information on other available documents for this sector. It can be downloaded from http://www.cbi.eu/marketinfo. 1 Market description: Demand and supply of onshore BPO This section describes the demand for onshore BPO in France. In Section 2, a more detailed view will be taken on the specific market for offshore and nearshore BPO in France. Demand When business processes are outsourced, the French tend to keep them within their own country. However, the market is getting more mature according to Armand Angeli, president of the European Outsourcing Association (EOA) in France. Providers and outsourcing companies are becoming increasingly professional. Although BPO was first mainly restricted to simple administrative processes, recently more and more strategic, more complex and closer to corebusiness processes are outsourced. The administrative processes are often outsourced to large companies like Cap Gemini, Accenture and ACS. The complex and strategic processes, however, are outsourced to companies with more specific expertise. The company that provides this specific expertise should of course be able to handle the size of the outsourcing project. Outsourcing is here to stay, according to the respondents of a survey done in 2007 by Grant Thornton a global accounting, tax and business advisory firm among 700 French companies Page 1 of 10

between 100 and 2,000 employees. 20% of the respondents already use outsourcing, while in total 75% of the respondents saw outsourcing as a valuable addition to their business model. Outsourced processes Grant Thornton has researched finance and accounting services, payroll services and human resources services in particular. 16% of the participants in the Grant Thornton survey is outsourcing services in the financial and accounting area. This percentage has remained stable over the last years. In the payroll and human resources field, 27% of the respondents outsources projects. That is a higher percentage than in the past few years. Moreover, once a service has been outsourced, 92% of the companies will continue to outsource these services, and 16% of these renewed contracts is expected to be extended. As the BPO market is maturing and French companies see their outsourcing activities as profitable, more attention is now given to the renewal of existing outsourcing contracts. Outsourcing companies are in the first instance not looking for new suppliers but are concentrating on resolving bad deliverance in the past and on concluding new contract terms adapted to new technologies and new economic conditions. The main goal is to optimise the win-win situation and gain-sharing in the existing contracts. There is a large variety in the processes that are outsourced. Not only the administrative processes, but even processes in which customer contact is necessary, such as cashing and invoicing, are increasingly outsourced as well. Demand drivers and fears The most important motive to outsource services in France is to get access to good skills and competences. This motive is followed in importance by the compliance with rules and regulations. This is especially important in the financial and accounting sector. Cost reduction / cost control is no longer of the highest importance in outsourcing decision making as it only comes third in line, although it is a very important motive to outsource. Last in line is the desire to improve the quality of a service. In Figure 1.1 the percentages of respondents are shown, who stated the motives mentioned as most important to their outsourcing decisions. Figure 1.1 Most important motives to outsourcing decisions Source: Grant Thornton (2007, modified by Facts Figures Future) Strategic factors that make companies decide to start an outsourcing project are mostly group strategy, restructuring, lacking human or financial resources, large growth of the company, merger or acquisition and new information systems. The main motives to decide not to outsource business processes in France are shown in Figure 1.2. As can be seen, the most important factor restraining French companies from deciding to outsource is the fear of getting more difficult access to internal information. Page 2 of 10

Figure 1.2 Main motives restraining the French to start an outsourcing project Source: Grant Thornton (2007, modified by Facts Figures Future) Supply The BPO market in France is to a large extent driven by supply. This means, that simply because of their presence and their activities in the French market, BPO suppliers stimulate demand by the outsourcing companies. The supply is mostly divided among the large international enterprises, such as: Accenture - http://www.accenture.com Atos Origin - http://www.fr.atosorigin.com Capgemini - http://www.fr.capgemini.com CSC - http://fr.country.csc.com EDS - http://www.eds.com/about/locations/france IBM Global services - http://www.ibm.com Unisys - http://www.unisys.com Some France originated BPO suppliers have also taken a market share in the international BPO marketplace, for example Steria (http://www.steria.com), a France based company which made some foreign acquisitions. The French market increasingly holds the presence of major Indian BPO suppliers. These Indian companies are expanding their Western operations in order to become true multinational corporations. For example, Tata Consultancy Services (TSC) (http://www.tcs.com) and Infosys (http://www.infosys.com) have established a strong presence in France. Trends The popularity of BPO in France is growing. More complex and strategic services are also outsourced, however, only to providers with specific expertise. BPO is mostly kept within France. In general, French companies prefer renewing existing outsourcing contracts to sourcing from new suppliers. Growing presence of foreign BPO suppliers in the French BPO market. The French market is dominated by multinational BPO providers. French companies increasingly make foreign acquisitions. Opportunities and threats + Outsourcing of services with more added value is gaining in popularity in France. This could offer possibilities for small and medium-sized companies (SMEs) in this segment from developing countries (DCs). This is also an area in which a company can be unique. + As the popularity of outsourcing is rising, offshoring will also be more in the picture; companies might also get more responsive to this specific kind of outsourcing. This might provide good chances for DCs. French companies are still uncertain about offshoring. Most attention is being paid to the renewal and updating of existing outsourcing contracts and relationships. Page 3 of 10

Useful sources European outsourcing association in France (EOA France) http://www.eoafrance.com Grant Thornton http://www.grantthornton.fr 2 Offshore and nearshore BPO Where Section 1 was focused on the onshore BPO market in France, this section will specifically zoom in on the market for offshore and nearshore BPO in France as this is the market for SMEs from DCs. The market According to analyst firm NelsonHall, the total BPO market in France valued 6.65 billion in 2007 and is expected to reach 9.25 billion in 2011, showing an average growth rate of 8% per year. Until recently, it was expected that expenses on offshore BPO would increase with double digit figures until 2011. However, according to Armand Angeli, there seems to be a trend in outsourcing away from offshoring to nearshoring and even onshoring again. The earlier cost advantages from offshore destinations have declined in the favour of nearshore destinations. As a result, offshoring BPO in France is lagging quite some years behind the US or the UK and is not expected to gain much ground. According to a study by McKinsey Global Institute (MGI), France saves less costs by making use of offshoring possibilities than is being saved by the US and the UK. In the US, where a dynamic job market helps many laid-off workers find new employment with relative ease, offshoring produces a gain of approximately $1.15 for every dollar of costs sent abroad. This represents a factor 1.15. France is a different story. For every euro of spending on corporate services moved offshore, France earns back only 0.86. This represents a factor 0.86. Three factors explain why France reaps less benefit from offshoring than the US do. First, French companies tend to offshore many jobs to Central Europe and Northern Africa, where fluent French speakers are more available. However, wages there are higher than in India. Indeed, offshoring to India and China cuts costs by 85 to 90%, while offshoring to Northern Africa and Central Europe reduces costs by only 70% and 55 to 75%, respectively. Second, France gains only 0.05 for every euro spending on services moved offshore through increased exports to offshore locations and repatriated profits from offshore providers, which represents a factor 0.05. This is compared to approximately $0.08 gain for every US dollar of costs sent abroad through increased exports, representing a factor 0.08. What is more, many US companies wholly or partly own (Indian) outsourcing providers and thus benefit from their profits. Only few French companies own stakes in offshore service providers. Therefore, most French companies are also unable to benefit from the profits made by the offshore providers. Third, for each dollar of work offshored, the US economy gains $0.57 from the rapid reemployment of laid-off workers. This represents a factor 0.57. France, however, gains only 0.44 on each euro of work offshored in this way, representing a factor 0.44. France has a less flexible labour market and a lower level of job creation resulting in a smaller amount of workers finding new employment quickly. The French are very reluctant to offshore because of several political and social growth inhibitors. France is therefore more or less handicapped by its own way of offshoring to several suppliers / countries. Some challenges are: The entrance of the twelve new EU members has made France even more eager to keep national employment on a high level. The social implications of offshoring, nearshoring and outsourcing are considered very important in France. Especially the issue of what happens to jobs that are lost due to these practices plays an important role. To reap the benefits of offshoring, French businesses and policy makers should be thinking about how to gain most from it, instead of resisting what seems to be an unavoidable trend. Page 4 of 10

Offshore models used in France Armand Angeli indicates that there is an increasing demand for combined solutions. This means that one part of the solution is focused on the more administrative and standardised work and another part is focused on the true expertise work. An offshoring model that is becoming increasingly popular in France is the multi-sourcing model of Multi Vendor Outsourcing. In this model, the process to be outsourced is split up in smaller tasks that are outsourced or offshored to different service suppliers. Multi Vendor Outsourcing is used to spread the risk for outsourcing or offshoring a process over several suppliers instead of relying on one big player to deliver the complete package. This kind of offshoring offers very good chances for DC companies, but only if the offer done by the DC supplier provides attractive cost reductions for the French company in order to compensate for the risk of failure. A type of Multi Vendor Outsourcing in the high end of the market is the outsourcing of specific tasks to specialised niche players. Although there are still many large service deals that include a single partner, more and more contracts are outsourced to a variety of vendors. With increased competition, companies are looking to acquire the best-inbreed for each service. Countries such as China and destinations in Eastern Europe are, beside general BPO suppliers, home to an increasing number of specialised suppliers. Resulting from the trends to global delivery and multi-sourcing we now increasingly see the offshoring model of multi-shoring. This means that both nearshore, offshore and onshore suppliers are chosen to deliver parts of the total business process. One step further in this multi-sourcing trend is the combination of internal centralised shared services centres with external outsourcing. While the outsourcing market in France is maturing, more SMEs are starting to outsource as well. These SMEs are also increasingly making use of the multisourcing and multi-shoring models. Captive offshoring is an offshoring model not much in use by French companies. Which companies offshore The total number of companies that outsource BPO in France is on the rise, as more and more French companies concentrate on their core business. In 2005, 47% of all SMEs indicated that they had outsourced at least part of their tasks. However, for most of them, offshoring is still one step too far. Especially BPO offshoring is still rather difficult for French SMEs, as they do not have the capacity or the maturity to undertake this yet. According to Syntec informatique, over 90% of the companies that are involved in offshoring are companies with a turnover larger than 100 mln. Outsourcing/offshoring decisions are made at CEO and CIO level. According to the Grant Thornton research, criteria for choosing a BPO supplier include cost considerations, good understanding of the delivery conditions and needs, specialisation and good reputation. Refer to Figure 2.1. Reasons and barriers to offshore The most important reasons for offshoring/nearshoring are the same as for outsourcing in France in general. In offshoring, cost reduction and cost control and the access to skills is more important than for outsourcing within France. The most prominent hesitations towards offshoring BPO in France have to do with the following aspects: The cultural and language barriers that often exist for the offshore destination. Need for specific expertise. Compliance with the (French) regulations. Page 5 of 10

Figure 2.1 Criteria for choosing an outsourcing/offshoring supplier Source: Grant Thornton (2007, modified by Facts Figures Future) What is offshored The more complex and expert part of BPO projects is often done within France or nearshore. These processes often demand proximity to the French market because of language or cultural aspects. The more administrative and standardised processes can be done offshore. This makes many of the BPO projects of today multishore. Call / contact centres These processes are definitely outsourced, but mainly stay within France, because of the language and cultural aspects. Some countries from Francophone Africa (Mauritius, Morocco, Senegal, Tunisia, and Madagascar) have recently started providing call centre and telemarketing services to France. In these countries, there is a large French speaking population and the cultural aspects are somewhat comparable. Lately, Romania has also become a suitable nearshore country because of the available French language knowledge and low cost levels. Information processing (Data entry) Data entry is a specific service that is offshored (as long as it is not language dependent). A trend in this segment is the switch from old fashioned data entry to digitisation. This service consists includes digitising national archives, newspapers and libraries. Examples of these can be found on ICON: International Coalition on Newspapers (http://icon.crl.edu/digitization.htm), where a summary is given of digitisation projects per country. The more standard processes can be handled in France, but more complex scanning processes will be outsourced and offshored for cost purposes. Web services Armand Angeli states that technical/standardised processes such as web services are not often offshored anymore, but remain in France. These services can easily be performed onshore and no major cost advantages are available in offshore destinations. To a certain extent, these tasks require specific language skills and cultural awareness. Finance and accounting These services are already outsourced. However, the majority of these services still remains in France. The administrative part of these services is offshored and nearshored to different countries as long as the culture of the country is more or less the same as the French culture. According to Armand Angeli, the more complex processes have more future in the nearshore destinations in Eastern Europe, particularly Romania and Poland. Page 6 of 10

Human resources Not much is happening in this market where BPO is concerned. Only few of the administrative processes of payroll and invoicing are outsourced or offshored. Payment is not offshored as the process is too complex. This will always be a difficult service to outsource as it is also considered to be rather close to the core-business of a company. Procurement Outsourcing in this field is growing quickly, according to Armand Angeli, as global sourcing is becoming increasingly important. The future of outsourcing looks better for these services than for human resources and web services. Procurement is a sector that needs to be watched closely. Research and development Some technical aspects go nearshore, but most services in this field remain in France because of their closeness to the core business. As can be seen from the information above, French companies still keep their hesitations about offshoring. Only the administrative processes really go offshore. The more complex and strategic processes are increasingly being outsourced outside France but the progress is slow and mainly to nearshore destinations. This is especially true for language and culture dependent services such as call centres and web services. The chances in France mainly lie in finance and accounting, procurement and data entry. Offshore and nearshore destinations Research performed by Grant Thornton France shows that most French companies that outsource BPO prefer to keep the outsourced service in France. For example, of the total outsourced services in finance and accounting, 85% stays in France. For payroll and human resources this is 96%. If BPO is performed abroad it is usually in a nearshore destination. The reasons for this are the cultural similarity and the French language abilities there. Important nearshore destinations are Eastern European countries with a preference for Romania and Poland, according to Armand Angeli. Also the Northern African countries Morocco and Tunisia are growing in popularity. Key offshore locations for French companies are India and Central and South Asia, where the Francophone country Vietnam has a distinctive competitive advantage. The French industry association Syntec Informatique confirms that for offshore outsourcing there is a strong need for close cultural ties and there is a prevailing influence of shared service centres in the region. According to Grant Thornton France, offshoring is not so much a question of looking for the country with the lowest wages, but a question of globalisation. Trends These are the major trends and characteristics that influence the offshore BPO market in France: Larger French companies are the ones to offshore. The French SMEs are increasingly outsourcing abroad, but mostly to nearshore locations. Nearshoring is preferred over offshoring, especially for more complex and strategic processes. Rigid laws and patriotism, language and culture will remain obstacles to French offshoring. Multi-sourcing and multi-shoring outsourcing models are increasingly being used by French companies. Opportunities and threats Trends and market developments offer opportunities and threats to exporters. A given trend can be a threat to some and an opportunity to others at the same time. The following trends should, therefore, always be analysed in relation to your specific circumstances. The main opportunities and threats for DC exporters are the following: Page 7 of 10

+ SMEs in France are not looking for a very large capacity in their offshore partner. Therefore, this might be a good chance for SMEs from DCs that have limited capacity. ± Although it is mainly the larger companies in France that offshore, this does not necessarily mean that they are not contracting SMEs to do the work. The main factor is the capacity they need and what the SME can offer. ± There are good opportunities for SMEs from DCs that are situated in one of the nearshore destinations where French language abilities can be offered. If they do not speak French, attracting language and cultural dependant services from France will be very hard. Political and social views on offshoring/nearshoring and language and cultural dependence make it difficult to enter the French market for SMEs from DCs. Useful sources European outsourcing association France (EOA France) http://www.eoafrance.com. Grant Thornton http://www.grantthornton.fr French auditing and consulting firm. Infosys - http://www.infosys.com international consulting firm. Offshore Developpement - http://www.offshore-developpement.com intermediary for offshoring and provider of advise to (offshore) service suppliers. Syntec informatique - http://www.syntec-informatique.fr. 3 Trade channels for market entry Ideally, service providers from DCs should approach clients directly. This can be done through establishing a branch office / subsidiary in France and appointing a local person as a senior / chief executive of the office, since it helps increase the comfort level of the target customer(s). French companies like to deal with fellow countrymen. So it is not only a local branch that is needed, but, if possible, also one or a few employees who are originally French. Of course all materials must be available in French and French must be the language used during exchanges. However, for many SMEs from DCs it might not be realistic to establish or acquire a branch office because of the large investment that is needed. Armand Angeli states that prospects must be approached through intermediaries. These may be brokers/consultants or referrers like local IT companies, call centres or market research companies. Offshore-Developpement is such an intermediary, where trade partners and also information on trade fairs can be found. Via the association EOA France, consultants can be found in most service segments. These can be contacted directly or by visiting conferences and trade fairs. The National Association of Finance Directors can be contacted for the purpose of networking and it also provides useful information on trade fairs and conferences. Access to the Assembly of French Chambers of Commerce and Industry is also a useful way of getting in touch with brokers/consultants, call centres and market research companies. As local presence is important in the French market, partnering in a joint venture with a French company is also a good option. Please refer to the CBI market survey the Business Process Outsourcing market in the EU for a more detailed explanation of the trade structure. Useful sources Some useful sources for finding potential trade partners in France and to present your company as a BPO supplier are: Assembly of French Chambers of Commerce and Industry - http://www.acfci.cci.fr. CCI.fr - http://www.cci.fr - portal of the Chamber of Commerce and Industry. European outsourcing association France- http://www.eoafrance.com. EUROITX http://www.euroitx.com - this CBI supported website offers a matchmaking section where EU buyers and DC suppliers can meet. French Association of Client Relation - http://www.afrc.org organises conferences and offers good networking opportunities in the field of customer contact centres. National Association of Finance Directors - http://www.dfcg.com. Offshore Developpement - http://www.offshore-developpement.com intermediary for offshoring and provider of advise to (offshore) service suppliers. Page 8 of 10

4 Price developments Since it is quite difficult for suppliers to give exact prices, it is also hard to collect information about current price levels. The French consulting company Beler Ingenierie provides a clear pricing list for services provided, which can be found on http://www.beler.fr/tarifs.asp. Prices for BPO services in the region around Paris are about 20% to 30% higher than in the southern provinces in France. Many companies from the Paris region therefore outsource work to the south of France. Therefore the need for offshoring is in the short term- less in France than in other EU countries. To give an indication of the differences in voice salaries between France and offshore BPO providers in DCs, the following can be found. According to research by Invest in France agency (http://www.invest-in-france.org), a call centre representative in France costs approximately 30,100 for his employer. These costs can be compared to the average salary levels as shown in Table 4.1., although additional costs for the employer, such as taxes and social welfare reservations, must also be taken into account. Please refer to Section 5 of the CBI market survey covering the EU market for more information on price developments with a more detailed view on non voice salaries. Table 4.1 Voice BPO salary levels in supplying countries, per year, 2005 Average Entry Team Project Growth Salary level leader manager in % 05-10 Vietnam 5,188 2,786 4,799 7,612 7.3% China 7,634 4,088 7,111 11,098 7.2% India 7,779 4,287 7,218 11,239 8.7% Thailand 8,806 4,404 8,080 13,253 3.9% Philippines 9,844 5,457 9,153 14,169 6.8% Romania 12,691 6,996 11,539 18,594 4.8% Slovakia 13,481 6,964 11,288 20,888 4.2% Russia 16,313 8,977 14,964 27,738 7.2% Malaysia 16,935 9,585 15,741 24,170 4.4% Czech Rep 17,438 9,105 14,625 27,080 6.5% Poland 24,874 13,394 22,881 36,583 5.3% Israel 28,161 15,896 27,189 41,398 3.1% South Africa 29,588 15,675 27,408 43,479 4.0% Canada 34,462 19,384 32,258 49,115 3.9% Source: NeoIT (2006) Useful sources Useful sources for finding price information are: Industry associations such as: European Outsourcing Association in France http://www.eoafrance.com National Association of Finance Directors (DFCG) - http://www.dfcg.com Visiting trade fairs and conferences. For more information see section 5 on pricing of the CBI market survey: The Business Process Outsourcing market in the EU. 5 Market access requirements As a service provider in a developing country preparing to access France, you should be aware of the market access requirements of your trading partners and the French government. Requirements are demanded through legislation and through labels, codes and management systems. These requirements are based on working condition, health and safety and social concerns. You need to comply with EU legislation and have to be aware of the additional nonlegislative requirements that your trading partners in the EU might request. Page 9 of 10

For information on legislative and non-legislative requirements, go to Search CBI database at http://www.cbi.eu/marketinfo, select BPO and France in the category search, click on the search button and click on market access requirements. 6 Doing business General information on doing business like approaching potential business partners, building up a relationship, drawing up an offer, handling the contract (methods of payment, and terms of delivery) can be found in CBI s export manuals Export Planner and Your image builder. Furthermore, cultural awareness is a critical skill in securing success as an exporter. Information on cultural differences in the EU can be found in Section 3 of CBI s export manual Exporting to the EU. The CBI manuals can be downloaded from http://www.cbi.eu/marketinfo - go to search publications. Sales promotion Sales promotion can be made in different ways. However in France the "Loi Toubon" (Toubon law) requires that all advertising, labelling, instructions and promotional programmes are in French. Magazines are less important for BPO than for IT outsourcing but they can still be used. Trade fairs can also be a good opportunity to contact potential clients. Beside trade fairs there are also conferences and seminars which are often very interesting because the outsourcing community comes together there. Trade press Newspapers can be a good way to promote your services. Newspapers tend to publish outsourcing and offshoring stories every now and then. Newspapers for France can be found on http://www.onlinenewspapers.com/france.htm and http://www.allyoucanread.com. Business and specific segment newspapers are: 01Informatique - http://www.01informatique.com magazine on information technology CFO-news.com - http://www.cfo-news.com online business news Le Figaro - http://www.lefigaro.fr/economie - general economic newspaper Le nouvel Economist - http://www.nouveleconomiste.fr general economic newspaper Pentablog - http://blog.pentalog.fr offshore, nearshore and right costing blogs Publi-news - http://www.publi-news.fr - newspaper on finance and banking RH Demain - http://www.rhdemain.com online news portal on human resources Trade fairs Salon Externaliser http://www.salon-externaliser.com outsourcing fair, held annually (June) in Paris. Salon Seca - http://www.salon-seca.com trade fair on contact centres and customer relations held annually (April) in Paris. Solution Ressources Humaines - http://www.solutions-ressources-humaines.com human resource fair, held annually (May) in Paris. Furthermore, the websites http://www.tarsus.fr, http://www.auma.de and http://www.eventseye.com can be used to find trade fairs for your specific outsourcing industry. Conferences and seminars Conferences and seminars can be found at http://www.eoafrance.com. Recently, the conference Outsourcing 2008 was organised by IDC France (http://www.idc.com/france/events/outsourcing08/index.jsp). In September 2008, the conference Red cost on the subject of cost optimisation will be organised in Paris for the first time (http://www.redcost-paris.com). This survey was compiled for CBI by Facts Figures Future Disclaimer CBI market information tools : http://www.cbi.eu/disclaimer Page 10 of 10