2013 Predictions: State of the Global Services Market

January 23, 2013

Live Tweeting #Predictions2013

Areas of coverage

Introductions and 2012: Year-in-Review IT Services Business Process Outsourcing (BPO) Global Sourcing Pricing Summary and Q&A

Proprietary & Confidential. 2013, Everest Global, Inc.

Introductions

Katrina Menzigian (moderator) Vice President katrina.menzigian@everestgrp.com Jimit Arora Vice President IT Services jimit.arora@everestgrp.com Rajesh Ranjan Vice President BPO rajesh.ranjan@everestgrp.com H. Karthik Vice President Global Sourcing h.karthik@everestgrp.com Rahul Gehani Practice Director Pricing Assurance rahul.gehani@everestgrp.com
Proprietary & Confidential. 2013, Everest Global, Inc. 3

Everest Group: 2013 research offerings

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Market Vista Global services tracking across functions, sourcing models, locations, and service providers industry tracking reports also available Banking, financial services, insurance Procurement Healthcare Information technology Recruitment process Service Provider Intelligence Finance & accounting

Cloud Vista

Human resources

Global sourcing Transaction Intelligence

PricePoint

Custom research capabilities Benchmarking | Pricing, delivery model, skill portfolio Peer analysis | Scope, sourcing models, locations Locations | Cost, skills, sustainability, portfolio Tracking services | Service providers, locations, risk Other | Market intelligence, service provider capabilities, technologies

Proprietary & Confidential. 2013, Everest Global, Inc.

2012: Year-in-Review

Same as prediction

Similar but with some variations

Different than prediction

What we predicted at the beginning of 20121 1 Pricing pressures will squeeze providers margins, especially offshore, forcing investment in newer customer-centric solutions and innovative engagement models

How has the market fared to date?

Comments While BPO margins did go up somewhat, IT Services margins slipped modestly

Global sourcing leaders will seek new locations; Emerging geographies will continue attracting attention

Emerging geos continue to increase LATAM, Africa, Mid East, CEE

BPO markets will continue to grow at double-digit rates

Rates across BPO vary, but all remain robust - especially true in the case of BFSI BPO M&A in this space is about building out cloud breadth and depth enhanced value propositions to increase cloud appeal

Service providers will make strategic investments in driving value from cloud services moving beyond technical limitations and focusing on client adoption requirements
Everest Group webinar document: 2012 Market Predictions (presented in Dec 2011) Proprietary & Confidential. 2013, Everest Global, Inc.

Areas of coverage

Introductions and 2012: Year-in-Review IT Services Business Process Outsourcing (BPO) Global Sourcing Pricing Summary and Q&A

Proprietary & Confidential. 2013, Everest Global, Inc.

IT Services | Key 2013 Predictions

SMAC (especially MAC) will fuel IT services growth

Enterprise IT vs. Business IT: Enterprise IT will strike back

Verticalization in infrastructure services an emerging reality

Application services will witness greater appetite for top-to-bottom delivery

Market consolidation will blur the lines across service provider categories

Proprietary & Confidential. 2013, Everest Global, Inc.

Cloud adoption will accelerate as buyers continue to realize value from these delivery models
Trend in cloud related global service deals 2011-2012; Percentage of deals with cloud delivery in scope 12% Enterprise Cloud adoption objective fulfillment Buyer responses N = 88 Strongly disagree Disagree Somewhat disagree Neither agree or disagree 8%
64%
XX% Overall agreement %

1% 31%

2% 2%
82%

2% 14% 21%

1% 2%

2% 24%

1% 1%

2% 1% 27% 2%

71% 67%

Somewhat agree

21% 38%

27%

24%

4% Agree

25%

25%

27%

Strongly agree H1 2011 1047 H2 2011 900 H1 2012 704

18% Met objectives for cost savings

23% Met objectives for flexible infra

19% Met objectives for quicker time to market

16% Met objectives for higher satisfaction of business

Majority of adopters are meeting their cloud objectives signaling a confidence shift going forward
Source: Everest Group Cloud Vista (2012); Everest Group Cloud Connect Survey (2012) Proprietary & Confidential. 2013, Everest Global, Inc. 8

SaaS modules have been adopted most widely; IaaS adoption is expected to grow fastest in 2013
Enterprise Cloud adoption trends by cloud layer Buyer responses
Already adopted Adopt in near future Adopt in distant future No plans to adopt

IaaS adoption plans Buyer responses 100% = 89

Software as a Service (SaaS)

57% 28% 10% 5% 38% 25% 27% 10% 31% 26% 26% 18% 30% 36% 23% 11% 17% 27% 36% 20% 28% 27% 22% 23% N= 73 N= 81 No plans for cloud infrastructure 18% Plan to implement 48% cloud infrastructure Already have cloud infrastructure 34%

Platform as a Service (PaaS)

Public cloud (IaaS)

N= 78

Private cloud (IaaS)

N= 80

Hybrid cloud (IaaS)

N= 70

Business Process as a Service (BPaaS)

Source:

N= 64

More than cost reduction, flexible infrastructure and reducing time to market are the top two drivers for IaaS growth

Everest Group Cloud Connect Survey (2012) Proprietary & Confidential. 2013, Everest Global, Inc. 9

M&A in 2013 will extend beyond conventional adjacencies as service providers respond to an evolving demand environment
An evolving demand profile causing interesting marriages in the IT services supply landscape

Regulatory compliance (BFSI, Healthcare, Europe)

Global MNCs

WITCH

Tier-2/specialists Drivers for transformational IT services

BPO pure-plays

Regional majors

Cloud providers

Product vendors

Telcos

2013 will witness the emergence of a new breed of converged service providers
Source: Everest Group (2013) Proprietary & Confidential. 2013, Everest Global, Inc. 10

Areas of coverage

Introductions and 2012: Year-in-Review IT Services Business Process Outsourcing (BPO) Global Sourcing Pricing Summary and Q&A

Proprietary & Confidential. 2013, Everest Global, Inc.

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BPO | Key 2013 Predictions

The BPO world will be increasingly vertical

The adoption of SMAC in BPO will increase but will trail the hype; analytics will be the most sought after services within this stack

Traditional delivery geography will increasingly be the new demand geography

Beyond stand-alone technology capability, providers ability to blend it effectively into the BPO solution will lead to success

A balanced BPO model will be more successful rise of the AND solution

Proprietary & Confidential. 2013, Everest Global, Inc.

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Traditional delivery geography will increasingly become demand geography; profitable service delivery will be the key
FAO deal signing trend Number of contracts Insurance BPO deal signing trend Number of contracts

100% = Asia Pacific and Latin America

531 10%

81

100% = Asia Pacific and Latin America

74 9%

24

27%

29%

North America and Europe

90% 73%

North America and Europe

91% 71%

Up to 2010

2011

Up to 2010

2011-2012

Source:

Everest Group (2013) Proprietary & Confidential. 2013, Everest Global, Inc. 13

A balanced model that harnesses the power of AND will be more successful
Sourcing Internal shared services Third-party outsourcing

Scope

Focused

End-to-end

Solution

Customized

Standardized

Pricing model

Simplicity

Impact

Delivery model

Onshore

Offshore/Nearshore

Proprietary & Confidential. 2013, Everest Global, Inc.

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To what extent do you expect organizations to invest hard cash in capturing global services values beyond savings in 2013?

Priority area expect significant new investments in 2013 Area of ongoing focus will continue to make strategic investments as previously planned Business as usual no new or additional investments anticipated Area of least focus strategic investments targeting other areas in 2013

7% 65% 24% 4%

Source: Live polling conducted during the 2013 Predictions: State of the Global Services Market webinar on January 23, 2013

Proprietary & Confidential. 2013, Everest Global, Inc.

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Areas of coverage

Introductions and 2012: Year-in-Review IT Services Business Process Outsourcing (BPO) Global Sourcing Pricing Summary and Q&A

Proprietary & Confidential. 2013, Everest Global, Inc.

16

Global Sourcing | Key 2013 Predictions

New buyer segments will drive global sourcing

Increased focus on complementing onshore and offshore, not competing

Tier-2 locations to become must-have from good to have

Growth in GICs coupled with sophistication in sourcing model leverage

Global talent management an increasing priority

Proprietary & Confidential. 2013, Everest Global, Inc.

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While a few wildcards will emerge, India and Philippines will continue to reign
NOT EXHAUSTIVE

High end financial services and IT skills Ireland

Multilingual support

Bulgaria Turkey Significant untapped potential Colombia Peru Attractive costs and Spanish language skills South Africa Preferred location for UK voice; large domestic market Emerging R&D destination

Vietnam

Low-cost alternative for IT

Proprietary & Confidential. 2013, Everest Global, Inc.

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Tier-2 locations to become must-have from good to have

Proportion of Tier-2/3 cities in new delivery center set-ups 2011-20121; Percentage 84

2011 2012

50 37 40 37

53

Stronger imperative for Tier-2/3 cities in 2013, will become a must-have for service providers Share of Tier-2/3 locations in incremental demand will increase, especially in APAC and Latin America

Asia Pacific

Latin America

CEE

Predictions for 2013

1 Note: Includes analysis from Q1-Q3 (January-September) 2012 Tier-1 cities are mature cities for global services delivery, typically characterized by large talent pool and significant market activity. Examples include Bangalore (India), Shanghai (China), Metro Manila (Philippines), Sao Paulo (Brazil), Mexico City (Mexico), and Krakow (Poland) Tier-2/3 cities are upcoming cities for global services delivery, typically characterized by relatively smaller talent pool and lesser market activity. Examples include Jaipur (India), Dalian (China), Cebu (Philippines), Curitiba (Brazil), Guadalajara (Mexico), and Lodz (Poland) Proprietary & Confidential. 2013, Everest Global, Inc. 19

Delivering value beyond cost savings will become a strong imperative and mandate for GICs
What should GICs deliver over the next three years? GIC responses Percentage of total respondents Primarily focus on delivering current cost savings and meeting/exceeding expectations on service levels Parent responses Percentage of total respondents

18

37

Strive towards delivering other forms of value1 in addition to maintaining cost savings

66

60

Focus on delivering other forms of value, even if it means reducing focus on driving cost advantage

15

Standardize processes or systems across the enterprise, create new services/products, etc. Proprietary & Confidential. 2013, Everest Global, Inc. 20

Areas of coverage

Introductions and 2012: Year-in-Review IT Services Business Process Outsourcing (BPO) Global Sourcing Pricing Summary and Q&A

Proprietary & Confidential. 2013, Everest Global, Inc.

21

Pricing | 2013 Predictions

IT pricing is expected to be stable

Adoption of fixed-price models will strengthen in IT deals

BPO pricing is expected to have a positive bias

Prevalence of hybrid pricing structures will increase in BPO deals

Proprietary & Confidential. 2013, Everest Global, Inc.

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Prices of ITO services are expected to remain stable or decline marginally at offshore as well as onshore locations
Trend in blended FTE price at offshore (India) Indexed 104 102 100 98 96 H2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 2012 Q3 2012 Q4 2012E H1 2013 Q1 2013 Q2 2013 100 100 100 99 98 99

IT-ADM EXAMPLES

Trend in blended FTE price at onsite (U.S.) Indexed 104 102 100 98 96 H2 2011 Q3 2011 Q4 2011
Everest Group PricePoint Proprietary & Confidential. 2013, Everest Global, Inc. 23

100

100

101

100

100

101

Q1 2012

Q2 2012 2012 Q3 2012

Q4 2012E

H1 2013 Q1 2013 Q2 2013

Source:

BPO pricing is expected to increase at offshore as well as onshore locations

Trend in blended FTE price at offshore (India) Indexed 106 104 102 100 98 H2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 2012 Q3 2012 Q4 2012E H1 2013Q2 Est. Q1 2013 2013 101 100 103 103 103 103

VOICE-BPO EXAMPLES

Trend in blended FTE price at onsite (U.S.) Indexed 104 102 100 98 96 H2 2011 Q3 2011 Q4 2011
Everest Group PricePoint Proprietary & Confidential. 2013, Everest Global, Inc. 24

100

101

101

101

101

101

Q1 2012

Q2 2012 2012 Q3 2012

Q4 2012E

H1 2013Q2 Est. Q1 2013 2013

Source:

ITO and BPO deals would be characterized by the adoption of more sophisticated pricing models
Fixed price adoption trends in ITO deals
2008 2011 2013 Est.

Distribution of pricing models in PO Number of contracts 100% = 290 Only gainsharing

Composition of hybrid pricing structures Frequency of inclusion

41% 36%

44% 36%

48% 44%

46% 32%

Only FTE-based 3% 15% 46% Only 36% managed service fees Hybrid pricing

Managed service fees

89%

Gainsharing

71%

Provider A

Provider B Provider C Provider D

FTE-based

44%

Buyers are preferring fixed-price engagements to control the overall IT spend Service providers are keen to adopt fixed-price to maintain profitability

Buyers and service providers are realizing multiple objectives by adopting hybrid structures which combine input-based, outputbased and outcome-based pricing models

Proprietary & Confidential. 2013, Everest Global, Inc.

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Areas of coverage

Introductions and 2012: Year-in-Review IT Services Business Process Outsourcing (BPO) Global Sourcing Pricing Summary and Q&A

Proprietary & Confidential. 2013, Everest Global, Inc.

26

Macro-Themes for 2013: Summary

The realities of SMAC are taking hold

Buyer satisfaction validating the concept Adoption pace varies by market, IT layer, buyer segment Relevant across IT Services and BPO Driving services provider differentiation and supporting buyer competitiveness Expanded capabilities the target Consolidation will lead to newly formed competitive landscapes Clients seeking varied options for integrating geos, models, processes, etc. Cost and margin pressure will challenge providers, but buyer demand will be the key price driver

The march toward verticalization continues

M&A more about chess than checkers

Global sourcing continues pushing the variety & complexity of delivery models

Pricing remains in a dead-band, with limited movement on either side

Proprietary & Confidential. 2013, Everest Global, Inc.

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Q&A

To ask a question during the Q&A session

Click the question mark (Q&A) button located on right side of your screen. This opens Q&A Be sure to keep the default set to send to All Panelists Type your question in the box at the bottom of the Q&A box and click the send button Attendees will receive an email with instructions for downloading todays presentation For advice or research, please contact: Katrina Menzigian, katrina.menzigian@everestgrp.com H. Karthik, h.karthik@everestgrp.com Rajesh Ranjan, rajesh.ranjan@everestgrp.com Rahul Gehani, rahul.gehani@everestgrp.com Jimit Arora, jimit.arora@everestgrp.com
Twitter @EverestGroup @Everest_Cloud
Proprietary & Confidential. 2013, Everest Global, Inc.

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Check out our blog for the latest perspectives on global services

Experts in the global services terrain

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Proprietary & Confidential. 2013, Everest Global, Inc.

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About Everest Group

Everest Group is an advisor to business leaders on the next generation of global services with a worldwide reputation for helping Global 1000 firms dramatically improve their performance by optimizing their back- and middle-office business services. With a fact-based approach driving outcomes, Everest Group counsels organizations with complex challenges related to the use and delivery of global services in their pursuits to balance short-term needs with long-term goals. Through its practical consulting, original research, and industry resource services, Everest Group helps clients maximize value from delivery strategies, talent and sourcing models, technologies, and management approaches. Established in 1991, Everest Group serves users of global services, providers of services, country organizations, and private equity firms in six continents across all industry categories. For more information, please visit www.everestgrp.com and research.everestgrp.com.

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