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Hub and Spoke Model Operating
Hub and Spoke Model Operating
operating model
A new business
paradigm for the
Indian IT-BPO Industry
kpmg.com/in
1.
Kumar Parakala
Pradeep Udhas
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Foreword - NASSCOM
The Information Technology-Business Process Outsourcing (IT-BPO) industry has exhibited
remarkable growth in the last decade to become one of the most significant growth catalysts for
the Indian economy. While its initial value proposition hinged on basic outsourcing advantages
of cost and talent, industry focus has shifted to higher value added services, innovation and
transformation. Global sourcing is now evolving from being tactical to being of strategic benefit to
clients
The Indian IT BPO industry shall realise that to manage changing customer demands, tap
emerging opportunities, offer new services, multi-lingual capabilities and business continuity
planning, it needs to deliver services from multiple locations across the world. Thus a
complete hub and spoke global delivery model encompassing service delivery across
multiple continents, which assures clients of flexibility and scalability, is a necessity and a
need of the hour.
Indian IT-BPO companies needs to address the key requirements of a global delivery
model-a proven multi-location delivery track record, a diverse set of assets/IP/solution
accelerators, robust and consistent processes and technologies, depth and breadth of
global skills, and an optimised network of centres. Indian companies now have over
560 delivery centres in 70 countries spread across Europe, North and South America,
Africa and Australasia. With India acting as a hub while delivery centers across the
world acting as business specific scalable spokes, the industry shall be able to
provide a single face with seamless yet distributed delivery capabilities to the
customer, offering both efficiency and flexibility.
This whitepaper provides a complete understanding of the evolution of the
hub and spoke model in the global sourcing industry, key characteristics and
benefits, and factors critical to the success of this model. We hope you find
this interesting, and we welcome your comments and feedback on the same.
Som Mittal
President
NASSCOM
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
President
Hero BPO
Founder-Chairman
HarVa
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Table of Contents
Executive summary
01
Introduction
03
Early riders of the Hub & Spoke wave: Key takeaways for IT-BPO industry
09
15
23
27
Way forward
31
35
36
37
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
1 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Executive
summary
The outsourcing landscape in the IT-BPO industry has undergone several inflection points
in the years of its existence. While the initial driving force was the need to cut costs, over
the years customers realized that outsourcing could be a tool to achieve much more than
just cost advantage; it could also turn out to be a strategic driver to attain business value.
This has led to the evolution of a more holistic view on global sourcing with clients and
vendors collaboratively striving to achieve the most optimum and beneficial model of
outsourcing service delivery.
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 2
Today, clients and vendors are seeking models to help them coordinate and manage
globally dispersed centers, build strong sourcing relationships, instill a collective identity
and ultimately deliver high quality services seamlessly. One such operating model that
has been successfully implemented across several industries and is expected to drive the
next phase of IT-BPO service delivery is the Hub & Spoke model.
The Hub & Spoke model is used in the context of multi location sourcing wherein
a central consolidator called the Hub provides a single face to the customer while
seamless extensions called Spokes are leveraged to provide the services, distributed
across multiple locations. In a wider role, the Hub is expected to take on management
responsibilities including those of capabilities development, customer management,
regulatory compliance, uniform standards of delivery, and manpower management. On
the other hand, a Spoke is administered as a delivery centre that can be scaled up or down
depending upon business requirements. Some companies may also choose to leverage
near shore Spokes as base locations for business development.
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
The Hub & Spoke model provides an attractive cost proposition to enterprises while
allowing vendors to deliver seamless services. It provides flexibility in service delivery in
a way that vendors can scale up or down operations based on client requirements. The
model also helps organizations gain business insights by being close to the customer.
Service providers are able to tap into smaller cities that provide a compelling value for
sourcing. Delivering projects for a client from a large number of globally distributed
locations allows vendors to de-risk operations and utilize the benefits of a skilled regional
labor pool. Thus, a good mix of locations for service delivery ensures a better quality of
service at lower costs.
India has already established itself as the preferred offshoring destination for organizations
globally and built a strong expertise in technology operations, business processes and
management capabilities over time. This global prowess can now be extended to a new
role as Global Hub, managing a geographically dispersed network of Spokes.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
3 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
The new decade presents India with an opportunity to move beyond the most preferred
offshore location to become a Global Hub for IT-BPO managing clients across the
different countries around the world. The Indian IT-BPO industry could learn lessons
from the success stories of Hub and Spoke model implemented in other industries like
manufacturing - automobiles, electronics, consumer goods and aerospace. Just as the
US and Japan emerged as the global manufacturing Hubs in the last couple of decades1,
managing customer requirements, risks, quality and performance standards with
manufacturing locations established around the world acting as Spokes, the Indian IT-BPO
industry could also successfully replicate this model leveraging inherent benefits of a
widely dispersed geographic location portfolio. This would significantly enhance Indias
share in the worlds outsourcing market.
In order to effectively position India as a Global Hub, it is essential to invest in a strong
brand, proactively develop a location strategy, adapt and standardize operations across
locations, invest in technology and ensure compliance with global security and regulatory
standards. The governments role is to formulate attractive regulations for companies
operating out of India, develop infrastructure specially in smaller cities and help project
India as a safe investment haven to clients and investors. Industry bodies can play a
significant role in the process by promoting and marketing the idea of Brand India as a
Global Hub and further nurturing the managerial talent in the country.
1.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 4
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
5 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Introduction
In a rapidly globalizing world, IT-BPO outsourcing has evolved from being optional to a
critical lever driving a companys profitability and growth. What began as a step to achieve
cost savings through labor arbitrage has undergone several changes over the past few
decades, with vendors moving into new markets and establishing unique offerings and
services. Challenging economic conditions from time to time have further necessitated
adoption of different delivery models to provide business value. Today, outsourcing has
transformed from being merely labor arbitrage with low-cost countries, into an offshoot of
true globalization.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 6
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
The initial driving factor behind the development of outsourcing has been the need to cut
costs. Over the years, the outsourcing model has undergone several changes, with many
stakeholders discovering that outsourcing is not just a tool to achieve cost advantage but
instead, a strategic driver to attain business value. Thus, a more enlightened view of global
sourcing is starting to emerge as customers get increasingly convinced of its vast and
multi-faceted potential.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
7 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Emerging Perspective
Migration of projects/
processes to offshore
locations
Break the process into components like voice, data, compliance and execute across multiple
locations
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 8
Responsibilities of a Hub
Areas
Responsibilities
Customer management
Provide seamless customer experience irrespective of the offices where the services are being delivered
Set quality, risk and performance standards for the Hub and Spokes
Monitor performance
Define and implement training programs across the Hub and Spokes
Cross-pollination of skills between the Hub and Spokes to ensure uniform capability development
Ensure visibility on employee related statistics like staff count, competency, allocation, attrition across Spoke
locations
Ensure the necessary controls have been put in place across all Spoke locations to ensure global and local
regulatory compliance
Regulatory compliance
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
Spokes are seamless extensions of the Hub that can be leveraged to provide a service
to a customer (internal or external). The typical responsibilities of a Spoke include
meeting a Hubs performance expectations, adding to its manpower needs, local project
management, supporting the Hub on legal & tax issues and operating as an extension of
delivery or competence center.
Responsibilities of a Spoke
In most cases, a Spoke will be leveraged as a delivery centre that can be scaled up or
down depending upon business requirements. Most technology companies prefer to
keep the management complexity at the Spokes to the minimum. Some companies may
choose to leverage near shore Spokes as base locations for business development.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
9 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Going forward
To summarize, cost arbitrage by itself has ceased to be a key differentiator in the IT-BPO
industry. Today, customers expect service providers to have strong delivery capabilities,
well evolved across geographic locations in order to drive business value. This changing
nature of client requirement is pushing vendors to scale up their location portfolio in order
to participate in transformational global deals. One such model that is expected to evolve
into the next archetype of multiple location based service delivery is the Hub and Spoke.
The objective of the Hub & Spoke model is to provide greater flexibility to the client in
selecting locations out of a portfolio of delivery centers that adequately fulfills all business
needs. The Hub & Spoke model is expected to be complementary to the standard
practices followed in the industry at present and would not suddenly result in the other
models phasing out. The early adopters of this model are likely to gain a significant
advantage over other players, and the model itself will evolve into an industry standard
over time and be widely implemented in the IT-BPO industry.
Industry Example
Costs are no longer the key
motivator behind outsourcing
decisions
Various industry players are considering some form of the Hub and Spoke
model as a part of their business strategy going forward. For example, a
leading BPO player is contemplating creating Hubs which are organized by
competencies and/or regions. They are actively expanding their presence
in Australia, Europe and North America and confirm that clients are now
expecting their service providers to be business and technology experts, and
not just provide a cost advantage. The vendor believes that it is important to
understand the cultural and process implications of working in the region
where their clients operate. As a result, they will continue to invest in building
domain expertise and move closer to the customer in the future.
The first generation global delivery model was driven by lower telecom
costs. Collaboration technologies will drive the next generation of
GDM. Companies need to evolve their business processes around
collaboration to succeed in the new paradigm.
- Prashant Ranade
CEO and President, Syntel Inc.
1. http://www.establishingabroad.com/bazment/4457.aspx
2. Customized World Clock, http://www.timeanddate.com/worldclock/custom.html?sort=1
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 10
Industry Example
A leading global product development company with its R&D centre in
India has successfully leveraged the Hub & Spoke model to be closer to its
market. In the past, this company grew its product portfolio through both
in-house development as well as product acquisitions. In case of the latter,
while the parent realized the need to provide the acquired company the
freedom to grow and expand their product portfolio it was also necessary to
bring in benefits of standardization and merge the two entities in a smooth
manner. The parent started to support the acquired company in their R&D
efforts from an R&D Hub based out of India. Product development efforts
were driven by product owners for the region with access to information
available at various Spokes. In an effort to further integrate the two entities;
some of the staff was transferred from the R&D Hub to the Spokes every
year to help them understand their clients (team members at the Spoke)
better, leading to significant improvements in the joint product development
efforts. The management talent came from the parent Hub. Thus, not only did
the engineering Hub ensure standardization of joint product development
efforts; it is also allowing the company to outsource some part of the product
development efforts to 3rd party service providers.
- Naresh Wadhwa
President and Country Manager, Cisco India and South Asia
Over the next few years, the focus of BPO Service providers will be to
help their client achieve specific business outcomes so that they can
outperform in their marketplace. There shall be an integration of Global
Operating models that goes beyond offshore and near shore centers,
significant use of domain consulting skills, operating and process model
innovations, technology platforms and embedding analytics to deliver
these specific business outcomes
- Sanjay Jain
Chief Capability Officer, WNS Global Services
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
11 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
The aviation industry1 was the first to successfully implement the Hub and Spoke
distribution model, which has since then been adopted by many other industries. The
manufacturing industry, for example, put into practice the Hub and Spoke model in order
to leverage a global low cost, high quality supplier base which in turn helped facilitate the
production process and lower overall costs.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 12
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
How the manufacturing industry built a globally diversified network can be a useful
lesson for IT-BPO companies looking to outsource from all over the world. The industry
started off with goods being manufactured at diverse locations that offered attractive
cost propositions. Over a period of time, they began adding more locations in the same
region. After gaining a good understanding of operating in a region, companies then began
exploring the option of setting up their own units to procure goods at even lower costs.
This led to the creation of multiple nascent Hubs and Spokes.
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
13 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Over a period of time, the Spokes began to assimilate the best practices from the Hub
units of the manufacturer, leading to the evolution of a closely knit Hub and Spoke
system of operation. The approach adopted by the industry to transform a series of
standalone sourcing units to a tightly enmeshed global sourcing network is illustrated
below.
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 14
To cut production timelines, as well as take advantage of a worldwide supplier base, the
company decided to adopt a global sourcing strategy. The aircrafts design was done at the
companys Seattle headquarters in the US; however the rest of the production process
was decentralized. The company outsourced nearly 70 percent of the aircrafts component
production with Japanese aviation industry manufacturers supplying the remaining 30
percent of the aircraft. Thus, this model allowed the company to completely focus on its
core competency of designing and assembling aircrafts, while sourcing components from
its Spokes.
Canada
Wing/ body fairing
Landing gear doors
England
Landing gear
Engines
France
Passenger entry doors
Italy
Centre fuselage
Horizontal stabilizer
Japan
Forward fuselage
Centre wing box
Wing
Main landing gear wheel well
Fixed trailing edge
Korea
Wingtips
Sweden
Cargo access doors
US
Forward fuselage
Fixed and movable leading edge
Tail fin
Aft fuselage
Engines
Engine nacelles
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
Key Takeaways:
Cost control is critical
Focus on core competency
Invest in new locations
Cost control is critical - Cost leadership is a critical factor for continued survival in a
highly competitive industry and will be the prime driver for establishing presence in
global locations
Focus on core competency - Companies need to identify core areas of focus which
could be IP development, branding etc and invest in them continuously
Invest in new locations - Companies need to pro-actively invest and develop emerging
locations in order to reap the new and attractive benefits offered by them
Cultural alignment
Performance management and tracking
Contribution of primary markets
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
15 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Cultural alignment -There is a need to better understand the cultural nuances of doing
business in a region before making substantial investments; thus, it is better ramp up
operations gradually
Industry Example
A leading global player in the Consulting, Technology and BPO space has
been using the right-shoring strategy, the objective being to provide a
unified seamless experience to their clients. The firm has centers all over
the world to help service clients from the best location. To be more specific,
the company splits the process outsourced into multiple components
voice, data etc. and routes these processes to the best location available
to serve them. The Hub acts as a consolidator and controller that provide
the client a unified experience. The Spokes are viewed as extensions to the
Hub which help reduce the time and bureaucracy in servicing clients. Also,
the company has developed Spokes in tier 3 and tier 4 cities in India, while
creating regional Hubs to control these Spokes. Thus, by limiting the size of
the Spokes and with regional Hubs to control them, the complexity involved
with deploying the model has significantly reduced. Additionally, for large
outsourcing engagements that support global operations, the firm has
created client Hubs by geography to service domestic operations. There is
also an instance where two offices have shared a Spoke location and another
where an office has been phased out as a delivery centre with the rising cost
of operations.
- Anil Modi
Chief Marketing Officer and President (MENA), Aegis Limited
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 16
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
17 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
A range of Hub and Spoke formats can be formulated keeping in mind factors such as
ease of management, skills availability, geographical proximity etc. Three possible models
of Hub and Spoke are discussed in this section with their key characteristics, governance
mechanism and scenarios under which they could be applied.
Governance mechanism
The management control lies at the dedicated Hubs while Spokes have the onus of
ensuring regulatory compliance and following the rules of the country in which they
are located. In operations, it is the Hub which takes decisions on work allocation and
delegates it to the Spokes. The SLAs, response and turnaround time are mandated by
the respective Hubs. Also, having a network of Spokes in different time zones allows
the Hub to ensure follow-the-sun workflow.
Suitable scenario
This model would be best suited when Spokes are situated in locations having a
specific value proposition which could be low-cost, specific skill-sets, cultural affinity
with the client etc which is useful for a particular Hub only and not others. This model
could also be used when the Spoke is expected to perform easily replicable low to
medium skilled tasks. Also, in the domestic scenario, this model could be applied
with tier- III, IV cities acting as Spokes for handling medium to low skilled replicable
tasks with tier-I, II cities being the Hubs.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 18
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
Governance mechanism
The Spokes would have a separate management layer involved in managing the
operations. They would also have the discretion to prioritize and work on the tasks
received from different Hubs. The SLAs, response and turnaround times are managed
and tracked by the Spokes themselves. Also, this model mandates some degree of
coordination between the Spoke and Hubs and smooth flow of communication for
prioritization of operations.
Suitable scenario
This scenario typically observed when the Spoke has the necessary resources to
support one critical competency. An example of this competency could be language
(using So Paulo for Portuguese language skills) or capability (internal functions like
risk, legal, etc.). In case of product companies, it could be the global R&D centers
working on a set of specific technologies in which they specialize catering to the
requests received from other locations.
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
19 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Governance mechanism
Since Spokes are reporting to multiple Hubs, there would be a thin management
layer handling the overall operations of the Spokes as it requires some degree of
coordination and smooth flow of communication for ease of operation. Management
control of the projects lies at the Hubs while Spokes ensure job completion and
regulatory compliance. In operations, it is the Hub which takes decisions on work
allocation and delegates it to the Spokes though the discretion to allocate dedicated
resources may lie with the Spokes, in this case.
Suitable scenario
A Spoke is usually shared when it functions as a large delivery center that supports
multiple competencies along verticals and/or horizontals. This model is suited when
Spokes have skill-sets which maybe a common requirement at more than one Hub,
for example bilingual capability, expertise in a specific vertical (E.g. manufacturing,
healthcare, BFSI, etc.) or horizontal (E.g. research, supply chain, ERP, CRM etc.).
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 20
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
21 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Phase 1
Typically, organizations would initially start with a single Hub and multiple Spokes. It could
also start with a single Spoke with multiple Hubs initially. This is the simplest of all types
and hence, would be the first step for the organizations who would want to venture into
multi-level sourcing. The management complexity in handling communication, work
distribution, resource allocation, and ensuring compliance is minimal.
Phase 2
As the organizations gain experience in operating Hub and Spokes, they could replicate
with more Hubs and Spokes with similar configuration at same or other locations within
the organization. Phase 2 would involve multiple Hubs with dedicated Spokes or presence
of multiple shared Spokes with corresponding Hubs. The management complexity in
managing operations would be slightly complex than the phase 1.
Phase 3
Phase 3 would involve having a complex network of multiple shared Hubs and Spokes.
This is the most complex network of all as each Hub would have shared Spokes and each
Spoke would be interacting with multiple Hubs. There would be a management layer both
at Hubs and Spokes in order to manage the workload, priority, delegation and tracking of
SLAs. This model would be a gradual transformation for organizations which have evolved
through phases 1 and 2.
Key Benefits:
Capabilities development
Cost advantage: A good mix of locations for delivery centers ensures higher quality of
service at lower costs. Spokes allow companies to reap benefits of cost arbitrage by
leveraging multiple locations (mix of high quality and low cost) to service customers.
Improved time-to-market: Hub & Spoke model allows delivery units to source talent
from locations where the required capabilities and skills are available and thereby, save
time which would otherwise have gone into training and building centers of excellence
in one central location.
Seamless operations across all Spokes for a Hub: When organized in the Hub &
Spoke model companies make a conscious decision to ensure there is a consistent
view of customer processes across all locations. This allows technology service
providers to leverage Spokes simultaneously to service customers.
Cost advantage
Flexibility & scalability in operations
Improved time-to-market
Seamless operations
Spread risk and increase presence
Lower incremental investments on
technology
Enforce worldwide best practices
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 22
Multiple locations to spread risk and increase presence: The Hub & Spoke model
helps spread operation risk across various locations. Decentralized operations allow
companies to have effective business continuity plan and resiliency in case of any
disaster. Also, centers in various parts of the world allow companies to have global
presence and wider reach. Companies can target more clients and manage business
seasonality and cycles. More importantly, Spokes bring in regional benefits such as
near shore and local regulatory incentives to facilitate service delivery .
Enforces worldwide best practices: Companies can adopt best practices from
various parts of the world and extend it to other delivery centers and teams.
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
Key Challenges:
Differences in local regulatory
environment, culture and time zones
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
23 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Project management: Under the Hub & Spoke approach, since the work is
distributed across Spokes, following project management practices and existence of a
management team which can act as a coordinator between Hub & Spokes is extremely
critical. The project status, milestones and deliverables must be tracked and updated on
a regular basis. It is also important to run a pilot and transfer less critical, less complex
tasks to Spokes before transferring mission-critical processes and applications to
reduce the operating risk.
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 24
Industry Example
A well-established mid-tier IT services player confirms that Hub & Spoke is a
model they are actively exploring as a part of their company strategy. They are
already establishing on-site Spokes in response to regulatory decisions and
as risk mitigation strategies. In future, they believe the Hub & Spoke delivery
model will help enable resource mobility across locations address attrition
challenges and provide clients with a one-stop vendor with capabilities to
deliver services across multiple locations. The company also believes that
the right governance structure is essential to ensure clients are seamlessly
serviced from all locations available to the company.
- Anshoo Gaur
President and India Head, Amdocs
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
25 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Critical success
factors for a
successful Hub &
Spoke model
The Hub & Spoke model provides a cost attractive proposition to enterprises while
allowing the vendors to deliver high end specialized services. The model also helps
organizations gain business insights by being close to the customer. Thus, a good mix
of locations for delivery centers ensures higher quality of service at lower costs. But
companies need to undertake certain steps to ensure successful implementation of
the Hub and Spoke model in order to reap its many benefits. Few of them are discussed
below.
Technology experts
Predictable results
Environmentally conscious
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Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 26
newer centers in lower cost tier 2 and 3 Indian cities. This company has a pro-active
international location strategy that is both quality and cost focused. They provide very
limited voice related services from India and prefer to use India more as a data processing
Hub.
As more and more IT-BPO companies compete for large global deals, it is essential that
they develop a pro-active location strategy to continue being relevant in the market.
Resource management
Companies operating in the Hub & Spoke model need to have a strong resource
management function that covers all locations. The key aspects to be addressed by
this function should include manpower planning, recruitment, staffing, training
and bench management. It is important to ensure that the right governance
mechanisms and controls exist to guarantee the availability of resources across all
locations for projects that the company bids for.
Operational direction
There needs to be clarity on the location strategy and the reasons for making the
investments. This will help put in place the right governance structures. Further,
there needs to be clarity on
--
--
Performance management
All locations need to have a uniform understanding of performance expectations to
ensure a seamless customer experience. The Hubs need to develop rating parameters
to monitor the performance of Spokes periodically. These ratings can typically be
conducted as a part of the performance review for the location.
These performance reviews will provide an insight into the ability of the Spoke location
to handle complex processes, thus helping the Hub take decisions on work allocation
across Spokes.
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27 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Uniform performance
management and rating systems
need to exist across all centers
Industry Example
An emerging rural BPO believes that Hub & Spoke model is the way forward
for them to effectively manage their business. They are currently organized by
regions North, South, East and West. Over time they believe these regional
headquarters will evolve into Hub setups that control and leverage Spokes
around them. The Spokes are typically rural towns that will be tapped further
through pro-active investment in high-quality training.
Industry Example
A leading non-urban BPO firm in North India undertook initiatives to create
opportunities within tier 3 and 4 cities so that potential employees did not
have to leave their home towns in order to work. The three main parameters,
on which their business strategy evolved, were to leverage partners,
to operate through distributed micro centers and to offer strong domain
capability. The BPOs Hub & Spoke model entailed small delivery centers that
were geographically dispersed and individually managed. The BPO carried
out work management at the Hub while more focused delivery was carried
out in Spokes spread across the region. The Hub managed the technology,
training, people management and infrastructure for the Spokes. Thus,
through innovative people-management in their Hub and by breaking down
complex processes into smaller repetitive ones in the Spokes, the non-urban
BPO delivered world class quality to its clients.
The next ten years is going to be the decade of non-urban (small towns)
BPO and the Distributed Delivery Model. The demand gap for talent
in the metros and the availability of talent in the small towns can be
bridged by work moving to small towns. Delivery centers in small towns
for executing IT-BPO work provides job opportunities to locals, prevents
migration to metros at the same time providing a cost advantage to the
outsourcer.
- Mythily Ramesh
Co-Founder & CEO, NextWealth Entrepreneurs
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Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 28
The non-urban BPOs will spark off the digital revolution in the far
interiors and connect people with the developed world via the
information highway, financially & economically and in more ways
than they can imagine. The non-urban BPO lifecycle will be short-lived
however the resulting distribution boom will be far more impacting than
has been witnessed thus far.
- Ajay Chaturvedi
Founder Chairman, HarVa
BPOs that combine rural ethos with a strong business ethic are the next
discontinuity and frontier of outsourcing
- Dhiraj Dolani & Venki Iyer
Mentor and Co-Founder, B2R Technologies
It is a matter of time before rural BPOs are ready to stake their claim on
low end business processes
- Sudhir Gupta
COO, Drishtee
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29 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
India as a
global Hub
1.
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Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 30
Quality/
Certifications
Security
Certifications
Performance
Certifications
ISO 9001
BS 7799
PCMM (People)
SEICMM
ISO 27001
CMMi
ISO 20000
eSCM (eSourcing
Capability Model)
Six Sigma
HIPAA
COBIT
EFQM (European
Foundation
or Quality
Management
COPC (Customer
Operations
Performance
Center)
Over the years of its existence, the Indian software industry has transformed from
delivering stand-alone hardware, software and services, to moving up the value chain
and providing a complete suite of end-to-end integrated offerings coupled with high-end
services like consulting in large transformational deals. IT companies are now also looking
at emerging business themes like analytics, mobility, and cloud computing in order to
retain their competitive edge.
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
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31 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Government initiatives
India has been an attractive destination for technology service
providers as well as multi-nationals to set up and operate their
captive units, R&D and offshore delivery centers. Tax breaks
offered to the IT-BPO industry under the STPI, EOU and SEZ
schemes have acted as a catalyst in its growth. Although,
income-tax benefits under the STPI scheme expired in 20113,
the government is taking other initiatives to promote IT-BPO
sector especially in Tier-II, III cities through creation of SEZs and
financial incentives. The government is also taking measures
to overhaul overall fiscal policies through introduction of Goods
and Services Tax (GST), Direct Tax Code (DTC), revamp of
company laws, and introduction of the IFRS standards.
Developing infrastructure
India is strengthening its focus on infrastructure development to support the growing
business requirements. While the current state of Indias infrastructure is still sub-optimal,
the government is taking measure to improve it. In the Union Budget 2011-12 for example,
the development of world class infrastructure was the key focal area, with budgeted
spending in infrastructure estimated at INR 2,14,000 Crores, a hike of over 23 percent
from 2010-11, providing 48.5 percent of the plan allocation. The budget also proposed
to provide the much needed foreign investment in Indian infrastructure by raising their
venturing limit to USD 40 billion from USD 20 billion earlier.4
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Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 32
Industry Example
A leading global BPO that has evolved into one of the more prominent
players from a captive has increasingly begun to expand their global
footprint to better meet customer requirements. Their location footprint
is a reflection of the skill-sets available in the region to meet customer
requirements. Management at the new centers is hired locally. The company
has also invested in a global service delivery framework to help create a
predictable and sustainable customer experience. However, they have not
thought of organizing themselves in a Hub & Spoke formation just yet,
which has resulted in a failure to tap the rural BPO market through third
party subcontractors. The foundation of the Hub and Spoke delivery model is
already in place and by proactively developing it, the company will be able to
leverage the benefits of a wider resource pool and market place in the future.
- Sandeep Soni
President, Hero BPO
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33 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Way forward
India has established itself as the worlds preferred outsourcing destination and has
built strong expertise in technology operations, business processes and management
capabilities over time1. Moving forward, companies in India can be positioned as
managers of global Hubs, extending their existing dominance and proficiency in
technology outsourcing. However, apart from steps taken by IT-BPO companies, a holistic
transformation can happen only with support of the other players in the ecosystem
which in this case constitutes the Indian government and industry bodies.
Companies
Pro-actively develop a location strategy based on the Hub & Spoke model
The Hub & Spoke model of operations requires the service provider to clearly articulate
their current operating structure and drivers to invest in multiple locations. If this is
not clear, this will result in a number of delivery centers that are under-utilized due to
misalignment with the rest of the organization. Service provider should clearly identify
the Hubs and Spokes that are likely to emerge over the next two to three year horizon
and locations that may need to be phased out.
1.
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Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 34
Government
Development of infrastructure
A robust infrastructure in terms of transport and communication needs to be in place
in order to effectively leverage the multi country Hub and Spoke model. Especially
when it comes to broadband, India is notably lagging its peers in Asia and Europe.
A well developed physical and social infrastructure will help bridge gaps between
geographically dispersed cities.
Industry Bodies
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35 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Industry Example
A leading Indian BPO has actively embraced the Hub & Spoke model by
making the right process and technology investments to enable the same.
They have invested in a private cloud for their technology backbone that
runs on a leading technology platform. Additionally, they have unified the
Performance Management process across all their centers. Thus employees
at all their Spokes have a unified view of the process and common goals to
ensure customer satisfaction. With improved network connectivity in India,
this model has enabled them to add new centers within India in a very short
time. They have also addressed aspects around cultural affinity by providing
citizens in United States of America the right education and training for the
job and giving them an opportunity to work in India.
At least over the next few years, India will remain a key destination
and center of gravity for ITO/BPO work due to scale, cost and
expertise advantage. Having said that, the Hub and Spoke model will
become increasingly dynamic and adaptive to client requirements. So
depending on what process, cost and business transformation goal a
client is looking for across which geographies, different regions and
their destinations will take center stage but we will always use our
global talent pool and delivery footprint to provide the best possible
solution. As we continue to build capability across global locations,
our ability to truly leverage the benefits of such a flexible model
improves rapidly. And finally it does mean that it is very important for the
Government , and industry to continue to invest in talent , capabilities
and ease of doing business and reduce cost of delivery , else India being
> 50 percent of total share of the market is put at risk!
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Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 36
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37 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
About
KPMG
KPMG is a global network of professional firms providing Audit, Tax and Advisory
services. We operate in 152 countries and have 145,000 professionals working
in member firms around the world. The independent member firms of the
KPMG network are affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. Each KPMG firm is a legally distinct and separate
entity and describes itself as such.
Our Audit practice endeavors to provide robust and risk based audit services
that address our firms clients strategic priorities and business processes.
KPMGs Tax services are designed to reflect the unique needs and
objectives of each client, whether we are dealing with the tax aspects of a
cross-border acquisition or developing and helping to implement a global
transfer pricing strategy. In practical terms, that means KPMG firms work
with their clients to assist them in achieving effective tax compliance and
managing tax risks, while helping to control costs.
KPMG Advisory professionals provide advice and assistance to enable
companies, intermediaries and public sector bodies to mitigate risk,
improve performance, and create value. KPMG firms provide a wide
range of Risk Consulting and Management Consulting that can
help clients respond to immediate needs as well as put in place
the strategies for the longer term.
kpmg.com/in
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Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 38
About
NASSCOM
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39 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Glossary
BCP
BPO
BS
British Standards
BSDQ
BTMQ
CEO
CMMi
COBIT
CoE
Centre of Excellence
COPC
CSF
DR
Disaster Recovery
EFQM
eSCM
GST
HIPAA
HR
Human Resource
IFRS
IP
Intellectual Property
IS
Information Security
ISO
IT-BPO
MNCs
Multi-national Companies
NASSCOM
PCI
PCMM (People)
R&D
SEICMM
SEZ
SLA
SOP
STP
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Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 40
Definitions
BS 7799
A code of practice for information assurance originally developed in the UK in 1995. It later formed basis of the ISO 17799
standards
Identifies organizations exposure to internal and external threats and synthesizes hard and soft assets to provide effective
prevention and recovery for the organization, whilst maintaining competitive advantage and value system integrity
Captive
Centre of Excellence
Centre of Excellence refers to a distinctive capability centre that houses a group of specialists, tools and technologies that
create competencies to manage any and all engagements pertaining to a particular service line thereby enabling non-linear
growth
Cloud Computing
The delivery of computing as a service rather than a product, whereby shared resources, software, and information are
provided to computers and other devices as a utility (like the electricity grid) over a network (typically the Internet)
CMMi
A process improvement tool for evaluating the efficiency of a company in technology products delivery to its customers.
Capability Maturity Model Integration is usually associated with software development, and seeks to integrate the various
steps in the development process
COBIT
Control Objectives for Information and Related Technology is an IT governance control framework that helps organisations
meet business challenges in the areas of regulatory compliance, risk management and aligning IT strategy with
organisational goals
A customer contact centre and vendor management operations certification to define the industry standard for call centre
excellence. It helps call centers slash costs, improve efficiency, boost client satisfaction and build the bottom line
Delivery Centre
Delivery Centre is an IT vendors multi-client, multi-site centre to provide support services such as application development
and maintenance to its global clients
The new tax code which is said to replace the existing Indian Income Tax Act, 1961
A framework developed to improve the relationship between IT Services providers and their customers. Various services may
include IT outsourcing, IT hosting, application development and maintenance outsourcing, networking services, business
process outsourcing
The Goods and Services Tax (GST) is a value added tax to be implemented in India which will replace all indirect taxes levied
on goods and services by the Indian Central and State governments
HIPAA
The US Office for Civil Rights enforces the Health Insurance Portability and Accountability Act (HIPPA) Privacy Rule, which
protects the privacy of individually identifiable health information; the HIPAA Security Rule, which sets national standards for
the security of electronic protected health information; and the confidentiality provisions of the Patient Safety Rule, which
protect identifiable information being used to analyze patient safety events and improve patient safety.
IFRS standards
International Financial Reporting Standards are principles-based standards, interpretations and the framework (1989) adopted
by the International Accounting Standards Board (IASB).
ISO 20000
ISO 20000 is an international standard for IT service management developed in 2005. It was based on and to supersede the
BS 15000 standard
ISO 27001
ISO 27001 is an Information Security Management System standard published by ISO and the International Electro technical
Commission (IEC) to formally specify a management system that is intended to bring information security under explicit
management control
ISO 9001
ISO 9001 specifies requirements for a quality management system where an organization aims to enhance customer
satisfaction through effective application of the system
Near shoring
Model through which service provider delivers services from a centre in the nearby vicinity of client
Offshoring
Offshoring is the practice of hiring an external organization to perform some business functions in a country other than the
one where the products or services are actually developed or manufactured
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41 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Outsourcing
A business model under which client contracts out its business function or a process to an outsourcing service provider or its
own unit (captive) in some distant location instead of executing it in-house
PCMM
PCMM is a maturity framework that focuses on continuously improving the management and development of the human
assets of an organization. It describes an evolutionary improvement path from ad hoc, inconsistently performed practices, to a
mature, disciplined, and continuously improving development of the knowledge, skills, and motivation of the workforce
Platform BPOs
Platform-based BPO is a BPO service wherein the service provider embeds the underlying technology as an integral part of
the service being delivered
Private Cloud
Proprietary computing architecture that provides hosted services to a limited number of people behind a firewall
Rural BPOs
Service Level
Agreement
Service Level Agreement (SLA) is a contract between a network service provider and a customer that specifies, usually in
measurable terms, what services the network service provider will furnish. Service Level Agreement (SLA) is a contract
between a network service provider and a customer that specifies, usually in measurable terms, what services the network
service provider will furnish.
Six Sigma
A business management strategy that seeks to improve the quality of process outputs by identifying and removing the causes
of defects (errors) and minimizing variability in manufacturing and business processes
Software and
Technology Parks of
India
STPI is a statutory body for providing Single Window Clearance to software exporters. The scheme provides various
benefits to the registered units including 100 percent foreign equity, tax incentives, duty free import, duty free indigenous
procurement, CST reimbursement, DTA entitlement, deemed export etc.
SEZs are designated areas in countries which have more liberal laws and economic regulations in comparison to rest of the
country to promote trade and foreign direct investments. Companies operating in these areas receive tax incentives and pay
lower tariffs
Sub-contracting
Sub-contracting refers to the concept where a large IT Services vendor contracts a local small delivery provider to service its
clients. This enables the sub-contracting vendor to improve its margins or price its offerings aggressively to tap the market.
Transfer Pricing
Refers to the setting, analysis, documentation, and adjustment of charges made between related parties for goods, services
and other intangible property
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Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 42
Acknowledgement
This document has been released on the occasion of the 20th NASSCOM India Leadership Forum 2012.
The KPMG team which contributed towards the content presented in the document comprises of Arun Chillara, Saurabh Jha,
Shailesh Narwaiye, Sidharth Tewari, Nikhil Kumar, Aljo Joseph, Smita Bhattacharya, Aditya Shangloo, Shashank Shetty, Ajay
Nainy and Eric Samuel.
A special note of thanks to Jiten Ganatra, Remedios Dsilva and Priyanka Agarwal
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NASSCOM Contacts
Kumar Parakala
Chief Operating Officer
Advisory
T: +91 80 3065 4600
E: kumar@kpmg.com
Sangeeta Gupta
Sr-Vice President
E: research@nasscom.in
Rajesh Jain
Partner and Head
Markets
T: +91 22 3090 2370
E: rcjain@kpmg.com
Pradeep Udhas
Partner and Head
IT - BPO
T: +91 22 3090 2040
E: pudhas@kpmg.com
Arun Chillara
Associate Director
IT - BPO
T: +91 22 3090 2392
E: arunc@kpmg.com
kpmg.com/in
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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.
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with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.
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