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IT-BPO industry in India

Transforming global businesses


11 February, 2011 Pune

Presented By : Som Mittal President,

NASSCOM

Role NASSCOM plays


Represents IT, BPO, Products and Engineering services companies Over 1200 members includes Indian Companies, MNCs and Captive units
Policy Advocacy

Partnership with the Government

Industry Development
Enabling Environment Global Trade Development Sustainability

Research, Events, Forums, Market development

Entrepreneurship, Innovation, Resource building, Security initiatives, Infrastructure

Policy advocacy, Market development, International partnership, International and bilateral engagements CSR initiatives, Gender inclusivity, Driving Inclusive Growth, Green IT initiatives
India Innovation Fund

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IT-BPO industry the India story


Strong growth in industry revenues
From USD 5.8 bn in FY 2000 to current estimates of USD 76 bn for FY11

A unique industry
A truly global industry Mission critical in nature Ever changing technology environment Entirely people and skill based industry Young industry average age 27 years Products and services are not defined, but are constantly evolving Adhering to global policies and laws

Contributing to economy
Contributing to 9% of Indias incremental GDP; 26% of Indias exports and 11% of services revenues

Employment generation
Direct employment of 2.5 mn and indirect employment of 8 mn professionals

Global leader
Leader in the global sourcing landscape

Business transformation
Indian IT-BPO Industry catalysing business transformation for global clients

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Current snapshot of industry


IT-BPO revenues, USD bn Sourcing model for IT-BPO exports FY2010
IT Services
CAGR 18%

BPO

Engg Design &Prod Devpt

Indian Providers

Foreign Captives

Foreign Providers

55% of total global sourcing market IT-BPO exports by Geography, FY2010 IT-BPO exports by Vertical, FY2010 Foreign providers over 30% of the total market Services delivered from 50+ locations and 20+ villages (Rural BPO) Transformation, new business models, driving

organisation wide efficiencies


Demand scenario strong in core markets ADM, BFSI, US; Europe, telecom and manufacturing also picking up Emerging segments healthcare, retail, RIM and AsiaPacific experiencing increased adoption
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Breadth of services New markets, New services, New verticals


Non-English speaking geographic IT-BPO revenues BPO non-voice revenues

Building language capabilities

Growth of Non voice services

IT-BPO revenues from new verticals

SMB revenues

Greater Diversification
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New customer segments


5

Reinventing, transforming in a short span


Discrete Processes End-to-end Development
IT strategy and consulting High-end services analytics Engineering design services Product innovation End to end product development Business transformation

IT-BPO Product and Service Offerings

Data Entry Customer support Software development ADM Transaction Processing

Y2K contracts ADM IT support Integration projects

New service lines such as KPO, LPO Large scale ADM

Business needs

Scalability Lower operating costs

Legacy migration Y2 K deadlines

Access to new capabilities Accelerate time to market

Domain expertise End to end services

Access to R&D capabilities Value creation

Late 80s-Mid 90s


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Late 90s

Early 2000s

Mid 2000 to present

Going Forward
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Scale and complexity

Industry establishing a viable hub and spoke model, thus emerging as multinationals with global delivery (nos) 2008 2009 2010 E capabilities
Countries of Operations Operating Centers
Strategic Benefit: Nearshore centre for European and UK clients; low corporate tax

~52 ~400

~60 ~460

~66 ~520
Not exhaustive

Strategic Benefit: Similar time zones as that of the US hence a good location for servicing US clients

Strategic Benefit: Language and cultural capabilities facilitate European dealings

Ireland Eastern Europe

Strategic Benefit: Low cost human resource, language and cultural capabilities facilitate dealings in South East Asia and Japan

Mexico

Egypt
Strategic Benefit: Strong government support; skilled workforce with multi-lingual capabilities; good location for servicing European and Middle East clients

China

Philippines
Strategic Benefit: Availability of skilled workforce proficient in English; low operating costs

Strategic Benefit: Similar time zones as that of the US enable Indian companies to offer 24hours support to US clients

Chile

India multipliers Future ready; staying ahead of the curve; enhanced value proposition
New Business Models

INDICATIVE

Fixed price contract revenues

1 risk sharing

Shift towards managed services model, From FTE based to outcome based;

2 pay per use model, CAPEX to OPEX 3 4


IP Led innovation Innovation through process re-engineering
Cross border and domestic M&A deals Patents granted to top 5 Indian IT companies

Innovation and Transformation

5 Global Delivery 6

Globally dispersed footprints, blurred corporate boundaries and decoupled value chains Customer intimacy, geo political diversity

Service delivery around new tech

7 8

Everything as a service model, platforms

Leading Indian companies offering cloud solutions

Source: NASSCOM Strategic Review 2011

Develop applications around cloud and platform based solutions

At the same time internally re-engineering itself


1
Customer centricity 2
Vertical focused business units to better service clients Enhance client relations from vendor to partnerships, augment sales teams Development of IP, investment in labs Alliances and partnerships, M&A

INDICATIVE
YoY Growth of Business Development

Revenue and Employee growth CAGR FY07-11E

Push towards Nonlinear growth

3 4

Talent reengineering

5 6

Sustained investments in training

% of fresh hires with Non technical background in IT services

Leveraging alternative talent streams


SG&A as a % of total revenues

Continued Operational Excellence

7 8

Reduction in expenses even as business development increases Increase fresher hiring, expansion to Tier II/III locations

Source: NASSCOM Strategic Review 2011

Business transformation has become a core theme for all segments within the industry
Integrate technology capabilities to eliminate work STP (Straight through processing) Value added reporting / analytics Business assurance

Transformation

Eliminate Work

Six sigma Benchmarking Technology augmentation

Do it differently
Role reengineering Shop floor automation Process & org restructuring Inter & Intra industry best practices

Efficiency

Do it better

Cost Saving Global delivery model Do it cheaper Processes


Front end automation Adaptive operating model

Functions

Products

Business

Case example IT services: Offering value through consulting, technical and functional expertise
Client: A semiconductor company formed by combining two global semiconductor giants looking at integrating the parents IT infrastructure to ensure alignment of business and IT, cost savings and simplifying the IT environment.
Solution Robust program management process
o to manage entire application portfolio o to control internal resources for maximum impact

Business Situation To help set up IT operations for the new company.


Aligning the IT landscape to business requirements, ensuring minimal impact on the new company and the parents customers Creating new IT leadership

Defined the IT architecture and IT strategy bringing in process excellence. Defined, implemented and supported the entire IT organization.

Benefits Shortened month-end and yearend closing process Improved visibility and automation Independence from parent, bringing synergy and reducing hidden costs 247 support for critical business applications with 90% offshore leverage End-to-end service and created assets for each service Knowledge repository creation and maintenance Process improvements to check and validate business reports from applications Cost savings on IT spend
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Case example BPO: Business impact across the value chain


LABOUR ARBITRAGE Outsourcing Savings > $30 Million EFFICIENCY Efficiency Gains through process improvements $ 1.5 Million Cost out through staff optimization $ 5 Million EFFECTIVENESS Business Impact through Reengineering & End to end projects $100 Million $140 Million $146 Million business impact over $30 Million outsourcing benefit Cash Flow

Branch opening cycle time -20% reduction in cycle time, revenue addition-$21 Mn

-$21 Mn reduction in net market risk, unmatched bond trades reduced to 10% from 22%
Banking operations -Efficiency up by 30%, 12% additional space creation, improved workflow and layouts Improved customer experience - C-SAT score up by 40 bps

Value

$40 Million $5 Million EBIT Impact

$6.5 Million

$1.5 Million $30 Million $100 Million

2006 - 2009
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Transformational Business Impact has realised the true potential of off-shoring

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Case example RIM: Business model shift Shift to utility model payShift towards managed services model per-use, cloud

2008

2010

2006
Shift towards assetlight models shortterm deals Shared services model gains popularity Vendor shares resources with client as required Emergence of managed services model Managed services increasing in popularity SLA driven, requires maturity and understanding from both client and vendor Risk and reward sharing model

2004

Asset-heavy models (IBM, HP, Cisco, etc.) Dedicated/captive model Time and material Staff augmentation

Movement to asset-light models to cloud Shared/managed services models offer lower costs and added flexibility Fixed-priced/output-based models preferred by large companies
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SOURCE: Everest; NASSCOM

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Case example Engineering services: Enabled an European customer to deliver an instrument cluster for an American OEM
Customer: A large Automotive Tier -1 supplier based in Europe
Business Objective The American OEM wanted the instrument cluster delivered by the Tier 1 supplier in less than 24 months The customer neither had the capacity nor was its current architecture suitable for the intended cluster HMI software Project Details Indian SI deployed 35 engineers within two weeks and developed the production intent software from scratch in a period of 16 months Indian SI followed the agile methodology for faster development Indian SI provided launch support to the Tier-1 for the OEM program
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Results Achieved

Business Benefits: Time to market reduced by 33% Significant cost advantage by leveraging an Indian SI as a strategic partner Success factors/ USP : Deep knowledge of instrument cluster domain and HMI architecture Competence in agile methodology of software development Efficient project management skills
OEM Original Equipment Manufacturer SI System Integrator

Future outlook for the industry a redefined market with tremendous potential
1 (BRIC, Japan, Germany) and service lines (process transformation for
productivity improvement)
Demographic shifts will fuel the growth of new sectors (healthcare), markets

Global Megatrends

Social, environmental and technology trends will create hitherto unseen 2 opportunities (e.g., climate change, servicing SMBs) and risks (automation of core service lines) that could endanger up to a third of todays market The addressable market for global sourcing will triple in size from USD 500 billion today to USD 1.5-1.6 trillion in 2020. 80% of incremental growth will be driven by opportunities outside the current core markets, verticals and customer segments

3 A Redefined Market 4

5 Industry Outlook 6

The exports component of the Indian industry is expected to expand threefold and reach USD 175 billion in revenues by 2020. The domestic component will grow to USD 50 billion, equal to todays exports revenues.

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In summary

The Indian IT-BPO industry has moved beyond cost efficiencies to being a transformation partner
Given the maturity, process excellence and value add India continues to be the trusted destination Opportunities in the new decade will be different from the past and will require the industry to focus more on innovation and new models of growth New level of partnerships to get built on trust o Leveraging resources beyond contractual new markets, new products, new models, demand value-add o Partner for supply chain of global talent with specialized technical skills
o Build opportunities in the fast-growing Indian market

Technology and business services will play transformation role for countries and businesses

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Thank You

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