On May 23, 2013, Everest Group hosted a Market Vista webinar to discuss the Global Services Developments in Q1 2013, including: outsourcing trends in Q1-2013, GIC trends and developments, change in locations in Eastern Europe between 2012 and 2013, and overview of the 20 leading service providers

1. Global Services Developments in Q1 2013
Market Vista Briefing
May 23, 2013
Live Tweeting #MarketVista

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Introductions
Salil Dani
Practice Director
salil.dani@everestgrp.com
Eric Simonson
Managing Partner – Research
eric.simonson@everestgrp.com
H. Karthik
Vice President
h.karthik@everestgrp.com

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Context setting
Sources for today’s webinar
Focus of this webinar
 Present key global services developments in Q1-2013
 Provide perspectives on location concentration risk
IT and Business
Services research
Location Optimization
 Summary from a
180+ page report
 Fact-based
research covering
global services
+

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Terminology | Global In-house Center (GIC)
replacing “captive”
Context
 Historically, the term “captive” has
referred to service delivery operations
in lower cost geographies, which are
owned and operated by the same
company receiving the services (i.e.,
not third-party outsourcing)
 Although the term has become widely
used, it has a perceived negative tone
and is not self-explanatory, causing
confusion for those new to the global
services space
 Furthermore, many organizations, for
which captive is intended to describe,
do not use the term themselves
What has changed
 Everest Group has adopted “Global In-house
Center” or “GIC” as the preferred term to
replace “captive”
 This will appear in all of our reports and
content beginning in July 2012
Growing industry-wide shift
Both NASSCOM (India) and BPAP (Philippines)
are championing the change in terminology

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Highlights of Q1 2013
 Share of leading supply
geographies
 Location trends in Europe
Sustained interest in European
locations
 Drivers and approaches adopted by
companies
 Recommended best practices to
measure and mitigate
Increased focus on location
concentration risk by market
leaders
 Outsourcing transactions
 GIC trends
 Service provider performance
Global services market is showing
early signs of recovery

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Presentation topics
Special topic –
Concentration risk
Wrap up and Q&A
Key market
developments in
Q1-2013
 Outsourcing transactions
 GICs
 Service providers
 Locations

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If the proposed U.S. immigration reform is passed into
law, how much impact do you expect on your
organization’s global sourcing efforts?
28%
19%
28%
11%
14%
Not familiar with the legislation/no opinion
No expected impact
Marginal negative impact
Significant negative impact
Positive impact
Source: Live polling conducted during the “Market Vista: Global Services Developments in Q1 2013” webinar on May 23, 2013

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Demand for outsourcing services is increasing in
Q1 2013
Index of outsourcing transactions
Number
441
411
380
401 409
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013
Index of offshore GIC health
Number
GIC set-ups and expansions
GIC divestures
16
18
11
16
14
0 0
3
1
0
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013

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Uptick in outsourcing demand from North America;
Europe continues to remain sluggish
150 132 125 129 148
225
189
165
198 177
66
90
90
74 84
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013
North America1
Europe
Rest of World2
441
380
411 401 409
Change in average ACV
(Q1 2012 to Q1 2013)
Outsourcing deals announced
Number of transactions
1 Excludes Mexico
2 Includes Asia-Pacific, Latin America, and Africa

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83 73 72 78 80
66 68
43
61 62
94 102
83
78 83
41 43
27
44 30
157
125
155
140 154
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013
Activity in Q1 led by several verticals besides
financial services
BFSI
Manufacturing
Healthcare
Outsourcing deals announced
Number of transactions
Public sector
Others1
Change in average ACV
(Q1 2012-Q1 2013)
1 Includes Energy & Utilities, Technology, Telecom, Travel & Hospitality, and Miscellaneous
441
380
411 401 409

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12.1%
14.1% 14.7% 15.4%
22.6% 22.9% 22.2% 22.4%
0%
5%
10%
15%
20%
25%
30%
Q1 2012 Q2 2012 Q3 2012 Q4 2012
5.1%
1.5% -3.3% 1.1%
15.0%
11.2%
9.7%
12.3%
-5%
0%
5%
10%
15%
20%
25%
30%
Q1 2012 Q2 2012 Q3 2012 Q4 2012
Service providers are also witnessing improved
financials
Revenue growth rate (year-on-year basis) for
Market Vista Index service providers
Percentage
Offshore-centric service providers
Traditional global service providers
Operating margin (quarterly) for Market Vista
Index service providers
Percentage
Offshore-centric service providers
Traditional global service providers

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The proposed U.S. visa regulations would have an
onerous impact on Indian IT service providers
Implications
Severely target the onshore portion of the
global delivery model of Indian service
providers for IT services
Other organizations (e.g., GICs, MNC
service providers, technology firms, BPO
service providers) left either unaffected or
positively impacted
Not limit offshoring – creates major
operating implications and margin/
profitability hits for Indian IT service
providers
1
2
3
Snapshot of major provisions
 Eliminate “outplacement” for
firms that are H1-B dependent
(greater than 15% of U.S. based
work force on H1-B visas)
 Limit access to H1-B visas and
increase fees, plus force
increased salaries for firms with
70/60/50% of U.S. based work
force on H1-B visas
 Increase the number of H1-B
visas available each year
Much could still change – watch closely and visit our blog and websites
for further updates

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Overall location set-ups decreased in first quarter; important
to watch in coming quarters if maturation and/or saturation
effects are occurring
New offshore delivery center set-ups
Number
36
47
35
45
23
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013
Note: Include offshore delivery center set-ups across GICs and service providers in Asia, Africa, CEE, and Latin America

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Despite sluggish demand from Europe, players have
invested in building delivery capacity in CEE
12%
20%
43%
60% 48%
43%
23%
24%
10%
5% 8% 4%
H1 2012 H2 2012 Q1 2013
CEE
83100% = 80 23
Africa
Proportion of CEE in new offshore delivery center set-ups
Percentage
 Players investing ahead
of demand in CEE,
partly to take advantage
of deflated market
conditions and also
favorable government
incentives
 Significant leverage of
tier-2/3 cities for service
delivery in CEE
Asia
Pacific
Latin
America

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In addition, there is also evidence of companies
building capacity in European onshore locations
New onshore delivery centers of Market
Vista Index service providers
Percentage
76%
67%
17%
27%
7% 6%
2011 2012
85%
78%
10% 19%
5% 3%
2011 2012
Estimated onshore capacity addition by Market
Vista Index service providers
‘000 FTEs
Europe
North
America
Europe
North
America
 Even though large service providers are setting up delivery centers in Western Europe, this is not at the
expense of North American locations
 On a capacity basis, the share of European onshore locations is much smaller (~20%)
Others1 Others1
27 19 ~4 ~3100% = 100% =

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Presentation topics
Wrap up and Q&A
Key market
developments in Q1
2013
Special topic –
Concentration risk
 Drivers for increased
attention and experiences
of companies
 Recommended guiding
principles and approach

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To what extent is
your organization
addressing location
concentration risk?
10%
18%
41%
31%
Not being discussed
Occasional discussion, but no plans
Implementing some simple plans
Implementing meaningful changes
Source: Live polling conducted during the “Market Vista: Global Services Developments in Q1 2013” webinar on May 23, 2013

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Location concentration risk | Focus of today’s
webinar
 Drivers behind the increasing attention to location concentration risk in
global services
 Approaches adopted by companies to address location concentration
risk
 Recommended best practices to measure and mitigate location
concentration risk
1
2
3

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Mature adopters are increasing attention on location
concentration risk, given the significant adoption and
maturation of global services
Company A
Company B
Company C
Company D
Company E
India offshore scale1
2013; FTEs in thousands
16-17
12-13
19-20
15-16
1 Includes India-based offshore headcount in GICs and service providers (including co-located and remote models) providing functional support
2 Includes share of headcount in judgment-intensive processes in IT and BPO (including knowledge services)
Share of judgment-intensive work
in India offshore headcount2
Percentage
30-35%
25-30%
35-40%
20-25%
 Higher offshore scale and
penetration in leading
geographies (e.g., India)
 Increasing leverage of
offshore locations for
critical processes (e.g.,
judgment-intensive work)
30-35%
25-26
INDIA EXAMPLE
1

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20-25
35-40
50-55
65-70
65-70
5-10
45-50
BP (Origination)
BP (Servicing)
Collections
Fraud
KP
Customer Care
IT
23-25
15-17
35-37
28-30
23-25
10-12
Mortgage
Investment
Banking
Credit Card
Corporate
Banking
Retail Banking
Treasury
Services
Location concentration is more pronounced in case
of specific lines of business and functions
Overall
23-25
20-22
19-20
15-18
13-15
Bank A
Bank B
Bank C
Bank D
Bank E
Line of Business
LOB
Functions within
LOB
Offshore penetration in India
2013; Percentage
EXAMPLE: BANK A
1

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Leading players have adopted multiple strategies to
manage location concentration risk
Leverage different cities within
the same country
Set-up additional facility in a
different part of the same city
Leverage alternate sourcing
models (e.g., service providers)
Enable work from home options
 Each of these strategies can
be effective, but offer unique
trade-offs to consider and
manage
 Organizations typically adopt
an ad-hoc/reactive approach
to designing (e.g., evaluating
options) and implementing
these strategies
Leverage multiple countries
2

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Recommended guiding principles to measuring and
mitigating location concentration risk
Measuring concentration risk Mitigating concentration risk
Measure risk at a process/BU
level (e.g., accounts payable for
retail banking), and not only at a
functional (e.g., finance) and
overall level
Assess risk at a city-level;
country-level assessment likely
to be partial
Multi-location infrastructure does
not always mitigate risk; need to
create flexibility/capability in
service delivery across locations
All risks need not be mitigated
given underlying trade-offs
Differentiate approach by the
criticality of work and nature of
risks
Account for the criticality of
process in risk measurement
3a 3b
3

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Recommended approach to measure location
concentration risk
Extent of exposure
in a location
Location-specific
risks
 Scale and penetration
 Criticality of process
 Criticality of role played by location for process
 Sustainability of arbitrage
 Risks of market saturation
 Threat from natural hazards
 Geopolitical and macroeconomic risks
City risk dashboard
Country risk dashboard
Risk dashboards that
support executive level
view into risk
3a
Bank A

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Recommended approach to mitigate location
concentration risk | BCP example
Assess impact of disruptive
elements on operating model
Quantify cost of restoring
delivery
Assess risk mitigation
options and implementation
cost trade-offs
 Probability of occurrence of
disruptive events (e.g.,
earthquake, flood, riots)
 Level of disruption of business
continuity dimensions
(e.g., infrastructure, human
resources)
 Restoration measures and
costs involved
 Time to normalcy and
recurrence of costs
 Likelihood of disruptive event
impacting business continuity
dimensions
 Structure mitigation options –
alternative location portfolios
 Assess likelihood and degree
of impairment from disruptive
events on mitigation options
 Assess total cost of restoring
delivery
 Trade-offs with cost of
implementation and ease of
management
3b

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Presentation topics
Special topic –
Concentration risk
Key market
developments in Q1
2013
Wrap up and Q&A
Submit any remaining
questions!

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Highlights of the webinar
 Players building capacity ahead of demand
 Set-ups in both CEE and onshore Europe
Sustained interest in European
locations
 Increased attention given growth and maturity
 Higher concentration in LOBs and functions
 Need to proactively measure and mitigate
Increased focus on location
concentration risk by market
leaders
 Incremental demand sustained in North America
and major verticals over few quarters
 Improvement in service provider financials
 Uncertainty from proposed U.S. visa laws
Global services market is
showing early signs of recovery

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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 today’s presentation
 For advice or research on Market Vista, please contact:
– Eric Simonson, eric.simonson@everestgrp.com
– H. Karthik, h.karthik@everestgrp.com
– Salil Dani, salil.dani@everestgrp.com
Q&A
Websites
www.everestgrp.com
research.everestgrp.com
Twitter
@EverestGroup
@Everest_Cloud
Blogs
www.sherpasinblueshirts.com
www.gainingaltitudeinthecloud.com
Stay connected

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Check out our blog for the latest perspectives
on global services
www.sherpasinblueshirts.com
Experts in the global
services terrain

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