Global Sourcing Archives

Outsourcing Demand Held Steady in Q4 2021 as Global Sourcing Industry Exhibited Modest Signs of Post-COVID Recovery | Press Release

March 16, 2022

Setups of Global Business Services centers increase in India and China, providing evidence of post-COVID economic recovery

In its latest quarterly report on the global outsourcing industry, Everest Group revealed outsourcing demand held steady from Q3 to Q4 2021, with 404 transactions reported in each quarter. Activity in offshore locations experienced an increase, providing evidence of post-COVID economic recovery, particularly in India and China; however, offshore activity has not yet reached pre-COVID levels.

Notable Global Services Trends in Q3 2021:

North America experienced a decrease in its share of outsourcing deals. “Rest of Europe” (excludes U.K.) and “Rest of World” (comprising Asia Pacific, the Middle East, Africa and Latin America) geographies recorded higher transaction activity compared to the previous quarter, due to an increase in deals across the energy and utilities sector.
The demand for digital services such as automation, blockchain, cybersecurity and Internet of Things (IoT) experienced an increase in offshore GBS centers, driven by cloud-based contracts as businesses continue to migrate toward cloud infrastructure.
During Q4 2021 setups of new Global Business Services (GBS) centers in offshore/nearshore locations numbered 45 as compared with 37 in Q3 2021.
Notably, GBS center setups increased in offshore Asia (primarily China), driven by companies in the manufacturing industry seeking to leverage engineering research and development (ER&D) services involving software development, systems integration and testing of autonomous, connected, electric and shared (ACES) mobility offerings.
GBS activity also increased slightly in India, with 16 setups in Q4 2021 to deliver ER&D and digital services, compared with 15 setups in Q3 2021.

Key Service Provider Developments:

Revenue for both global and offshore heritage service providers experienced a rise on a sequential and annual basis, but operating margin decreased in Q3 2021. In fact, the average operating margin of offshore heritage service providers is at its lowest when compared to the last two quarters. Although revenues have increased, an increase in employee, subcontractor and hiring costs as well as lower utilization of resources have negatively impacted margins.
Merger and acquisition (M&A) and alliance activity among service providers experienced an increase, driven by heightened demand for digital-based capabilities, especially artificial intelligence (AI) and cloud. Forty-four acquisitions were documented for Q4 2021 as compared to 25 in Q3 2021. Alliances also experienced a significant increase.
The number of setups of delivery centers by service providers remained similar to the previous quarter. Centers established in onshore regions decreased from 10 in Q3 2021 to four in Q4 2021; on the other hand, the number of new centers in offshore regions increased from four in Q3 2021 to 10 in Q4 2021.
Service providers are now deriving 40-45% of automotive engineering services revenues from engagements involving ACES mobility services, a market which is expected to increase through 2025 at a rate of 20%.

Everest Group’s Market Vista Report
In its newly published report, “Market Vista™: Q1 2022,” Everest Group highlights the key trends and developments in the fast-evolving global offshoring and outsourcing market. The study provides data, analysis and insights on major outsourcing deals, Global Business Services (GBS) market dynamics, trends in offshoring from emerging destinations, and service provider developments (including latest developments on next-generation technologies such as digital services). The report includes assessments of 29 leading service providers, including 4 engineering services providers.

In its on-demand webinar, Key Global Services Trends Shaping 2022, Everest Group experts break down key global services market developments and explore trends in outsourcing and the global in-house market. The speakers also report insights on talent, location activity, service provider M&A activity, and the key trends likely to shape the global services industry in 2022.

***Download a complimentary abstract of the report here.***

About Everest Group
Everest Group is a research firm focused on strategic IT, business services, engineering services, and sourcing. Our research also covers the technologies that power those processes and functions and the related talent trends and strategies. Our clients include leading global companies, service and technology providers, and investors. Clients use our services to guide their journeys to maximize operational and financial performance, transform experiences, and realize high-impact business outcomes. Details and in-depth content are available at http://www.everestgrp.com.

Retailers’ Evolving Sourcing Strategy Industry | Blog

January 9, 2020

The National Retail Federation, industry analysts, and economists alike have debunked the idea that the retail industry is struggling, dying, or on the verge of an apocalypse. While some retailers and CPG manufacturers have sung their last swan song, many are dramatically transforming their businesses to effectively compete – and indeed, thrive – in the dynamically changing marketplace.

As part of this transformation, retail and CPG firms are evolving their sourcing strategy for: industry-specific processes including sourcing and procurement, merchandising and inventory management operations, sales and marketing, and customer experience; and horizontal processes like IT services, digital services, compliance and quality, and corporate functions such as F&A, contact center, and HR.

Our recently released Industry Insights – Retail and CPG report looks at the changing shape and flavor of sourcing in the industry.

Here are the four key takeaways from the report.

The in-house model is gaining ground

Historically, retail and CPG firms leveraged third-party service providers to deliver a broad range of services such as IT, F&A, and HR. However, in the past several years, many have invested in building what we call Global In-house Centers, or GICs. These in-house shared services centers (SSCs) give them more flexibility and control over the quality of work and reduce their costs. And they’re not only delivering standard back-office processes; they’re also building strong capabilities in areas such as store layout management, pricing optimization, custom application development, financial planning and analysis, customer sentiment analysis, predictive threat monitoring, and other digital services. For example, a US-based retail SSC in Bangalore, India, is developing a new order management system to scrape competitors’ websites for pricing data.

Service providers are moving up the value chain

Just like SSCs, third-party service providers in the retail and CPG stage are also upping their game. They’re not only delivering rules-based and transactional tasks, but also much more advanced services like cybersecurity, blockchain, ERP implementation and maintenance, and legal services.

Delivery destinations are similar to other industries

Retail and CPG firms choose their sourcing delivery destinations based on their competencies, just as enterprises in other industries do. They typically leverage locations in Central and Eastern Europe (CEE), such as Poland, for marketing and analytics, and India for business process services – including those specific to the retail industry – IT and digital services. The Philippines and other APAC countries offer capabilities such as customer service (both voice and non-voice) and regional language delivery of accounting services, while LATAM primarily supports the U.S. market.

As is the case with most industries, India has emerged as the most popular offshore location for retail companies’ SSC setups, delivering both business process services and IT/digital services (product analytics, application design and development, R&D, etc.) to North America and Europe. In fact, a U.S.-based retailer’s GIC in Bangalore, India, provides it a full suite of solutions including technology, marketing, HR, finance, merchandizing, supply chain, property development, and analytics and reporting services.

GICs and providers are building deep domain and digital skills

To help make sure their digital strategies are up-to-date, CPG and retail firms are opening dedicated R&D and innovation labs in offshore locations with the help of third-party providers and GICs to support them in automation, analytics, cloud, and social media services. And with the spread of e-commerce and mounting competition, some retailers have started employing engineering talent in India to build pricing systems that determine how demand would respond to a change in price.

As part of the broader digital agenda, some centers have also started exploring the use of AI for certain activities within operations and sales/marketing, such as store layout and pricing optimization, as well as RPA solutions for automating rule-based processes. For instance, Tech Mahindra signed a contract with a Nordic retailer for end-to-end managed services, wherein it will automate and consolidate the retailer’s existing IT infrastructure and enhance the end-customer experience through digital solutions.

Going forward, we expect both service providers and GICs in the retail space to evolve their capabilities with an increased focus on the use of digital technologies such as analytics, automation, blockchain, augmented and virtual reality, and IoT. These advanced capabilities will help retailers stake their claim in the highly competitive marketplace.

To learn more about sourcing in the retail and CPG space, please read our recently published Industry Insights – Retail and CPG report, or connect directly with the authors Bharath M and Sana Jamal.

Outsourcing Demand Falls, Global In-house Center Setups Grow in Q1 2019 According to Everest Group Report on Top Trends in Global Sourcing | Press Release

June 19, 2019

Enterprises increasingly outsourcing engineering services, including software engineering, mechanical engineering, and embedded engineering.

The global sourcing industry posted a decline in transactions in the first quarter of 2019 as compared to Q4 2018, dropping from 551 transactions to 501, according to Everest Group. Conversely, Q1 saw Global In-house Center (GIC) activity increase vis-à-vis Q4 2018, with the number of new GIC setups and expansions increasing in onshore as well as offshore and nearshore locations.

Everest Group also identified these Q1 global sourcing trends in its recently released Market Vista™: Q2 2019 report:

Large financial services firms, especially banks, are increasingly looking to expand their in-house IT teams and insource parts of their outsourced IT services portfolios.

The United Kingdom witnessed a significant decline in outsourcing activity, primarily due to a decline in contracts signed by banking, financial services and insurance (BFSI) enterprises in anticipation of Brexit.

Western Europe saw increased activity driven by an increase in set-ups of engineering-focused GICs in Germany by manufacturing firms and an increase in IT-focused service provider delivery centers in the Netherlands given its skilled and multi-lingual talent pool and well-developed digital infrastructure.

Indian-heritage service providers increased product-focused investment, mainly driven by next-generation technologies and competition from global majors. For example, Genpact acquired RiskCanvas to access its suite of Anti-Money Laundering (AML) solutions, and Tech Mahindra partnered with Rakuten Mobile Network to open a next-generation (4G and 5G) software-defined network lab.

Market Vista™: Q2 2019 features a profile of enterprise spending on engineering R&D (ER&D) and the increasing adoption of outsourcing services in this industry segment. Business ER&D spending stood at over US$739 billion in 2018, with global engineering sourcing constituting 10.9%, or approximately US$80.5 billion. Engineering service providers command a 51% share of this sourcing segment, while GICs account for 49%.

“Since 2016, engineering service providers have grown at a compound annual growth rate of 16.5%, while GIC activity expanded only 6.8% in this same three-year period,” said H. Karthik, partner, Global Sourcing, at Everest Group. “We’re definitely seeing a trend here as enterprises such as Google, Samsung, and Ford explore engagement with engineering service providers and reap the benefits of offshoring. We’ll see this trend continue as service providers invest in building their capabilities in software engineering, mechanical engineering, and embedded engineering.”

Market Vista™: Q2 2019 also addresses major outsourcing deals, Global In-house Centers (GICs) developments, location risks and opportunities, and service provider developments (including latest developments on next-generation technologies such as digital services).

***Download a complimentary 20-page abstract of the report***

About Everest Group
Everest Group is a consulting and research firm focused on strategic IT, business services, engineering services, and sourcing. We are trusted advisors to senior executives of leading enterprises, providers, and investors. Our firm helps clients improve operational and financial performance through a hands-on process that supports them in making well-informed decisions that deliver high-impact results and achieve sustained value. Our insight and guidance empowers clients to improve organizational efficiency, effectiveness, agility and responsiveness. What sets Everest Group apart is the integration of deep sourcing knowledge, problem-solving skills and original research. Details and in-depth content are available at http://www.everestgrp.com.

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CRO-to-CRO Video Series: Episode 3 Peels Back the Digital Procurement Platform Onion | In the News

April 29, 2019

So you’ve decided your procurement function needs to “go digital” with its software solution needs.

But where to begin? How do you buy this stuff?

“You start with having your business challenges in mind,” says Michel Janssen, one half of the “CRO-to-CRO” discussion pairing we’ve been spotlighting with a series of videos over the last couple of weeks.

Why is Innovation Important Today? | In the News

March 20, 2019

In an age in which sustainable advantage is increasingly transient, organizations need to adapt endlessly – to the point of embedding innovation in their business DNA. Consequently, the historically predominant CXO “delivery” mindset is shifting to a “business outcome” mindset. Firms that fail to adapt to rapid technological advances, constantly evolving customer expectations and intensifying global competition may find themselves unable to compete.

Rohitashwa Aggarwal and Parul Jain explain more about innovation in an article in Intelligent Sourcing

Global Sourcing Map 2018 | Market Insights™

August 28, 2018

Global Sourcing Map 2018
India and the Philippines continue to dominate the global services market with followers in nearshore locations rapidly evolving

Visit the report page

The Sourcing Market is on the Up and Up: Everest Group Reports Rise in Global Outsourcing Demand, GIC Activity and Service Provider Revenues in Q2 2018 | Press Release

August 28, 2018

Sourcing center setups at all-time high in Q2, driven by increased location activity in Nearshore Europe, Middle East

The global sourcing industry experienced a lucrative Q2 2018, marking notable rises in outsourcing demand, setups of global in-house centers (GICs) and service provider revenues compared to Q1, according to Everest Group. In addition, Everest Group reports that overall location activity was at an all-time high (87 setups of delivery centers by GICs and service providers during the quarter) due to significant increases in Central and Eastern Europe (CEE) and the Middle East.

Everest Group discusses these and other second-quarter developments in the sourcing industry in its recently released Market Vista™: Q3 2018 report. The quarterly report highlights the trends in the fast-evolving global sourcing market, exploring the key developments across outsourcing transactions and Global In-house Centers (GICs), as well as location risks and opportunities, and service provider developments.

“We’re coming off a great second quarter for the global services industry as a whole,” said Salil Dani, vice president at Everest Group. “For starters, location activity was at an all-time high and transaction activity rose in comparison to Q1. More than two dozen of the world’s leading companies announced plans to expand or set up new centers, which is a strong indication that enterprises anticipate that the market will continue to validate their sourcing strategies in the near future. We expect that this positive momentum will continue through the remainder of the year, which suggests the global sourcing industry will post significantly improved metrics compared to 2017.”

***Register for Complimentary Webinar***

Everest Group will review the findings of the “Market Vista: Q3 2018” report in a webinar to be held on Wednesday, August 29, at 9 am CDT. In addition, Everest Group presenters will address the results of a brief survey the firm recently conducted with leading service providers to gauge their market perspectives for the remainder of 2018 and into 2019. Register here for the complimentary, 60-minute webinar, “Service Provider Vantage Point, Plus Q3 2018 Market Vista™ Briefing.”

Additional highlights from the Market Vista: Q3 2018 report:

There was an uptick in outsourcing deals in the Banking, Financial Services and Insurance (BFSI) vertical, driven by U.S. tax reforms. Healthcare outsourcing transactions also surged, driven by declining enterprise margins.
Outsourcing activity across North America and Rest of the World (especially Asia, Australia and New Zealand) increased notably over the last quarter.
The “Technology and Communication” sector remained the most active and accounted for more than one-third of the total market activity in Q2. The manufacturing sector witnessed an increase, accounting for 25 percent of total setups as compared to 18 percent in the previous quarter.
Digital services continued to dominate the outsourcing activity relative to pure traditional services, representing 61 percent of transactions compared to 39 percent, respectively. Automation was the most prevalent digital component employed by new or expanded GICs, with deployments in 52 percent of Q2 setups and expansions.
Tier-2/3 locations in the U.S. witnessed significant growth in new center setup activity for both transactional and transformational work, driven by low-cost skilled talent availability.
CEE accounted for more than one-third of the total GIC setups and expansions, with Ireland and Romania remaining the preferred nearshore locations in the region.
Middle East and Africa (MEA) gained traction during the quarter, accounting for nearly 10 percent of the total GIC setup and expansion activity. The majority of the centers that opened in this quarter in this region support R&D/engineering functions of the parent company.
Both global and offshore-heritage service providers saw an increase in revenue and operating margin.
Service providers point to a gap in digital skills as a key growth challenge and are utilizing multiple approaches, including alliances and acquisitions, and exploring talent models to mitigate risk.

***Download a complimentary 14-page abstract of the report findings here.*** (Registration required.)

Global Offshoring and Outsourcing Market—What’s Hot, What’s Not: Everest Group Highlights 2017 Trends, 2018 Predictions in Feb. 15 Webinar | Press Release

February 14, 2018

Adoption of digital services is crossing the line from pilots to large-scale programs; will require knowing how to build portfolios of the future, according to Everest Group

Everest Group’s predictions that 2017 would see continued market slowdown and technology-led disruption in sourcing were right on the money. Growth of outsourcing services slowed in 2017 and, for the first time ever, digital-focused outsourcing deals surpassed traditional transactions in Q4 2017.

Other key market trends witnessed in 2017 include:

New Global In-house Center (GIC) setups recorded an all-time high activity due to increased preference for insourcing next-generation services.
Location activity was led by Asia Pacific and Central and Eastern Europe. Q4 2017 recorded an all-time high activity in Middle East and Africa driven by setups in Israel.
Leading service providers made several investments (e.g., expanding onshore presence, exploring opportunities for inorganic growth, and upskilling/reskilling talent) to remain competitive in the market.

So, what does 2018 hold for the sourcing industry?

On Thursday, February 15, at 9 a.m. CST, Everest Group experts, including CEO Peter Bendor-Samuel, Salil Dani, H. Karthik, Michel Janssen, and Eric Simonson, will host a complimentary webinar to review 2017’s industry shifts and share their predictions for 2018.

***Register Here for Complimentary Webinar***

The webinar—“Q1 2018 Market Vista™ Briefing: 2017 in Review & 2018 Predictions”—will cover the key forces and metrics defining the market, including trends in outsourcing, digital adoption, and the Global In-house Center (GIC) market, as well as insights into location activity in offshore and nearshore geographies.

Research analysts will also provide findings from the Market Vista™ quarterly report series. The most recent report, Market Vista: Select Findings Q1 2018, was released yesterday and covers key developments in Q4 2017, such as:

Transaction activity increased in Q4 2017, with 365 deals compared to 350 in Q3 2017.
GIC market activity increased in Q4 2017 for offshore and nearshore locations, with 46 new setups, four expansions and no divestitures.
Location activity in Q4 2017 was higher compared to the previous quarter, driven by significant growth in Nearshore Europe; activity in tier-1 locations was marginally higher than tier-2 cities.
Most service providers reported sequential growth in revenue.
The share of digital-focused global sourcing transactions increased from 47 percent in Q3 to 61 percent in Q4 of 2017, eclipsing transactions for pure traditional services. Half of all GIC setups during this period were digital focused, with analytics and automation being the primary areas of investment. Service providers focused on digital services in 79 percent of alliances, mergers and acquisitions during Q4, with an emphasis on cloud, automation and analytics.

“As reflect throughout 2017, outsourcing transaction activity in Q4 was driven by an increased adoption of digital services, and we are certain the trend will continue in 2018 as more enterprises move beyond pilot projects to large digital programs,” said Michel Janssen, chief research guru at Everest Group. “This continuing trend will have implications for all stakeholders – and will only be buoyed by positive economic factors and other geopolitical dynamics at play.”

***Download a complimentary abstract of “Market Vista: Select Findings Q1 2018” here.***

About Market Vista™

Market Vista —a subscription-based service of Everest Group—provides the research, analysis and insights that enable Global Sourcing professionals to navigate the complexity of today’s sourcing market and make informed and impactful decisions. Market Vista research includes developments related to service providers, locations, processes and sourcing models, as well as a comprehensive outlook of the fast-evolving global offshoring and outsourcing market.

Reimagining Global Engineering Services – a Hierarchy of Needs | Sherpas in Blue Shirts

May 15, 2017

The engineering services industry is one of the most interesting segments in the global services landscape today.

Compared to IT and business process services, the global engineering services market is much smaller, at approximately US$ 90 billion. It is also growing much faster, at approximately 15 percent per year.

The bulk of the growth is going to be driven by a need to reimagine global sourcing of engineering services, in line with the progression of enterprise digitalization strategies.

Everest Group believes there are four distinct objectives behind digital engineering strategies:

Hierarchy of Digital Engineering Services Demand

Crushing spend: Arguably, there’s nothing new about leveraging a global sourcing model to reduce spend. However, the optimization levers go well beyond arbitrage, extending into the realms of analytics, the IoT, and automation. We are beginning to see enterprises contracting not just for cost savings, but for specific details around how cost savings are being achieved (e.g., success of automation projects, and ongoing commitment for automation.) Digitalization can often achieve breakthrough spend reduction outcomes (e.g., maintenance of oil refineries leveraging IoT technologies), well beyond the traditional arbitrage levers.
Transforming experience in plants or mines: The experience is typically optimized across a bunch of typical considerations such as safety and accessibility, speed, and convenience. For instance, using design thinking principles in plant assembly line design, IoT implementation in mines for health and safety related use cases and medical device companies are using digitally reimagined techniques to create improved patient care outcomes.
Accelerating product innovation: Sophisticated enterprises realize they can’t do it well enough or fast enough unless they embrace a broader innovation ecosystem. Globalization is a major driver of demand, as is the need to accelerate and contextualize cross-industry innovation. For instance, automotive OEMs realize they need to embrace a broader ecosystem of talent and technology providers to create differentiated infotainment offerings.</>li
Disrupting the business model: Business model disruption comes about as a natural progression through the first three levels of the hierarchy, coupled with a disruptive idea. For instance, automotive companies the world over are waking up to the potential of a new business model that is built on asset sharing as opposed to asset ownership. Utility companies are creating parallel energy sharing models using blockchain. Medical diagnostic companies are reimagining their business model by experimenting to service-led, as-a-service models.

Everest Group recommends enterprises follow a “3E” approach to shaping their engineering services global sourcing strategy:

Evaluate the current state of your digital engineering journey against the strategic objectives of efficiency, experience, innovation, or disruption. The way you measure success in the short term should derive from where you are, and your longer-term strategy should stem from a broader industry vision.
Evolve the ER&D sourcing model in line with your aspirations. If you are trying to drive strategic business impact at the higher reaches of digital engineering maturity, you should be able to use objective data to benchmark the impact on business processes. For instance, your ER&D sourcing models should be linked with improvements in supply chain metrics, experience, accelerated time to market, or an increase in digital-led revenues.
Enrich the sources of engineering and R&D innovation by engaging with service providers, start-ups, academia, designers, social scientists, etc. Such an ecosystem should transcend the traditional enterprise-partner model, and requires a central orchestration function for scalability.

Visit our engineering services page for more insights on engineering services global sourcing strategies.

Global Sourcing Slows, Shifts Toward In-House Delivery in 2016 | Press Release

February 28, 2017

Amidst unprecedented uncertainty, Everest Group predicts 2017 will bring continued market slowdown and technology-led disruption in sourcing

While the global services industry experienced continued growth in 2016, the pace of year-on-year revenue growth¹ slowed from 4.5 percent in Q1 to below 3 percent by the end of the year, and the momentum of new activity shifted towards in-house delivery as opposed to outsourcing. In fact, setups of Global In-house Centers (GICs) reached an all-time high in 2016.

Everest Group—a consulting and research firm focused on strategic IT, business services and sourcing—predicts a continued decline in the outsourcing growth rate¹over the next one to three years, falling to as little as 1.9 percent by late 2019, as a result of macro uncertainties, technological disruptions and competition.

Sourcing activity in 2016 was marked by increased location activity that was concentrated in the top-10 locations in offshore/nearshore countries. Another prominent trend in 2016 was the growth of digital services; the share of digital services in outsourcing deals as compared to traditional services rose to 35 percent in 2016, with cloud, analytics and mobility services leading the way.

The outsourcing transactions of United Kingdom buyers neared three-year lows in 2016 as UK buyers followed a “wait and watch” approach amidst uncertainty around Brexit. Similarly, buyers in the United States are facing considerable uncertainty in 2017 regarding the Trump Administration’s approach to visa and immigration reform as well as the political climate around offshoring in general.

The sourcing industry is also facing substantial technology-led disruption. The increasing adoption of automation and DevOps; the growing utilization of IoT, machine learning and analytics; and the need for higher-skilled talent with digital expertise will be key drivers, causing enterprises to re-evaluate their location portfolios to address changing service delivery models.

Overall, Everest Group expects the preference for the in-house delivery model to increase, as it offers the potential for better risk management and control over IP, increased productivity, the ability to deliver more specialized or complex work, and other value benefits beyond labor arbitrage.

“We are seeing a definite skew toward in-house models as opposed to outsourcing, but we characterize it as a shift rather than a complete pendulum swing,” said H. Karthik, partner, Global Sourcing, at Everest Group. “Factoring in political uncertainties, the impact of technology, competitive drivers and many other dynamics in the market, we believe that in the coming year enterprises will continue to leverage both in-house delivery and outsourcing, but they will be more intentional about their location strategy and how to optimize their overall sourcing model.”

Everest Group’s latest research on the global services market explores the evolving market drivers and their implications for global services buyers and providers in two recent reports and a webinar deck available for complimentary download: