Sakishi Garg, Author at Everest Group

Are Offshore-heritage Service Providers “H-1B Visa Abusers” or “Sitting Ducks”? | Sherpas in Blue Shirts

By | Blog, Outsourcing, Shared Services/Global In-house Centers

Recently, an official from the Trump administration accused Indian IT providers of abusing the H-1B visa process by “flooding” the lottery system with applications, giving them an unfair lottery draw advantage. The statement again spotlighted the issue of importing foreign IT services workers to the U.S., thereby limiting job opportunities for domestic candidates. It also underscored the huge extent of outsourcing being done by U.S. corporations, especially to offshore-heritage providers. What it didn’t discuss was other types of companies’ usage of the H-1B program to import skilled talent into the country.

Everest Group conducted a quick analysis on the Labor Condition Applications (LCAs) employers filed to obtain H-1B visas in the last few years. We classified the employers into several categories:

  • Offshore-heritage service providers, such as Cognizant, Infosys, and TCS
  • Multinational service providers, such as Accenture, Capgemini, and IBM
  • Professional services firms, such as Deloitte, EY, and PwC
  • Product companies, such as Apple, Cisco, and Oracle
  • All other companies

Our findings?

  • While the total number of certified positions increased at a CAGR of 11 percent between FY 2011 and FY 2016, offshore-heritage providers’ share has dropped significantly, from 74 percent in FY 2011 to 40 percent in FY 2016
  • The biggest share grabbers are professional services firms, which are increasingly competing with traditional IT services players across deals. Their share in H1-B visas has increased from 7 percent in FY 2011 to 37 percent in FY 2016. On an absolute basis, that’s an almost ten-fold increase
  • The top 25 employers contribute ~50 percent to the total positions certified, which implies that offshore-heritage providers have only a 20 percent share of the total positions certified for H-1B visas by the Department of Labor between FY 2011 and FY 2016.

(For the uninitiated, a certified LCA (ETA Form 9035), is a prerequisite to H-1B approval. The LCA must be certified by the Department of Labor (DOL) before the H-1B petition (Form I-129) is submitted to USCIS. The LCA contains basic wage and location information about the proposed H1B employment. Please note that a certified LCA does not guarantee H-1B visa approval, however, certified position trends are good indicators of H-1B visa usage. Also, note that the data below includes positions certified for new H-1B visa applications as well as renewal and transfer of H-1B visa.)

H-1B visa and offshore service providers

One of the Trump administration’s suggested reforms is to increase the minimum wage for H-1B visas from US$60,000 to US$130,000. But as this minimum wage recommendation is applicable to companies that are “H-1B dependent” – and most offshore-heritage providers fall into this category – the required increase in minimum wage, whatever it ultimately is, will likely affect offshore-heritage providers more than any other type of organization.

At the same time professional services firms have quietly increased their leverage of the visa-led model, offshore-heritage providers have been the unfortunate recipients of far greater scrutiny and negative limelight. In order to successfully compete, offshore-heritage providers have no choice other than to prepare now for the impact of visa policy changes. As the old saying goes, “better safe than sorry.”

Trump-type Protectionism Threatening Global Services in APAC | Sherpas in Blue Shirts

By | Blog, Outsourcing

On April 18, President Trump signed an executive order for interdepartmental review of the H1-B visa program, a move largely aimed at curbing the allotment of H1-B visas to entry level IT professionals from other countries. While it took months for him to officially make a move, his protectionism agenda seems to be spreading far and wide, with several countries in the Asia Pacific region embracing similar protectionist stances to address unemployment.

Australia pulled the plug on its most popular temporary work visa, the 457 visa program. This program allowed companies based in Australia to employ foreign workers, for a period of up to four years, wherever they faced a shortage of skilled workers in the domestic market. It was largely used by global IT companies to source workforce from other countries, mainly India. The Australian government has stated that it will replace the 457 visa program with two temporary visas for skilled professionals. Certain IT skills (e.g., web developer) have been already removed from the list of ~200 occupations that qualify for these visa programs.

In a similar event, the Singapore government restricted the number of visas that can be issued to foreign IT professionals. This has impacted both new visa applicants and those seeking a renewal.

And two weeks ago, the New Zealand government announced plans to tighten access to skilled work visas in a “Kiwi-first” approach to immigration.

Crackdown on visas to skilled foreign workers a threat to global service delivery models

Policy changes that restrict movement of skilled professionals across borders can cause several operational challenges for the prevailing global delivery models of almost all major service providers. The regional delivery centers of leading global and Indian IT service providers based in these APAC countries are likely to face the biggest challenge, as the restrictions against importing talent will make them reliant on local, expensive talent. This, in turn, might negatively impact their margins.

In the short term, enterprises’ and services providers’ cost of operations might witness a spike due to limited availability of landed resources in the onshore workforce. Typically, the difference in cost between a landed and a local resource in most geographies is 10-15 percent. And, based on recently completed research, we estimate that service providers’ margins from onshore operations could drop by up to 16 percent due to the proposed changes to the H1-B visa program. This will likely require service providers to recalibrate their pricing strategy and/or revisit their onshore-offshore delivery mix.

In the long term, service providers are likely to push towards offshoring as a lever to protect their overall margin. And there might be increased instances of even complex work being delivered from offshore locations to reduce dependence on work-visas for onshore locations, in turn requiring increased training and upskilling of employees in offshore locations.

Do you have or run global services operations in APAC? Have you and your teammates formulated an immigration issue mitigation plan? Our readers would love to know how you’re addressing this challenge!

Learn more about Everest Group’s Locations Optimization practice.

U.S. Domestic Locations for IT Services Delivery: Your Trump Card amidst H-1B Uncertainties | Sherpas in Blue Shirts

By | Blog, Onshoring, Talent

As part of President Donald Trump’s immigration reform efforts, the recently introduced legislation could make hiring H-1B visa holders significantly more expensive. The legislation calls for more than doubling the minimum salary of H-1B visa holders to $130,000.

The technology sector is the largest consumer of the visa. And about 70 percent of the 85,000 visas issued every year go to Indian workers employed by technology and outsourcing service providers to provide IT services to leading American enterprises.

Such a massive hike in the proposed minimum salary for H-1B visa holders is forcing enterprises and service providers alike to rethink their talent strategy from offshore to onshore. Factors such as adoption of agile methodology and regulatory requirements are also driving up the demand for onsite resources, and those will likely need to be sourced locally from within the U.S. as the landed resource model become challenged.

This increased focus on onshore resources has both enterprises and service providers alike considering the merits of potential U.S. locations. The landscape of IT services delivery from within the U.S. is complex, with more than 150 leverageable locations. The help simplify the view, Everest Group has classified delivery locations in the country into various tiers based on socio-economic status, maturity of IT services delivery, talent availability, and operating costs.

US Domestic Sourcing for IT Services

Deciding on the best location for U.S.-based IT services delivery must be based on a business case that considers multiple factors, and perhaps some trade-offs. For example, Tier-2 locations offer the twin advantage of moderate operating cost and breadth and depth of skills, but you might have difficulty attracting resources with extremely specialized skills to move from a Tier-1 city such as San Francisco to Dallas or Atlanta. And although Tier-3 and 4 locations are suitable for low-cost transactional IT services delivery, they may not be appropriate options if you need, or anticipate needing, more advanced skills.

US Domestic Sourcing for IT Services 2

While the proposed legislation hasn’t yet become law, turbulence and disruption of this potential magnitude demands significant research and pre-planning. As Benjamin Franklin, one of the founding fathers of the United States said, “By failing to prepare, you are preparing to fail.”
For more information on this topic, please read the following Everest Group reports.

Leaping on the Shoulders of Evolution: F&A Delivery from Global In-house Centers (GICs) | Sherpas in Blue Shirts

By | Blog

While Finance & Accounting (F&A) is one of the most outsourced functions, it is also one of the first to be delivered through offshore global in-house centers (GICs) on a large scale.  Indeed, the GIC market for F&A delivery (by FTEs) now comprises ~13 percent of the overall GIC market. During this insourcing process, the F&A function has grown by leaps and bounds, and has evolved along the following key themes.

GICs are gradually moving from the functional definition of F&A to an end-to-end definition

The functional definition of F&A has been evolving gradually, giving way to an outcome-focused approach in which organizations are looking to break down functional silos and achieve effective process delivery. F&A processes are no longer being treated as stand-alone activities with independent objectives. Instead, they now have a broader mandate of being delivered in tandem with related procurement and supply chain activities. For instance, accounts payable is both a transactional F&A process and a transactional procurement process. It has  been “repackaged” under the Procure-to-Pay (P2P) definition, which takes into account end-to-end delivery of accounts payable, travel and expenses, invoice processing, Requisition-to-PO, sourcing support, and catalog management. Similarly, Order-to-Cash (O2C) and Record-to-Report (R2R) are end-to-end processes now included within the F&A definition. Thus, mature GICs are offering seamless delivery of F&A processes with limited duplication of work.

end-to-end process F&A pic

GICs are increasingly leveraging nearshore locations for F&A delivery

Nearshore locations, such as Central and Eastern Europe (CEE) and Latin America, are increasingly playing a greater role in enterprises’ GIC location footprint for F&A delivery. Apart from time zone advantages and cultural affinity with onshore geographies, nearshore locations offer language capabilities that are essential for delivery to multiple onshore locations. For instance, Poland is being leveraged to serve Western and Eastern European countries due to the availability of language and finance talent. Nearshore locations, particularly in the CEE region, are also being leveraged to deliver niche/complex F&A work.

Companies that have chosen the GIC delivery model prefer to keep judgment-intensive F&A functions in-house

Many companies that have adopted the GIC model extensively prefer to deliver judgment-intensive F&A processes through the same in-house model, rather than outsourcing them. One of the key reasons for this preference is that the nature of work requires greater interaction with senior management.

Companies have evolved to a global delivery model for F&A services

Although many parent organizations initially considered F&A a shared function characterized by shared services centers across various regions, they are increasingly looking to break the regional silos and deliver F&A through global delivery centers, which work toward specific business outcomes. Many companies have been able to derive significant cost savings from this transformation through staff reductions, simplification of processes, and integration across functional silos in the global delivery model.

 Multiple GICs have been transformed into Centers of Excellence (COEs) for delivering specific capabilities within F&A

 COEs are expected to push beyond stipulated delivery mandates by unilaterally focusing their talent and investment on specific aspects of delivery, and transforming them to help derive additional value for the parent organization. In F&A, analytics and reporting COEs are being created to deliver analytics processes such as management reporting. By making use of data modeling and information analysis, these COEs can help the parent company make impactful decisions.

In addition to the above themes, GIC-based F&A delivery is witnessing critical changes in terms of operating model characteristics. GICs are fairly aggressively adopting analytics to reduce costs and increase operations profitability. They are also running pilot programs to measure the cost advantages offered by technologies such as Robotic Process Automation (RPA) for transactional F&A processes (primarily, accounts receivable, accounts payable, and general ledger). Although cost savings are the immediate motivation for most GICs, RPA will eventually become an intrinsic part of F&A delivery, as it will impact location decisions and future offshoring of work.

Everest Group has conducted a deep-dive analysis of this market, covering the current F&A delivery landscape from GICs, the evolution of delivery across key themes, descriptions of F&A process maturity achieved by GICs, and key operating model elements.

For more details, please see Everest Group’s latest report, “Finance & Accounting Delivery from GICs: Trusted Partner to Move F&A Beyond Delivery to Value Creation.”

 

Think Oak Ridge, Tennessee Isn’t on Your List of Likely Domestic Service Delivery Sites? Think Again | Sherpas in Blue Shirts

By | Blog, Onshoring

Eric Simonson’s recent blog, “John Mellencamp Named Honorary Everest Group Analyst of the Month,” highlighted the dominance of tier-3 locations in the United Sates for onshore service delivery. Now it’s time to take a look at the tier-5 and rural locations in the U.S., per the North America Domestic Outsourcing location landscape study we recently conducted for RevAmerica, an event focused solely on domestic ITO and BPO sourcing.

Given that places such as Oak Ridge, Tennessee, Albany, Georgia, and Jacksonville, Texas have populations below 100,000, with limited presence of colleges and poor connectivity to commercial airports, one would not expect them to contribute significantly to onshore service delivery. However, our analysis of tier-5 and rural locations revealed five interesting facts.

Tier-5 and rural locations are growing and have a sizeable share in the domestic sourcing market

Tier-5 and rural locations account for approximately 20 percent of the total service providers’ delivery centers, and 16 percent of the delivery FTEs in the United States. The Midwest region has the highest share of these delivery centers.

Distribution of domestic FTEs and US delivery centers by city-tiers

While onshoring in general has been on the rise, the leverage of tier-5 and rural locations has witnessed significant momentum. In the last decade, the number of new delivery center set ups in these locations has increased by ~150 percent, from an average of three centers per year in 2005-2006 to seven centers in 2013-2014.

Number of new center setups per year in tier-5 and rural locations in US

At the same time, the share of tier-5 and rural locations in new U.S. delivery center set ups has gone up from ~19 percent in 2005-2006 to 25 percent in 2013-2014.

There are 100+ tier-5 and rural cities to choose from

More than a hundred tier-5 and rural locations are currently being leveraged by service providers for onshore service delivery. There are also a number of other potentially viable locales. Given the wide range of options these locations provide, they become an important consideration for players looking to establish a wider U.S. presence.

A large number of contact centers call these locations home

Distribution of delivery centers by function in tier-5 and rural cities

~61 percent of the existing centers in these locations deliver contact center services, as compared to 22 percent for IT services, and 17 percent for business process services. Leading multinational players such as Alorica, Convergys, Sitel, Sykes, Teleperformance, and Teletech leverage these locations for contact center service delivery.

These locations play a meaningful role in the location portfolio for domestic pure-plays

Number of delivery centers by provider

The leverage of tier-5 and rural locations is highest for domestic pure-plays – e.g., CrossUSA, Eagle Creek Software Services, Onshore Outsourcing, and Rural Sourcing Inc. – which have ~37 percent of their delivery centers in these locations. On an overall basis, traditional MNC’s still dominate the market landscape as they have significantly large number of delivery centers in the United States as compared to other players.

The talent pool is sizeable enough to support 1-2 moderate sized delivery centers per location

While talent availability in tier-5 and rural locations is generally lower than in tiers 1 to 4, they still offer a pool capable to support one or two moderate sized delivery centers. The typical delivery center size in these places is ~340 FTEs, as compared to a national average of ~445 FTEs.  However, there is evidence of players achieving a scale of above 500 FTEs, especially for contact center services, where high school graduates are utilized.

Average number of FTEs per delivery center

As onshoring grows in the United States, leverage of tier-5 and rural locations will also grow. Service providers are establishing their presence in these locales due to their lower costs and lesser competitive intensity. Hence, there is a significant opportunity for economic development agencies in these locations to attract potential investors and create employment opportunities.

To download a full copy of our research on domestic delivery, please visit: https://research.everestgrp.com/Product/EGR-2015-2-R-1455/North-America-Domestic-Outsourcing-Services-Providers-Embrace-

For more Market Insights™ on this topic, please visit:

https://www.everestgrp.com/tag/domestic-sourcing

To download our presentation from the RevAmerica event, please visit: http://www.revamerica.com/program/


Photo credit: Wikipedia

“Food” for Thought: Biscuits Versus Cookies | How UK- and US-based Firms Differ in Their Sourcing Decisions | Sherpas in Blue Shirts

By | Blog

While Brits eat biscuits and chips, Americans eat cookies and French fries. You take a lift in a multi-story UK building, but an elevator takes you to different stories in a building in the US. In the US, you get over-the-counter medications from a pharmacist; in the UK, from a chemist. But, in addition to vocabulary differences between the two countries, they both have very different global in-house center (GIC) adoption models. In the overall GIC landscape (with more than 1,900 in total) UK-based firms have an 11 percent share, which is second only to US-based firms (more than 50 percent). Over 35 percent of the Forbes 2000 UK-based firms have adopted the GIC model, as compared to just 29 percent of US companies. Why are the sourcing decisions in the two countries so different?

Among UK-based firms, BFSI is the dominant vertical (~44 percent), while the technology vertical leads the pack among the US-based companies (~41 percent.) The delivery requirements, regulatory obligations, and intellectual property are significantly different in the two sectors, which partly explains the contrast in their sourcing decisions.

GIC adoption among small and medium sized firms (parent revenue <US$ 10 billion) has been much higher (~50 percent) for US-based firms, while the GIC landscape of UK-based firms is dominated by large firms (revenue > US$ 10 billion) with a staggering 73 percent share. Significant disparity is also seen in the GIC adoption levels for emerging verticals such as consulting, professional services, and legal services, which constitute ~7 percent of UK-based firms as compared to ~3 percent of US-based firms.

There are also big differences in the business leadership style and risk averseness of UK versus US firms. Companies in the UK are much more averse to risk when making a sourcing decision, as evidenced by their choice of mostly tier-1 cities with proven delivery ecosystems, while US-based firms also adopt tier-2 and tier-3 locations to manage costs. Additionally, there’s a lot of nearshore location activity by the UK-based buyers, primarily for contact center delivery, as you’ll see in this Everest Group Nearshored GICs Experiencing Significant Growth among UK-based Buyers. This trend continues, with more and more UK-based buyers embracing CEE and nearshore UK locations.

The following sneak peek into our upcoming report on the GIC landscape among UK-based buyers demonstrates these firms’ changing delivery location preference.

GICs of UK-based buyers by delivery location

Stay tuned for the report, which provides more analysis of the GIC landscape among UK-based buyers, and differences in delivery trends by offshore and nearshore geographies. Our report will be published by end of June 2015.


Photo credit: Flickr

Onshoring, Talent Development, Automation – My Top 10 Picks from RevAmerica 2015 | Sherpas in Blue Shirts

By | Blog, Onshoring, Talent

Last month I had the opportunity to attend and co-present with Eric Simonson at a special event in the outsourcing sector, RevAmerica 2015, held in New Orleans, LA. You can download our keynote presentation here. For those who might not know, RevAmerica is a domestic outsourcing event in its second year. The event focused on a multitude of topics and was attended by a strong community of service providers, buyers, economic development agencies, analysts/consulting firms, and academic institutions. Here are my top 10 takeaways from the event:

  1. Buyers are looking at their IT and BP service delivery portfolio more holistically than ever and asking the shoring question more seriously. They are willing to evaluate onshoring as an alternate and in some cases willing to even bend their rules around cost savings to get the extra flexibility in delivery.

  2. Service providers have a major role to play in onshoring growth as they can not only harness the available talent pool, but also create a delivery model that makes economic sense.

  3. Domestic pure-play service providers are diligently making the business case for onshoring. The ones that do this without demeaning the offshoring benefits are likely to be more successful in not only winning pursuits, but also in sharpening their own value proposition for buyers. In this regard, I liked Genesis10, Nexient, and Rural Sourcing’s approach that are playing on the strengths of onshoring rather than making unnecessary comparisons with offshoring.

  4. Economic development agencies (EDAs) are evolving in their thinking and go-to-market approach. Those who are serious about this sector, such as North Dakota Dept. of Commerce and Louisiana Economic Development (LED), have a more collaborative approach towards working with providers/enterprises. However, there is a lack of collaboration among economic development agencies for the common goal.

  5. Talent development continues to be an area of immense interest. Partnership with universities, training/re-skilling programs to create talent in places where people have limited opportunities, and hiring veterans and their spouses are all examples of initiatives to strategically develop the available talent for domestic sourcing. A great example of this is the partnership between IBM, LED, and LSU College of Engineering where State of Louisiana will invest in the institution to expand higher education programs in order to increase the annual computer science graduate output to support IBM’s delivery center in Baton Rouge.

  6. Tier-3 cities are the epicenter of activity in the domestic sourcing space, with maximum centers and headcount located in this cities. They are also the ones that will see maximum growth in the future, but we should watch for saturation trends.

  7. The buzz around robotic process automation (RPA) is getting stronger, especially in the context of domestic sourcing as onshore providers can compete with the offshore labor arbitrage model by harnessing the potential of RPA (where applicable).

  8. The role of educational institutions has to increase to make onshoring a compelling alternative in the eyes of both providers and buyers. EDAs can only promise sustainable talent pool, but not deliver it unless educational institutions show the flexibility and support at a sustained, tactical level – implying changing curriculum, adding industry interaction programs, etc. while still serving the overall mission.

  9. Agile methodology and its implications for working models for IT teams are a great blessing for the onshore model. However, agile can only be one of the selling points. Domain expertise, ability to ramp up/ramp down, technology expertise, and cost of delivery are all factors for evaluating a provider’s capabilities in the onshore context.

  10. The notion of “domestic sourcing = impact sourcing” is flawed. Beyond generating jobs for the underprivileged, domestic sourcing’s larger mandate is to create jobs for the unemployed educated people of the country. There are some domestic sourcing plays such as Onshore Outsourcing and Liberty Source that are doing impact sourcing in an onshore model.

Overall the event touched upon some very relevant topics from the domestic outsourcing perspective and is paving the way for developing a stronger ecosystem to support this sector. Kudos to the Ahilia team for organizing a great event! Last but not the least, in case you are interested in learning more about the domestic outsourcing landscape, you can download Everest Group’s full report here. You may also want to read Eric’s blog on tier-3 cities: John Mellencamp Named Honorary Everest Group Analyst of the Month.


Photo credit: Omni Royal Orleans

GICs Are Here to Stay! Getting Bigger, Better, and Brighter | Sherpas in Blue Shirts

By | Blog

Do you remember back in 2009 when questions were raised on the sustainability of the Global In-house Center (GIC) model? The GIC market was shaken up with multiple divestures, giving rise to speculation that the model was dying. Since then, confidence in the construct has been a little precarious, even though the number of divestitures has remained low (except for in 2012.)

But here are some recent facts that will quell those concerns:

GIC facts

Now, after recognizing that the shared services model is flourishing, let’s look at key developments that occurred in the GIC space in 2014:

  • Business Process Services (BPS) continued to witness growth due to increased demand for Customer Relationship Management (CRM), Finance and Accounting (F&A), and Human Resource (HR) services

  • Activity in the Manufacturing, Distribution, and Retail (MDR) vertical picked up considerably, especially in the retail sub-vertical, as companies set-up GICs for IT services delivery
  • Several locations made their mark on the location radar for the first time for specific industries. For instance, Romania and Ghana emerged as new GIC regions for BFSI firms, Croatia for healthcare companies, and the UAE for the hospitality sector
  • Share of GIC activity by U.S.-based firms declined, as most of the large companies are already adopters of the model; moreover, other geographies are increasingly embracing the GIC model.

While the model continued to see considerable momentum in 2014, the overall market is gradually shifting toward getting better and becoming more relevant for their adopters. Changes that have surfaced and are expected to shape the future course of the industry include:

  • GICs are no longer seen as only a support unit or cost-saving mechanism for the parent entity; rather, they are becoming a partner in their companies’ growth journey
  • Due to the increased value that the GICs are adding, or are capable of adding, buyers are willing to invest more for the additional advantages they can reap from the model
  • Cost arbitrage is not the only factor for GIC location selection. Talent scalability and sustainability, and linguistic and cultural affinity, are also playing a critical role in the decision making process
  • Realizing the value of diversification and the concentration risk involved in the mature markets of India and Philippines, companies are increasingly leveraging locations in other geographies such as Central and Eastern Europe, Latin America, the Middle East, and Africa. Ericsson, Intel, Johnson & Johnson, and Robert Bosch are among the firms that have spread their wings in the last few years to explore delivery locations in countries including Ghana, Mexico, Romania, Ireland, and Vietnam. Still, India remains the top location for GIC set-ups, with 28 centers established in 2014
  • Several delivery locations are also becoming attractive for their domestic market opportunities. Thus, some organizations are leveraging offshore centers for dual purposes; for their GIC operations and to tap into the local market
  • In addition to the pure GIC model, hybrid sourcing constructs, such as virtual GICs, that require a partnership between the buyer and the service provider to deliver services, are being considered.

For those of you who may have been questioning the health of the GIC model, it’s clearly vibrantly alive and kicking. The data speaks!

For more insights on the GIC model landscape, please refer to our recently released report “Global In-house Center (GIC) Landscape Annual Report 2015.” The report provides a deep-dive into the GIC market and an analysis of the GIC trends in 2014, comparing them with the trends in last two years. The research also delivers key insights into the GIC market across locations, verticals, and functions. It concludes with an assessment of the hybrid sourcing constructs.

Tier-2/3 Cities’ Growing Attractiveness as Promising Locations to Deliver Global Services – Can Runners Up Be Winners as Well? | Sherpas in Blue Shirts

By | Blog

The broad picture

With both buyers and service providers increasingly understanding the benefits of tier-2 and 3 cities in their quest for greater cost savings and access to additional talent, these lower tier locations are witnessing significant growth in new set-ups and expansions.

Companies typically look for at least 10-15 percent additional cost savings over tier-1 cities to justify the business case for moving to tier-2/3 locations. But to achieve their goals, they must create a sustainable business case considering both benefits and trade-offs, e.g., a decrease in operating costs versus an increase in management overhead, and entering an established market late versus entering a relatively nascent market.

Some argue that additional cost savings over tier-1 cities can also be realized by expanding into peripheral areas within tier-1 locations (e.g., Pune/Hinjewadi and Mumbai/Navi Mumbai, versus Coimbatore, Ahmedabad, Jaipur, and Bhubaneswar) or in existing tier-1 locations through scale economies. But the “right” answer here is highly context-specific, and depends on an organization’s specific needs and priorities. For example, a company battling for talent in a tier-1 city will not benefit much by expanding to peripheral locations but can access to additional talent by setting up in tier-2/3 cities.

Distribution of set-ups by Tier-1 and 2 cities

Central Eastern Europe (CEE) and Latin America (LATAM) both had more global services delivery set-ups in tier-2 cities than in tier-1 cities in 2012-2014 H1. Although increased activity in tier-2 locations is a relatively recent trend in Asia Pacific (APAC), it is fast catching up with the highest number of tier-2/3 set-ups among all three regions during 2012-2014 H1. Global in-house center (GIC) and service provider activity in APAC is concentrated in India, but distributed across multiple locations in CEE and LATAM. The above chart presents the top five tier-2 locations in each region.

India’s tier-2/3 city story

India continues to be an attractive offshore destination for global companies, given its unique combination of low cost, scalable talent pool, and breadth and depth of available skills. Tier-2/3 cities add to the value proposition by providing additional cost savings of 8 to 12 percent (for IT services), due to lower facilities and other operational costs.

With higher concentration risk in tier-1 cities, it is becoming increasingly important for enterprises and service providers to access talent from tier-2/3 cities.

For more information, download a complimentary preview of Everest Group’s recently released report, Tier-2/3 Locations in India for Offshore IT Services Delivery – Does Reality Meet the Hype?

Philippines: moving beyond Manila and Cebu as delivery locations

While the Philippines’ key tier-1 cities (especially Manila and Cebu) are becoming saturated, the proliferation of tier-2/3 cities offer a strong proposition. Emerging tier-2/3 cities – e.g., Dasmarinas, Malolos, Iloilo City, and Baguio – contribute 30 to 40 percent of the relevant graduate pool, and for IT-BPS offer a cost differential of 10 to 25 percent as compared to Metro Manila.

For more information, download a complimentary preview of Everest Group’s recently released report, Is Philippines Stepping Up to Lead the Industry into the Next Horizon of Global Services?

Dimensions for operationalizing a tier-2/3 delivery center

Operationalizing a center in tier-2/3 cities and successfully deriving the above-mentioned benefits requires a slightly different approach than in tier-1 locations:

Talent hiring strategy: Companies need effective talent strategies to meet the needs of experienced personnel who often need to be relocated. They also need appropriate employer branding to capture mindshare in local colleges and universities.

Client engagement and contract type: To optimize costs and improve profitability, tier-2/3 cities are likely better suited to deliver work for existing (rather than new) clients/modules.

Operating model:Tier-2/3 cities can serve as self-sufficient centers directly handling clients, and can also be structured as a spoke to tier-1 cities in certain cases.

Creating an ecosystem: Companies need to invest in infrastructure, the social living environment, and the delivery ecosystem in order to successfully operate a tier-2/3 city set-up.

Many tier-2/3 cities options with multiple benefits and opportunities are available across various regions and countries. But enterprises and service providers must take into consideration multiple associated challenges – e.g., scalability, lack of enabling environment, trade-offs with peripheral cities, and lesser breadth of skill sets – before setting up or expanding their operations in these locations. A commercial-driven business case may not be enough to evaluate these cities; what is needed is a risk-reward assessment!

Here’s the Answer Key: India GIC Landscape Crossword Puzzle | Sherpas in Blue Shirts

By | Blog

Hope you enjoyed solving the India GIC landscape crossword we posted last week. Below is the answer key to it. (Download a printer-friendly version of the answer key.)

Everest Group India GIC Crossword Answer Key

Across  
  1. One of the first entrants in the India GIC landscape
Texas Instruments and GE were among the first entrants in the GIC landscape
  1. Number of GIC divestitures in first half of 2014
None. GIC divestiture activity has seen a decline in recent years after peaking in 2011 and 2012
  1. Numero uno country in worldwide GIC market
India has dominant share in the GIC market in terms of revenue (~50%), number of delivery centers and headcount
  1. Tier-1 city with least number of GICs
Mumbai has the least number of GICs among tier-1 cities in India
  1. Buyer geography with maximum number of companies setting up GIC in India
United States-headquarteredfirms have more than 60% share in the Indian GIC landscape
  1. Buyer geography showing decline in GIC activity in India
Share of United Kingdom-based firms setting up GICs in India has declined in the last 2-3 years
  1. _______ a.k.a GIC
GICs were formerly known as captives
  1. Vertical with 2nd largest average headcount in GIC
Telecom is the 2nd largest vertical after BFSI in terms of average headcount
 
Down  
  1. Top vertical by GIC headcount
BFSI is the largest vertical in terms of overall GIC headcount in India
  1. Top vertical by number of GICs
Technology is the leading vertical in terms of number of GIC set-ups in India
  1. Tier-1 city with highest share in number of GICs
Bangalore has the maximum number of GICs in India
  1. Leading tier-2 city for GIC set-ups
Pune  is the leading tier-2 city in terms of number of GICs and has seen lot of GIC activity in the recent past
  1. Why companies started GICs?
Companies started GICs to capture cost arbitrage
  1. Alternative to the GIC model
Outsourcing to service providers in an alternative to the GIC model
  1. Number one function that GICs in India are delivering
Engineering services is the leading function delivered by GICs in India
  1. __________ beyond arbitrage
Value beyond arbitrage
  1. Energy & Utilities GICs firms headquartered here have high share
Within the Energy & Utilities vertical, Europe-based firms have highest share
  1. Sub-function within IT with highest adoption
ADM (Application Development & Maintenance) is the topmost sub-function within IT
  1. Another leading tier-2 city for GIC set-ups
Kochi is also seeing GIC activity among tier-2 cities in India
  1. Cognizant acquired this GIC in 2013
Cognizant acquired ValueSource NV, a subsidiary of KBC Group

Photo credit: Taki Steve