Category: Blog

Decoding the EU AI Act: What it Means for Financial Services Firms | Blog

How will the EU AI Act impact the financial services sector, and how should enterprises and service providers structure their compliance activities? Read on to learn about what this new legislation means for financial services firms looking to implement AI tools, or get in touch to understand the direct impact on your specific business.

In recent years, the rapid advancements in artificial intelligence — in particular, generative AI — have revolutionized various sectors, including financial services. Technology giants such as Microsoft, Google, Amazon, and Meta have heavily invested in developing AI models and tools. However, this unprecedented growth has also raised concerns about the potential risks associated with the unchecked use of AI, prompting the need for regulations to ensure the responsible development and deployment of these powerful technologies.

Recognizing the urgency of the situation, the European Union has taken a proactive step by introducing the AI Act, a pioneering piece of legislation that aims to establish a comprehensive framework for the development and use of trustworthy AI systems. The Act adopts a risk-based approach, categorizing AI systems into four distinct levels:

  • Unacceptable risk – Systems deemed a serious threat, such as predictive policing, real-time biometric identification systems, and social scoring and ranking are banned
  • High-risk – Systems with potential to harm people or fundamental rights, such as AI-powered credit assessments, require strict adherence to new rules regarding risk management, data training, transparency, cybersecurity, and testing. These systems need to register with a central EU database before distribution
  • Limited risk – Systems posing minimal risk, such as chatbots, need to comply with “limited transparency obligations,” such as labeling AI-generated content
  • Low or minimal risk – While not mandated, the Act encourages providers to follow a code of conduct similar to high-risk systems for market conformity

The AI Act and financial services

The financial services industry heavily relies on AI, from personalized banking experiences to fraud detection. The high-risk applications especially require financial institutions to prioritize the following:

  • Continuous risk management – Focus on health, safety, and rights throughout the AI lifecycle, including regular updates, documentation, and stakeholder engagement
  • Comprehensible documentation – Maintain clear, up-to-date technical documentation for high-risk systems, including characteristics, algorithms, data processes, risk management plans, and automatic event logging
  • Human oversight and transparency – Maintain human oversight throughout the AI lifecycle and ensure clear and understandable explanations of AI decisions
  • Rigorous governance – Implement robust governance practices to prevent discrimination and ensure compliance with data protection laws
  • Fundamental rights impact assessment – Conduct thorough assessments to identify and mitigate potential risks to fundamental rights
  • Data quality and bias detection – Ensure training and testing datasets are representative, accurate, and free of bias to prevent adverse impacts
  • System performance and security – Ensure consistent performance, accuracy, robustness, and cybersecurity throughout the lifecycle of high-risk AI systems

To align with the EU AI Act, enterprises must take a structured approach. First, they should develop a comprehensive compliance framework to manage AI risks, ensure adherence to the Act, and implement risk mitigation strategies. Next, they need to take inventory of existing AI assets like models, tools, and systems, classifying each into the four risk categories outlined by the Act. Crucially, a cross-functional team should be formed to oversee AI risk management, drive compliance efforts, and execute mitigation plans across the organization. By taking these steps, enterprises can future-proof their AI initiatives while upholding the standards set forth by the landmark regulation.

Final Everest Group Decoding the EU AI Act What it means for financial services
Opportunities for service providers

  • AI governance expertise – Service providers can offer expertise in building and implementing AI governance frameworks that comply with the EU AI Act. This includes developing policies, procedures, and tools for responsible AI development and deployment
  • Data management solutions – Service providers can assist financial institutions in managing their data effectively for AI purposes. This includes data cleaning, labeling, and ensuring data quality and compliance
  • Large Language Model operations (LLMops) – As financial institutions explore the use of Large Language Models (LLMs), service providers can provide expertise in LLMOps, which encompasses the processes for deploying, managing, and monitoring LLMs
  • Use case classification & risk management – Service providers can help financial institutions classify their AI use cases according to the EU AI Act’s risk framework, and develop appropriate risk management strategies
  • Quality Management System (QMS) – Implement a robust QMS to ensure the AI systems consistently meet the Act’s requirements and other emerging regulatory standards

The road ahead

As the AI Act progresses through the legislative process, financial institutions and service providers must proactively prepare for the upcoming changes. This includes conducting AI asset inventories, classifying AI systems based on risk levels, assigning responsibility for compliance, and establishing robust frameworks for AI risk management. Service providers will play a crucial role in supporting financial institutions in their compliance efforts.

To learn more about the EU AI Act and how to achieve compliance with the regulations, contact Ronak Doshi, [email protected], Kriti Seth, [email protected] and Laqshay Gupta, [email protected]. Understand how we can assist in managing AI implementation and compliance, or download our report on revolutionizing BFSI workflows using Gen AI.

The Future of the Wealth Management Industry: The S-curve Shift and the Modernization Opportunity | Blog

The wealth management industry has evolved over the years, transitioning from reputation-driven models to technology-led advisory services. Read on to uncover how wealth management firms can develop a digital blueprint to navigate the next digital frontier and better serve their clients in an increasingly hybrid and personalized landscape. Get in touch to discuss further.

In our earlier blog, How Technology Can Help the Wealth Management Industry Navigate Coming Changes in 2023, we discussed how digital disruptions will impact the wealth management industry and the role technology and service providers can play in helping wealth management firms navigate the choppy waters ahead. Continuing with our two-part blog series in the wealth management space, this blog will touch upon how this industry has transitioned through the different eras and how we are now on the cusp of a new digital future. The current question is, what will the digital blueprint be to help wealth management firms be better prepared for this new normal?

Wealth management eras – is the industry undergoing another S-curve shift?

The wealth management industry has witnessed several s-curve shifts in the past and has evolved from being a reputation-driven business to a technology-led advisory model. We are now witnessing the next inflection point, moving from persona- to person-based personalization through the hybrid trust model. The initial journey of the wealth management industry was about family-based offices and reputation-driven businesses. It was all about having the right intimacy with the client, nurturing the exclusivity, and delivering that strong advisory model. It was driven by large systems of records, but experience remained bespoke and in-person.

After this era, the wave of customer expansion hit with the emergence of mass affluent customers. It became less about serving HNIs and UHNIs and more about capturing the mass affluent segment that demanded access to similar asset classes and WM strategies as HNWI and institutional investors, which led to the rise of robo-advisory models to democratize access to these services. Enterprises wanted to serve this new segment better in a cost-effective model that could help them meet their margin targets as well. This led to rapid technological disruption in the wealth management industry and pushed us into the digital advisory model that we are currently in. We saw this in the case of UBS in late 2022 with the launch of WE.UBS, a digital wealth platform for mass affluent clients in China in partnership with technology provider Tencent.

Currently, we can see that enterprises are focusing on developing a hybrid trust model. In this model, they utilize emerging technologies such as AI to transform end-to-end customer journeys and give their clients access to new products such as digital assets, ESG-linked investments, and overall financial wellness services. This could be seen in action a couple of years ago when HSBC introduced HSBC Prism Advisory in Asia, blending face-to-face and digital interactions in private banking. This service leverages BlackRock’s Aladdin Wealth™ technology, combining data analytics with HSBC advisors’ expertise.

Another notable example is when Citi announced its plan last year to utilize AI as a tool to simplify and automate procedures, enabling private bankers to dedicate more time to client service.

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However, the top-of-mind questions are “Are we nearing the end of this era?” and “Is there a new world order coming for the wealth management industry?” This space has already seen a rapid expansion of products to cater to different customer segments, but now enterprises need to provide assistance to customers in navigating the buying experience while creating trust in a model that is now both human and digital. The wealth management industry has multiple siloed channels where the human-assisted channel enables great advice, but as soon as it moves to digital channels, the level of experience starts getting non-uniform and disjointed. Customers often talk about a lack of contextualization as they interact on such channels.

Psychographic segmentation – can it fix what is broken?

Hyperpersonalization has become one of the key focus areas as wealth management firms are trying to drive competitive differentiation in the current macroeconomic landscape. The emerging client segment, comprising of millennials and Gen Z investors, expects tailored services as per their preferences and values seamless experiences across both digital and human advisory channels. In light of these demands, we see the approach towards hyper-personalization shifting from demographic-based to a more psychographic-based segmentation.

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Enterprises are now moving away from utilizing broader aspects such as age, gender, occupation, and location to create different personas and are utilizing individual personality traits such as lifestyle, attitudes, beliefs, interests, and values to create unique experiences for clients. This strategy promises to be especially effective in captivating and retaining young investors, a highly desirable client demographic poised to emerge as a lucrative segment amid the intergenerational transfer of wealth spanning diverse geographic regions. To embark on this journey, HSBC recently partnered with a European consulting firm, Zühlke, to revamp its mobile wealth management services for UK clients. Zühlke’s experts conducted a study on the investment preferences of British customers, providing insights that enabled HSBC to tailor its services to better meet their needs.

To excel in this approach, enterprises must possess the necessary technology to seamlessly monitor, acquire, and leverage customer data in real time, empowering them to dynamically create personalized experiences with agility and scalability. They need to establish trust with their customers so that they feel comfortable in sharing this private personality traits-related data, which can eventually lead to personalization-led value creation and drive customer delight. In late 2023, Morgan Stanley announced plans to roll out a gen AI bot for its HNWI clients that will provide functionalities such as summarizing a meeting, drafting a follow-up email for suggested next steps, updating the bank’s sales database, scheduling a follow-up appointment, and acquiring knowledge to aid advisers in managing clients’ finances, covering aspects like taxes, retirement savings, and inheritances.

Future of wealth – can the roots of a modular core system power the tree of wealth?

As enterprises embark on this experience innovation journey, it is important for them to have the underlying technology stack to support the industrialized delivery of these data-driven experiences at scale. Currently, they are facing challenges in establishing digital workflows as most of them still have the legacy architecture consisting of Excel spreadsheets and siloed data systems, which makes streamlined data management and analysis difficult.

They are increasingly looking at leveraging cloud-based data management systems that can help them optimize their IT infrastructure costs and improve their ability to process structured and unstructured customer data in real time and at scale. We also saw that a few months ago, Northern Trust collaborated with Finbourne Technology, a UK-based data solutions provider, to adopt its cloud-native data management solution. This partnership aims to modernize Northern Trust’s technology by offering cost-effective and scalable data calculation and processing, enabling near real-time delivery of valuations and other crucial data to clients.

Integrating the cloud into their business and technology operations will also help them roll out new features quickly and keep up with the constantly changing customer demands. In this process of driving data and intelligence in their operations, one of the key focus areas for enterprises is prioritizing and sequencing this migration of workloads to the cloud across the various elements in the wealth management value chain. They want to identify the quick wins that would have the maximum impact while having lesser complexity associated with the transition.

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The wealth tree, as seen in the graphic, is what we believe the future of wealth would look like. The fruits and leaves represent wealth for end customers by creating customer delight through innovative products and personalized experiences. This was seen in action in early 2024 when Kinecta Federal Credit Union announced a strategic partnership with cloud-based wealth management solutions provider FusionIQ to enhance its digital investing services by leveraging the platform’s features, such as digital advice, self-directed investing, and other financial well-being solutions. Also, in 2023, J.P. Morgan partnered with TIFIN to launch TIFIN.AI, aiming to accelerate AI-powered fintech innovation in wealth management. This initiative includes using AI for client portfolio insights for advisors, alternative investing, workplace wealth management, and insurance, among other applications.

In this world of personalized experiences, customers want to feel trusted and safe with wealth enterprises as they enable these multi-channel experiences. They want customers to be able to invest in alternative assets and grow their wealth as wealth management enterprises orchestrate all of it.

As enterprises think about this, they want to be compliant and provide a secure and protected environment. There is a need to have a core system that is modular, composable, and automated. There needs to be a lot more API enablement, which can be continuously optimized in terms of the infrastructure and the applications that are running on top of it. To industrialize the data-driven personalization engine, the core system needs to enable it in a trusted, safe, and secured manner so the security aspect becomes paramount. The two big enablers to this journey will be running operations and having data on the cloud.

In the journey to build out this wealth tree, all ecosystem players, from wealth managers and technology providers to service providers, will have a role to play and a different journey to traverse.

We would be interested to hear about your journey in this evolution. Please feel free to reach out to Ronak Doshi, [email protected], Kriti Gupta, [email protected], or Pooja Mantri, [email protected] to discuss further.

Watch the webinar, Transforming to Thrive: Building Winning Operating Models Amid Disruption Across Industries, to learn how enterprises should think about disruptive changes as they go about their transformation agenda.

Everest Group Talent Demand Growth Index | India IT Services | Blog

Welcome to our monthly India IT services talent demand index. We are excited to bring you this comprehensive analysis, powered by Talent Genius™, our AI-powered insights platform purpose-built to guide IT and Business Process Services location and workforce decisions. To gain a deeper understanding of the capabilities of Talent Genius and learn how to book a demo, watch this quick 2-minute video, Introducing Talent Genius™.

Monthly India IT services talent demand tracker

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Here is our in-depth analyses of the India IT services industry demand:

April 2024

After experiencing robust growth of 23% in March 2024, the Indian IT services market saw a slight 3% dip in talent demand in April. However, on a year-on-year basis, the market has grown by 39%.

At the city level, among tier-1 cities, Kolkata experienced the highest growth at 17%, while Pune and Mumbai saw moderate growth of 5% and 3%, respectively. In contrast, Hyderabad and Chennai witnessed declines of 16% and 12%, respectively. Among tier-2 cities, Jaipur and Ahmedabad showed the highest growth at 8% and 7%, respectively, whereas Coimbatore and Thiruvananthapuram both saw a 10% decline.

The hospitality and tourism sector experienced the highest talent demand growth in April, increasing by 16% compared to March, fueled by a surge of tourists during summer breaks. Conversely, healthcare and retail saw declines of 12% and 10%, respectively. On a year-on-year basis, all sectors saw growth in demand, with transportation and logistics, and business and professional services recording the highest increases at 85% and 68%, respectively.

AI/ML and Data science remain highly sought-after skills, propelled by a growing emphasis on technological advancements and the integration of AI expertise.

March 2024

Following a 14% decline in job postings for IT services in February, the industry regained momentum, showing a 23% month-on-month increase in job postings. At a year-on-year level, talent demand grew by 20%.

Some of the most in-demand roles include artificial intelligence engineer, machine learning engineer, virtual reality engineer, and UI/UX architect, showcasing sustained demand in the India IT market for niche roles. Demand growth for specialized roles has been consistently higher than traditional IT roles, especially since the latter half of 2023, driven by the gen AI revolution.

At a city level, all the major cities experienced double-digit growth in March, except Mumbai, where the demand increased by only 3%. Tier-2/3 cities continue to consistently experience higher demand growth than tier-1 cities, pointing to increased leverage of tier-2/3 markets for IT services.

From a sourcing perspective, both service providers and enterprises experienced an increase in demand. Enterprises recorded a solid 29% increase (compared to service provider’s 9%), reflecting the strong inclination and propensity toward insourcing.

All sectors, except transportation and logistics, saw heightened demand for IT talent, with technology, communications, and retail experiencing the most traction.

February 2024

Following robust growth in January, the Indian IT services market experienced a 14% decline in February. Talent demand for IT services this month declined 23% compared to the same period last year and 50% from February 2022.

Most cities saw a decrease in demand except for Thiruvananthapuram. After showing the highest increase in January, Jaipur had the sharpest decline of 25%. Among tier-1 cities, Mumbai saw the steepest drop at 20%.

All sectors, except transportation and logistics and cyclical commodities, witnessed a decrease in talent demand, with retail, hospitality, and tourism showing the most significant declines.

Looking at role rankings, demand for artificial intelligence engineers, machine learning engineers, analytics consultants, and UI/UX architects climbed compared to the previous month, indicating continuing interest in niche roles.

January 2024

The demand for IT services in India surged by 31% month-on-month, following a 25% decline in December 2023. However, demand increased 11% year-on-year.

Roles such as artificial intelligence engineer, machine learning engineer, security engineer, and UI/UX architects experienced significant increases in demand in January 2024 compared to the prior year, primarily driven by the heightened need for niche roles in India.

All major tier-1 and tier-2/3 cities saw an uptick in monthly job postings, with Hyderabad leading with a 40% growth rate. Among tier-2/3 cities, Jaipur experienced the highest demand growth, with a 34% increase in job postings.

Demand for IT services rose across all industry segments. Healthcare and BFSI showed the most strength, with a 40% increase from December 2023.

December 2023

Demand for IT services in India hit a 17-month low due to declining spending and clients postponing projects. As a result, most Indian IT service providers are reexamining revenue and hiring forecasts. The overall demand across service providers decreased by 28% from last month and 11% from the previous year.

Many service providers slowed hiring, realizing they posted jobs too early and hired ahead of the demand. Service providers are now focusing on improving employee utilization rates and do not anticipate the job requirements returning to the original levels anytime soon. Demand for IT services also declined by a notable 20 percent across enterprises from November.

Overall, the second half was slower than the first half, with demand falling by 7% for service providers and 4% for enterprises. Service providers were impacted more as enterprises cut discretionary spending and insourced some work.

At the city level, demand for employees declined consistently across tier 1, 2, and 3 cities. After peaking in November, the workforce requirements in Hyderabad and Chennai fell significantly by 32% this month.

Demand hit its lowest point of the year across all segments. Despite relatively stable employment over the last few months, retail and healthcare had the biggest drop at 35%. While it is uncertain if this is the bottom, a full recovery is not expected in the near future.

November 2023 update

IT services demand in India increased by 9% month-on-month and 5% year-on-year. Demand for IT application data management (ADM) grew 9.5%, and IT infrastructure increased 5 percent compared to the prior month. However, the surge is expected to be temporary because macroeconomic conditions pushed IT project timelines ahead for most companies.

Talent demand increased more in tier 2/3 cities than tier 1 cities, indicating that enterprises are increasingly confident in hiring outside tier 1 cities to gain a labor cost arbitrage advantage.

The number of available positions increased in all tier 1 cities, except Kolkata, where the job postings fell for the second consecutive month. Since the prior month, job openings increased 18% in Hyderabad and 14% in Chennai, representing the highest month-on-month increase.

Among tier 2/3 cities, Jaipur recorded one of the highest month-on-month increases in open positions at 34%. All the other cities experienced increased monthly postings – except for Chandigarh and Thiruvananthapuram.

IT services demand increased across all industry segments, with service providers and manufacturing demonstrating the most strength, up 5% from October.

Demand fluctuates more for service providers than other enterprises. As clients cut back on outsourcing spending, the talent need from service providers is expected to decrease in the coming months.

October 2023 update

The demand for IT services in India declined by 9% from last month but increased by 5% year-on-year, with significant variation over the past few months. Despite the shifts, demand remains near the same level as May 2023, when IT services demand increased after being at its 12-month lowest the prior month.

Tier 2/3 cities continued to be more attractive for companies seeking employees. Hyderabad and Kolkata had the biggest monthly drop in talent demand among tier 1 cities at 15% and 12%, respectively. Employee talent needs remained the most stable in Pune, with only a 5% drop compared to the previous month.

Although demand for most roles declined, help desk engineer, data analyst, and business analyst roles continued to increase by about 5% monthly. Only the retail segment maintained net positive month-on-month growth rates at about 7%. Cyclical commodities and service providers declined the most by 12% and 7% month-on-month.

Over the past few months, India IT talent demand has been volatile across roles, cities, and industries. Talent demand is expected to continue to fluctuate as major Indian IT service providers lose contracts and enterprises explore more insourcing opportunities.

September 2023 update

The demand for IT services in India jumped by 19% on a month-on-month basis after declining for two consecutive months. The year-on-year increase of 22% pointed to a significant uptick in hiring activities this month, rebounding from the slowness over the previous few months.

On a month-to-month basis, demand again surged in tier 2/3 cities compared to tier 1 cities. The increased reliance on tier 2/3 cities suggests a growing client preference for cost-effective IT service delivery locations.

Among tier 1 locations, Hyderabad and Kolkata bounced back the strongest with 36% and 35% growth in demand on a month-on-month basis. All locations in the three top tiers showed increased IT services demand – except for Pune, which dropped slightly.

Every major industry segment, except for banking, financial services, and insurance (BFSI), returned with increased demand. Service providers led the chart with a 22% increase in job demand compared to last month. However, BFSI declined 23% from the prior month.

August 2023 update

The demand for IT services declined for two consecutive months after recording a 14-month high in June 2023. Demand fell by 16% month-on-month and 32% on a year-on-year basis. At a segment level, IT ADM and IT infrastructure declined from July.

This trend could be a result of a quick fix by employers to adjust for the hiring surge in the second quarter of 2023. If the pattern continues, employee attrition will rise. However, the demand will likely pick up in the next few months as the end of the year nears.

Tier 1 cities continue to experience a higher decline in demand than tier 2/3 cities on a month-on-month basis, indicating the preference by enterprises to leverage low-cost talent from tier 2/3 cities.

At a city level, Kolkata witnessed the sharpest decline in demand at 47% and had an all-time low in the last 20 months. Among leading tier 2/3 cities, Kochi and Thiruvananthapuram showed the least decline in month-on-month demand.

The surge in demand by industry sectors halted, with consumer packaged goods registering the greatest decline since July. Business and professional services also reversed the growth trend.

A slightly higher decline in month-on-month demand across service providers that has continued for several months now clearly indicates increased insourcing by enterprises.

July 2023 update

While the month-on-month view showed a 9% drop in the IT services talent demand trend in India, demand grew 17% over the prior three months and by 32% year-on-year.

Tier 1 cities witnessed a relatively higher decline than tier 2/3 cities month-on-month, showcasing the increased leverage of tier 2/3 Indian cities. This trend is consistent across most tier 1 and tier 2/3 cities. Jaipur and Coimbatore are the only exceptions across tier 2/3 cities, showing 10% and 3% growth, respectively. Among tier 1 cities, Mumbai and Kolkata witnessed the highest decline, while Pune recorded the lowest decline of approximately 2%.

Service providers witnessed the highest decline of all industry verticals for IT services demand over the past year. Business and professional services and consumer packaged goods saw a slight uptick in demand.

June 2023 update

The demand for IT services in India showed further recovery and grew by 15% compared to May 2023. For the first time in the last six months, demand also showed growth on a year-on-year basis (21% growth compared to June 2023). At a segment level, both IT ADM and IT infrastructure segments witnessed 14-month high demand levels in June 2023, with IT infra talent demand growing 40% on a year-on-year basis.

The growth trend, which started in May, is solidifying and was consistent across all cities, though the extent of recovery varied. Chennai saw a modest recovery, whereas Mumbai saw a significant spike in demand. We believe the demand surge in Mumbai may not be entirely due to net new demand but could be due to talent management/attrition challenges arising from the hybrid/in-office model and the need to back-fill resources.

The demand from service providers continues to grow, and we believe there is more focus on hiring laterals this year compared to the previous year, which saw a significant uptick in campus hiring. This increase could also be due to multiple large deals that are at play in the market and providers hiring in anticipation of winning large business in the medium term.

May 2023 update 

The demand for IT services in India showed a recovery in the month of May, growing by 34% compared to the previous month and staying flat compared to 2022. This spike compared to March and April could be attributed to buyers placing demand ahead of the summer in key onshore geographies, which tend to be slower from a business perspective. The increase in demand was consistent across both tier-1 and tier-2/3 cities; however, the recovery was much steeper for tier-1 cities (growing 14% YoY) compared to tier-2/3 cities (shrinking by 20% on a YoY basis). Among the tier-1 cities, all showed an uptick in demand; however, Pune set a demand record of a 17-month high. The service provider segment, while it showed recovery compared to the previous month, on a YoY basis, registered a 7% decline in demand. On similar lines, BFSI and technology & communications verticals continue to show a declining demand trend on a YoY basis. 

April 2023 update

The demand for IT services in India further shrunk by 17% in April, reaching a 16-month low, and declined by 29% on a year-on-year basis. The impact of the anticipated global economic slowdown is clearly visible in the latest demand trends. 

The declining trend is consistent across both tier-1 and tier-2/3 cities. Among tier-1 cities, Chennai, followed by Delhi-NCR, witnessed the highest decline. Tier-2 cities saw an even higher decline on a year-on-year basis at 32%. At this point, the demand for IT services talent in India is almost 50% of the demand in January 2022. However, this trend needs to be observed over a slightly longer period. If this trend continues for a few more months, the already reduced attrition numbers are likely to come down further. 

Being the first month of the new fiscal year for many leading India-heritage service providers, this indicates a not so good start to the year 2023-24, and declining talent demand is deeply correlated to reduced business growth.

March 2023 update

After five consecutive months of demand growth/stability, the demand for IT services in India dropped significantly (21%) in March and by 36% on a year-on-year basis. The declining trend in March was consistent across all tier-1 cities, though Mumbai witnessed the lowest decline among all tier-1 cities. 

The demand in tier-2/3 cities also reduced by 26% on a year-on-year basis. This overall declining trend is expected as Q1 2022 witnessed a significantly higher demand due to attrition and talent wars faced by the industry, and with the current economic environment, most companies are not in an expansion mode.  

Stay tuned for regular monthly updates as we monitor the landscape of the India IT services industry demand market. We’ll continue to provide the latest insights and trends, so you stay well-informed on locations and workforce developments.

Services Industry Growth is Bottoming Out, but How Much Does It Matter? | Blog

The latest Forces & Foresight™ research by Everest Group highlights the beginning of a turnaround in the services industry’s growth. However, the significance of this recovery is unexciting, as balancing forces exist that both impede and support industry growth. How a service provider aligns with the right set of forces will become key to competitive success. Read on to learn about the necessitating strategic foresight and tailored approaches for industry players to thrive in the post-downturn landscape.

In my last blog, Driving Factors for IT Services Recovery in 2024: Insights from Everest Group’s Forces & Foresight™ Research, I highlighted three forces fueling our services industry growth turnaround foresight. We are seeing more points of evidence validating those. Let’s revisit these forces and their progression:

  1. Stabilizing base – We spoke about seeing a pause in deteriorating demand trends. The turnaround in growth (see Exhibit 1) and forward-looking views of service providers validate this thesis
  1. Fixing revenue leakage – We noted signs of stabilization in leakage, such as bookings not commensurate with revenue. While the differential still exists, we are seeing more confidence in service providers. Almost all the growth guidance estimates are dependent on the booked business translating to revenue over the next 12 months
  1. Pockets of additional growth – As previously highlighted, cybersecurity, ER&D, and data and analytics continue to thrive. For instance, cyber security players like Zscaler have surpassed expectations, leading to upward revenue projections

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Turnaround is a given, but does it really matter so much?

As we outline our growth outlook in the next Forces & Foresight edition, we roll forward our forecasts to the next 12 months (ending March 2025). From this analysis, we have narrowed down two convictions:

  1. The IT services industry will see a turnaround in growth
  2. In the absence of an extraordinary event, we expect the magnitude and speed of this turnaround to be “unexciting” (unlike comebacks in previous downturns)

 

The reason for this unexciting recovery is that the magnitudes of industry forces, supporting and impeding the industry growth, are roughly equal, as portrayed in Exhibit 2.

Exhibit 2

Forces impeding services industry growth Forces supporting services industry growth
Over-influence of macro sentiments on services spend

Spend cautiousness will impact quick and big pickup in major segments like BFSI despite any signs of turnaround

Enterprise confidence levels are still far from promising pickup in discretionary spend

Elongated durations of large contracts don’t allow for high ACV contributions

 

North America is showing recovery, driven by a notable turnaround in Hi-Tech spend resilience in the public sector and energy

Less matured geos are playing a strong role in the industry growth contribution

The new wave of productivity demand is providing better avenues vs. strict cost-cutting on volume and pricing

Newer revenue streams are playing out (e.g., net expansion in GIC-generated revenue)

Our inference from the balance of these forces is that, while the positives will outdo the negatives, the latter are sticky and emerge from a somewhat changing psychology of demand – a topic we are consciously tracking. This stickiness negates a euphoric pickup in services industry growth, which was observed in previous downturns (we presented these in our previous blog).

As we mentioned, the industry will be an interesting mix of performance of segments and providers based on their portfolios and part of trajectories. Simply put, segments and providers that could be at a higher risk of longer recovery cycles are the ones with heavier exposures to (a) discretionary revenue, (b) negative geo-specific dynamics, and (c) non-flexible delivery and commercial models.

Things are not so straightforward

The devil lies in details. Every segment has its own set of near-term palpable possibilities as well as challenges. Take the example of banking, financial services, and insurance (BFSI). On the one hand, it is the most severely impacted segment (Exhibit 3), with the future seemingly still tied to economic events like rate cuts. On the other hand, we are seeing signs of tech spend pickups by banks. For example, tech and comms spend by major banks is on the rise, and small deals are picking up in BFSI, as evidenced by small service providers’ performances in this segment. See Exhibits 4 and 5.

In our Forces and Foresight research, we are conducting a detailed analysis on each of the major geo and vertical segments with the aim of uncovering the not-so-obvious aspects that contribute significantly to their forward-looking direction of growth. We are also linking those to segment and industry-wide forecasts.

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Implications for market participants

One would need to work harder to earn their position coming out of this downturn, as industry forces will be less kind than in previous downturns.

A (somewhat) naïve implication for service providers would be to put focus on high-growth potential areas of services. We call it naïve because portfolio changes and decisions can’t be made overnight, leave apart the actual portfolio change. Coming out of this downturn, a well-defined playbook will be instrumental in navigating these changes. A simplistic model could include steps such as:

  1. Classification of parts of portfolios (verticals, capabilities, geos, customer size, and type of deals) by demand recovery cycles
  2. Sales focus on the quick recovery segments and immediate results-generating areas (like GICs)
  3. Having account-specific playbooks – mining vs. new accounts
  4. Investment focus on longer-term (but promising) recovery areas

 

Such playbooks have been the reason why every downturn creates a distinct separation between the new set of winners and the rest of the industry. And with the unique set of challenges associated with this downturn, the winners will need to work much harder than before. Learn more about Forces & Foresight™, or reach out to Prashant Shukla to discuss further at [email protected].

Are Investors Right to Be Nervous about CXM Providers? Well, It Depends! | Blog

Generative AI (gen AI) is transforming the customer experience management (CXM) landscape, challenging traditional contact centers. While concerns about declining revenues and increased costs are valid, many traditional methods, like human interaction, are still needed for complex customer issues. Read on to discover strategies to improve CXM provider success in a technology-driven market. Reach out to discuss this topic in depth.

Over the last 12+ months, we have seen a massive drop in the stock performance of nearly every publicly traded customer experience management (CXM) service provider. This has mainly been driven by nervousness in the market about how generative AI will impact the need for contact centers, especially in the way they are operated today, which is very reliant on vast numbers of people.

In this blog, I will explain why, in answer to the question, “Are investors right to be nervous?” I give the very vague answer of “It depends.”

The possible impact of generative AI on traditional contact centers and CXM providers

Firstly, we need to understand what could be causing some of the angst among investors, and full disclaimer: I am not positioning myself as an expert investor. There may be very technical reasons why investors are right to be nervous, but I am looking at it as someone who has bought contact center services for some of the world’s leading brands and has a good understanding of how this environment works.

Let’s explore the ways gen AI or next-gen technology could impact traditional contact centers and CXM providers:

  • Traditional contact center businesses have been successful in building large workforces and real estate portfolios, and there is an expectation that the use of technology, brought to large-scale attention by the hype around gen AI, will dramatically reduce the need for humans and, in turn, the need for large real estate portfolios. This assumption means that service providers will have dramatically increased exposure to their real estate costs and will see their main source of revenue, i.e., humans, reduced or removed completely
  • Therefore, the revenues of the impacted service providers will decline over the coming years as more customer interactions are handled by technology, making the companies operating in this space less attractive, if judged on revenue performance alone
  • There is constant talk about new entrants to the CXM market and how a pure technology play, for example, Conversational AI, much improved by the use of gen AI, could replace the need for human interaction, therefore giving birth to a whole new set of CXM providers who only bring technology. This, if true, would have a dramatic impact on traditional players

Any sensible person looking at the factors I have outlined above would be right to be nervous about the future of traditional contact center players. However, this would be missing a few key factors often overlooked or at least given less priority than the concerns. Some of these factors include:

  • People still want to talk to people at times of high stress or when they perceive the problem as complex or emotive. Despite the rapid rise of technology aimed to reduce the amount of human interaction in the contact center, such as robotic process automation (RPA) or Conversational AI (CAI), which has been around for many years, over 70% of service provider revenues are still coming from the voice channel. This proves customers still want to talk to people, and even with the inclusion of gen AI, the shift to non-voice channels is not going to happen overnight
  • When having a negative outlook for traditional contact center players, it assumes that they are standing still and doing nothing to embrace the new technologies, which is totally incorrect. Most of the leading CXM service providers we assess as part of our CXM PEAK Matrix © Assessment are investing heavily in a wide range of technologies that will improve the customer experience and reduce the need for human-assisted contacts, but also, and equally as vital, allow support agents to be more effective and efficient, therefore reducing total cost to serve for customers
  • Many providers, mainly since the pandemic, have already been working hard to reduce their real estate exposure driven by the increased use of work-at-home models (which have reduced since the pandemic abated but are still very prevalent in certain markets)
  • Additionally, we know from recent research that enterprises are increasingly looking to service providers to support them in deploying technologies such as gen AI. These providers bring a high degree of domain expertise and understand customer’s problems, and therefore, are best placed to deploy solutions using the latest technologies. This will present additional opportunities for providers who can demonstrate capabilities in this area

So why did I say it depends? I strongly believe that CXM service providers can thrive in this new market but need to embrace a new reality, which includes working hard in a number of areas.

Strategies for enhancing CXM provider success in a technology-driven market

  • Build solutions that address business problems – This entails not just the generic “reduce cost” or “improve CSAT” but real business challenges where CX can drive significant change in the business metrics
  • Demonstrate differentiation – With a large percentage of the market trying to move away from the traditional moniker of a “call center provider” and trying to demonstrate a shift toward digital solutions; it is important that they demonstrate, not just tell, the story of how they are solving real business problems for their customers by bringing together the power of their people with the available technologies to offer the best solution for the customer
  • Build strong technology partner ecosystems – Partnerships allow providers to deliver technology solutions across the customers’ journey – this includes, of course, the use of LLMs and gen AI, but can be as simple as having solutions in place to improve the employee experience or to provide timely insights through analytics. Most buyers want their providers to be able to bring an end-to-end solution and are no longer just looking for a provider that can only provide people. Humans, supported by and, where possible, improved by technology, are the type of solutions customers are demanding. Those that are pivoting in this direction can continue to grow their customer base
  • Develop flexible delivery models – Providers should leverage work at home as well as other sources of talent (GIG and Impact Sourcing, to name just two) to meet the changing demand both in terms of when support is needed and the type of skills that are required
  • Build commercial models that allow both parties to benefit from efficiencies – Commercial models should go beyond the traditional per FTE, per transaction, or per minute models and allow buyers to visualize and, more importantly, realize the value that a more efficient operating model can deliver
  • Use technology to solve operational challenges – This helps operations run smoother and more efficiently. While using all the technology available to resolve a customer’s issue is an obvious application, those providers that will thrive in the future will also be investing in technologies and skills within their organization that address operational challenges most effectively
  • Develop a culture that recognizes that revenue is not the only metric – While important, it is more impactful to focus on the margin of the work because as a business deploys more technology-led solutions, the revenue may decline, but the business that replaces it should be more profitable
    • This will also require a total evaluation of how people are rewarded within the business to recognize the value of deploying solutions that may bring lower revenue but provide a better and longer-lasting business benefit
  • Be forward-looking when it comes to skills that will be required in the future – Build location and talent strategies that will provide the talent required for the future in order to maximize the benefits available from a human and technology model
  • Develop strong account management disciplines – We know from recent studies that when there is limited differentiation in the market, as there is in the CXM space, the one deciding factor that tips a decision in the service provider’s favor is the strength of their account management
  • Use the technology to improve the employee experience (EX) as well as CX – Leverage the available technologies to remove mundane and frustrating tasks from employees, allowing them to focus on value-adding work. We all know that happy agents deliver a better experience

In summary, I am not pessimistic about the future of the CX arena. We know that the markets tend to overreact in the short term to new stimuli, gen AI in this instance, and underreact in the longer term, and this could be the same.

Will every provider in this space today be successful in three years? Probably not, but the size of the CXM environment (we estimate it to be well over US$330 billion, including insourced and outsourced activity) represents an excellent opportunity for those businesses that can evolve and meet the fast-changing needs of customers.

The Future of Cybersecurity: Key Takeaways from RSA Conference 2024 | Blog

Discover the pivotal moments of RSA Conference 2024 in San Francisco, where AI’s transformative potential took center stage alongside the rise of cybersecurity platformization and the urgent focus on industrial security. Read on to uncover the conference’s highlights and how AI may shape the future of cyber-protection.

Like most years, the city of San Francisco came to life with the annual RSA Conference, held at Moscone Center from May 6 – 9. This time, it saw 40,000+ attendees, with hundreds of exhibitors both at the conference expo floor and in and around the Moscone Center. The city of San Francisco also ensured a smooth experience for visitors moving around the conference areas. Let’s explore the key highlights from the conference.

Art of AI possible

The theme of RSA Conference 2024 was the “art of the possible,” and it truly lived up to its tagline with a variety of AI-possible use cases and applications in cybersecurity demonstrated in large scale. There is increasingly more chatter and buzz from vendors about everything being AI-powered, AI-orchestrated, and AI-delivered. Most vendors are leveraging AI to enhance their capabilities, and at the same time, there are vendors who are positioning their existing offerings to secure the LLMs/AI. Again, at this point, all conversations are about AI governance, and not a single vendor solution exists that can completely secure the model, applications, data, and infrastructure for the AI era.

Everest Group’s recent interactions with enterprise clients demonstrate that AI adoption is still very early, with most enterprises still in the wait-and-watch state. We have built a framework to evaluate AI-driven gains in cybersecurity, which helps enterprises select the right use case for cybersecurity adoption. Learn more about the framework.

Ushering the platformization era in cybersecurity

The platform story in cybersecurity is gaining further momentum, and we’re seeing vendors expanding capabilities centered around their core offerings. As enterprises pivot preferences from best-of-breed to easy-to-integrate, the platform narrative will get stronger. We also see large system integrators building platforms to enable service delivery. Learn more about the key traits of successful platforms.

Industrial and critical infrastructure remain top of mind

Almost all the conversations with system integrators strongly focused on operational technology (OT) security, which clearly is a high-opportunity area across different industries such as manufacturing, energy & utilities, and critical infrastructure (water, pipeline, etc). The enterprise’s realization that the IT-OT air gap is no longer existent and the lack of security controls in their legacy OT systems requires fortification has driven demand for OT security solution providers. To learn more about OT providers and products, Everest Group analyzed nine global OT security technology providers and featured them on the Operational Technology (OT) Security Products PEAK Matrix® Assessment 2023.

Focused partnerships and alliances

We notice the partner and alliances ecosystem evolving between system integrators and technology vendors. A slew of announcements by technology vendors shows intent to be deeply entrenched with SIs and drive joint market outcomes. Further, we see system integrators picking and choosing partnership preferences and categorizing technology vendors across three main categories and having different market perceptions. Learn more about the three categories and service providers’ perceptions.

Role of Government in shaping regulation and cybersecurity

The US federal government agencies, FBI, CISA, and Homeland Security, have been regular participants at the RSAC conference in the past. This time, the highlight of the conference was the keynote from US Secretary of State Anthony J Bilken. This strong presence at a top cybersecurity conference highlights the US government’s urgency on cybersecurity and its role in driving cybersecurity investments. Further, CISA’s latest “secure by design” initiative has seen signatures from 68+ technology vendors, including Microsoft, Google, Cisco, AWS, and IBM, which is a voluntary commitment to “make a good-faith effort to work towards” seven goals within a year of signing the pledge and show measurable progress on the goals. CISA plans to recruit more volunteers and monitor the progress of all signatories at next year’s RSAC conference.

The current cybersecurity landscape is more complex than ever, with threat actors not leaving any respite for government agencies, technology vendors, system integrators, and other ecosystem participants. It is yet to be seen who will emerge victorious in this race to be cyber-protected. It could be that AI-led security outcomes will help determine the winner.

Learn more about the cybersecurity landscape or to ask questions, reach out to Abhishek Singh at [email protected] and Kumar Avijit at [email protected].

Revolutionizing Risk: Exploring Actuarial Outsourcing in Insurance | Blog

Outsourcing is a growing trend in the insurance industry to transform the actuarial function by reducing costs, creating innovation, increasing efficiencies, and filling the talent demand. Explore the factors driving insurers to partner with specialized service providers and the advantages and obstacles of actuarial outsourcing. Contact us to learn more.

In response to today’s uncertain macroeconomic conditions, changing customer demands, and geopolitical and climate risks, insurance and financial institutions realize the critical need for actuarial transformation.

This transformation involves reimagining the role of actuaries in the organization and adopting new technologies and methodologies. Enterprises increasingly seek outsourcing support from specialized service providers to enhance the effectiveness and efficiency of actuarial processes, including pricing, reserves determination, capital assessments, and financial reporting.

Outsourcing can also help enterprises meet a surging demand for specialized actuarial talent. According to the Bureau of Labor Statistics, the demand for actuaries is expected to increase by 21% between 2021 and 2031. This growth rate surpasses most occupations, signaling a promising future for those working in the industry.

The rising demand for attractive job opportunities in related fields like data science compounds this increasing demand. Additionally, insurers compete with technology firms for the best actuarial professionals, even inside the profession.

Recognizing that the increasing demand for actuaries is unlikely to subside naturally, insurers are proactively addressing this issue. Outsourcing actuarial services is emerging as a compelling long-term solution that enables insurers to maintain control and gain a strategic market advantage.

While insurance providers and insurtechs have outsourced actuarial services since the early 2000s, the trend has accelerated in recent years due to the rising complexity of actuarial work, the need to focus on core competencies, and the rise of insurtechs. Let’s take a look at the factors fueling its momentum.

Key trends shaping actuarial services outsourcing

Heightened demand for expertise and the integration of cutting-edge technologies are among the key factors shaping the future of actuarial outsourcing. These trends reflect the industry’s commitment to staying ahead in a competitive market.  Understanding these driving factors is crucial for insurers to harness the full potential of actuarial services outsourcing.

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Advantages of outsourcing in actuarial transformation

The advantages of outsourcing in actuarial transformation extend beyond fiscal efficiency to encompass resource flexibility, access to specialized knowledge, and freeing resources to focus on more strategic tasks.

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  • Cost optimization: Actuarial outsourcing optimizes costs by using offshore resources and the specialized expertise of external partners. This fiscal advantage is significant in the insurance industry, where financial prudence is paramount. Insurance companies can significantly cut operational costs by automating manual processes and eliminating the need for an extensive in-house team
  • Resource scalability: Actuarial workload fluctuates frequently, making maintaining an appropriately sized in-house team difficult. Outsourcing enables insurers to adapt their actuarial workforce to changing demands. This flexibility encourages prudent control of operating costs while ensuring workforce numbers align with actual needs
  • Specialized expertise: Outsourcing partners bring a rich reservoir of specialized knowledge and expertise. Their in-depth understanding of actuarial nuances and steadfast commitment to staying current with best practices elevate actuarial work standards and expedite the implementation of novel solutions. This augmented expertise ensures alignment with the ever-evolving regulatory framework and enhances the organization’s overall actuarial capabilities
  • Strategic focus: Outsourcing relieves internal teams of routine actuarial tasks, freeing them to concentrate on key strategic objectives. Insurance companies can focus on developing cutting-edge products, creating customer-centric solutions, and other mission-critical initiatives supporting growth, leading to a competitive edge
  • Regulatory agility: Actuarial outsourcing is a flexible tool for regulatory conformity when supported by providers with a clear focus on compliance. It ensures that actuarial procedures consistently meet the ever-changing regulatory environment. This regulatory agility helps insurers avoid compliance-related pitfalls while enhancing their reputation for diligence and reliability
  • Resource optimization: Actuarial outsourcing allows insurers to manage their resources more effectively. It will enable insurers to skillfully adjust their resource configuration while supporting legacy applications during the transformation without incurring internal hiring and training costs. This flexibility ensures actuarial tasks are handled quickly and continuously, guaranteeing smooth operations even in the face of unforeseen resource constraints

Challenges with outsourcing actuarial services

Next, we explore the obstacles insurers may face, as illustrated below:

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Financial challenges

  • Accuracy and timeliness: Outsourcing partners may struggle to deliver accurate results on time because of the complex nature of actuarial processes, potentially leading to financial errors or reporting delays
  • Expertise gap: Outsourcing providers might lack the in-depth actuarial expertise required for precise financial calculations, raising concerns about the quality of results

Operational challenges

  • Communication challenges: Poor communication between the insurer and the outsourcing partner can result in subpar project management, inefficient processes, and delays in critical tasks
  • Quality and risk management: Inadequate quality and risk management processes by the outsourcing provider can compromise the overall quality of work, leading to operational inefficiencies

Counterparty challenges

  • Resource scalability: The outsourcing partner’s ability to scale resources to match fluctuating actuarial workloads is crucial. If they lack the talent, capacity, or expertise, it can hinder the insurer’s objectives
  • Contractual obligations: If the provider does not fulfill contractual terms, actuarial processes may be disrupted, causing unanticipated issues

Reputational challenges

  • Stakeholder interactions: Inexperienced outsourcing partners may jeopardize relationships with external stakeholders such as regulators, insurers, and policyholders, leading to reputational risks
  • Specialized roles: Outsourcing specialized actuarial roles due to a shortage of local talent may negatively impact the insurer’s reputation in those areas if the provider is inexperienced

Armed with an understanding of the opportunities and challenges of outsourcing actuarial services, selecting the right partner is critical. Insurers must evaluate providers’ capabilities by carefully considering their expertise, experience, cost-effectiveness, security measures, and technology infrastructure to make an informed decision.

To discuss actuarial outsourcing trends, contact [email protected] and/or [email protected]. Stay updated by accessing Everest Group’s latest research on Insurance Business Processes.

Watch the webinar, Transforming to Thrive: Building Winning Operating Models Amid Disruption Across Industries, to learn about trends impacting enterprises across industries, such as healthcare, life sciences, insurance, and banking and financial services?

Will India’s Permanent Establishment Tax Disrupt the Global Business Service Landscape? | Blog

As India’s prominence in Global Business Service (GBS) grows, staying updated on tax laws and adapting agile strategies is essential for multinational corporations to achieve sustainable growth amid evolving global business dynamics. In this blog, we delve into the impact of the Permanent Establishment (PE) tax within the realm of GBS.

As global corporations continue to increase their reliance on the GBS model, taxation policies will also continue to play a crucial role in shaping the strategies and operations of these corporations. One such policy that holds significant importance, especially in the context of India, is the concept of the permanent establishment tax. As India continues to assert itself as a key player in the global economy, understanding the implications of PE tax becomes imperative for global corporations operating within its jurisdiction.

Understanding permanent establishment tax:

Permanent establishment refers to a fixed place of business through which an enterprise carries out its business activities, either wholly or partially. The concept is pivotal in international taxation as it determines the jurisdiction’s right to tax business profits earned within its territory by foreign enterprises. In India, the concept of PE is governed by both domestic laws and Double Taxation Avoidance Agreements (DTAA) with various countries. For example, if a foreign company expands its operations within India, the income derived from such activities becomes taxable in India.

Article 7 of the UN Model empowers the source state, like India, for instance, to levy taxes on profits linked to a PE within its borders. A PE, as outlined in Article 5(1) and mentioned above, denotes a fixed place of business where the enterprise conducts its activities, either wholly or partially. This principle hinges on some key factors, such as the existence of a physical business location, the right to use it, and the engagement in business activities therein. Each criterion holds its specific benchmarks for validation.

Additionally, supplementary articles clarify concepts like the definition of a “fixed place of business,” the concept of a supervisory PE, and exclusions from the PE definition. When tax authorities evaluate the presence of a PE, they undertake a comprehensive analysis. This analysis involves reviewing actual operations, legal frameworks, and judicial precedents. Various elements undergo scrutiny, including business models, transactions, strategies, human resources, physical offices, and warranties. This exhaustive analysis aims to establish whether the criteria defining a permanent establishment are met, ensuring compliance within the international taxation framework, and avoiding tax evasion or avoidance.

Potential impact on the GBS market:

GBS encompass a wide array of activities, including IT services, back-office operations, finance and accounting, HR services, and more. Many multinational corporations leverage India’s skilled workforce and favorable business environment to establish their GBS centers in the country. However, discussions surrounding PE taxation have prompted GBS leaders to assess its potential impact on their operations in India. Here are some key considerations:

  • Taxation on business profits: Establishing a PE in India subjects the foreign enterprise to taxation on the profits attributable to the Indian operations. This can significantly impact the overall tax liability of the corporation, requiring meticulous tax planning to optimize the tax structure while ensuring compliance with Indian tax laws
  • Transfer pricing regulations: GBS centers often engage in intra-group transactions, such as the provision of services to affiliated entities. Indian transfer pricing regulations mandate that such transactions be conducted at arm’s length prices to prevent profit shifting. Non-compliance can lead to tax disputes and penalties, further underscoring the importance of robust transfer pricing documentation
  • Compliance burden: Operating through a PE entails compliance with Indian tax laws, including filing tax returns, maintaining books of accounts, and adhering to reporting requirements. Ensuring compliance can be resource-intensive, necessitating efficient tax management systems and expertise in Indian tax regulations
  • Strategic considerations: The implications of PE tax influence strategic decisions regarding the structure and location of GBS. Enterprises must weigh the tax implications against other factors, such as talent availability, cost-effectiveness, and regulatory environment, to optimize their global business operations

Voice of India GBS leaders

Based on our conversation with the India GBS head across different industry verticals, we understand that while PE remains a topic of interest, the issue of PE tax is not a primary concern among GBS leaders presently. Here’s why:

  1. a) Place of effective management: Currently, the criteria for a foreign company to be deemed a resident in India is if its control and management are wholly situated in India. However, GBS leaders highlight that the control and management of most processes still reside with global process and business owners located in onshore markets, not India. Consequently, the India center cannot be classified as the “place of effective management,” and thus, PE implications should not apply
  2. b) Significance of business operations and revenue: While GBS leaders acknowledge the maturity and integral role of India centers in enterprise operations, they emphasize that revenue-generating activities primarily occur within onshore entities. Hence, their argument leans toward the idea that taxation should only be done in onshore markets. However, there is acknowledgment, particularly in the pharmaceutical and life sciences verticals, that India conducts substantial R&D work, which often leads to revenue generation for the enterprise. Consequently, GBS leaders recognize that India centers, especially those engaged in R&D, may potentially be subject to PE taxation

Conclusion

As India continues to bolster its position as a hub for GBS, understanding and effectively managing the implications of permanent establishment tax is paramount for multinational corporations. By adopting proactive tax planning strategies, ensuring compliance with regulatory requirements, and leveraging available tax treaties, businesses can navigate the complexities of PE tax while capitalizing on the vast opportunities offered by the Indian market.

Given the significant role PE plays as a contentious issue in international tax frameworks, it is imperative for foreign enterprises to proactively engage with India’s domestic taxation regulations and seek local expertise for compliance. GBS leaders should collaborate with various stakeholders, such as India and global legal teams, taxation experts, and finance teams, to assess and mitigate the risks associated with PE for their India operations.

In the dynamic landscape of global business, staying abreast of evolving tax regulations and employing agile strategies are essential for sustainable growth and success. As India’s economy integrates further into the global marketplace, the significance of permanent establishment tax in shaping international business dynamics is poised to grow, emphasizing the need for businesses to adapt and thrive in this evolving tax environment.

Watch our Conversations with Leaders sessions to hear from GBS industry leaders. In episode 10, they’ll discuss ways to develop powerful GBS execution strategies to successfully blend GBS and enterprise efforts.

From Auditors to Providers: Big Four’s Journey into FAO Services | Blog

The Big Four accounting firms have been steadily expanding their service horizons, casting a wider net in the managed services market in pursuit of growth and diversification. Leveraging their deep-rooted understanding of global organizations’ financial and operational intricacies, the Big Four possess a unique vantage point that can help them cause a shift in the Finance and Accounting Outsourcing (FAO) market. With their proven track record of innovation and adaptability, coupled with the inherent synergies between their core competencies and the F&A value chain, the stage is set for the Big Four to carve out a significant stake in this competitive domain. Read on for insights into the research. Or reach out to discuss this topic further.

FAO market’s appeal for the Big Four

Despite uncertain economic conditions, the FAO market has demonstrated remarkable resilience, with robust growth in the last year (~9%) and a double-digit growth forecast (11-13%) till 2025, demonstrating sustained expansion in the coming years. This growth goes beyond the mature North American and European markets. Geographies such as Latin America (LATAM) and Asia-Pacific (APAC) and industry segments such as retail and CPG, healthcare, and travel and logistics are witnessing a recent surge in FAO demand, indicating increasing openness to leverage third-party support for F&A operations.

Though FAO is the most mature BPO segment, there is enough white space for new and incumbent players to mark their presence in the market. With an estimated total addressable market of US$80-85 billion in 2023, the penetration rate is no more than 15-17%. This suggests that many global organizations have yet to fully embrace outsourcing services for their F&A function, which signifies ample opportunities for growth and expansion for FAO service providers.

Parallelly, enterprise satisfaction levels have remained stagnant over the past two years, primarily due to perceived shortcomings in innovation, slow decision-making processes, and inadequate stakeholder management. As enterprises increasingly demand contextualized and high-end niche services, there’s an anticipated transformation in the dynamics of outsourcing relationships. This evolution underscores a growing emphasis on long-term sustainable outcomes, prompting providers to recalibrate their strategies to meet evolving client needs.

This shifting landscape sets the stage for significant disruption, with providers gearing up to offer innovative solutions that cater to enterprises’ evolving demands and expectations.

Assessing the Big Four’s dive into FAO waters

With their formidable expertise, extensive resources, and global delivery network, the Big Four possess the capabilities to seize untapped opportunities and capture the white spaces in this evolving FAO market. While their vast client network will allow them to cross-sell their F&A services to their existing consulting customer base, their trust and track record will also solidify a credible foundation in competitive RFP scenarios for FAO contracts. Such strategic advantages in favor of the Big Four ensure significant benefits for buyers, as has been detailed in the exhibit below: 

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Buyer benefits from Big Four’s FAO market expansion | Source: Everest Group (2024)

Beyond tapping into new revenue streams, the Big Four’s foray into this market offers an opportunity to strengthen client relationships and mitigate risks by diversifying their services beyond traditional audit, tax, and advisory services. It also gives them an opportunity to expand their footprint globally and penetrate new geographies and industries. Leveraging the natural synergies of their existing capabilities with F&A, the Big Four can take a stronger value proposition to the clients, which would ensure a comprehensive suite of services for organizations as they focus on their core operations.

While entering the FAO market seems promising, it also demands meticulous evaluation of critical factors to ensure success, as detailed in the table below:

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Key considerations for successful FAO market expansion for the Big Four | Source: Everest Group (2024)

What happens to the existing provider landscape?

Both large and small providers need to strategically adapt in the FAO market due to increased competition from the Big Four. However, there could be inherent differences in the way these two categories might experience the expansion of the Big Four in the FAO space:

  • Impact on large providers: Even while the large F&A players have the capabilities to withstand the Big Four’s expansion, they will find themselves amid a fierce competitive storm. While many of the large F&A players come either from a domain or technology heritage, the entry of the Big Four from their consulting roots will create a pull for advisory capabilities from the clientele of most of the existing large F&A providers, compelling them to ramp up their advisory capabilities. Niche services such as enterprise risk management and compliance will no longer remain as good-to-haves given the experience of the Big Four in these areas. Large providers must also be attentive to client perception since preserving long-term partnerships requires upholding trust and proving value in the face of formidable competitors
  • Impact on small providers: While the impact of the entry of the Big Four for the smaller players remains minimal, they still need to prepare to compete for market share at a larger scale than before. Both the Big Four and existing providers will look to homogenize their target segments by penetrating the booming SMB and lower mid-market segments, which have historically been the forte of these small providers. Hence, differentiation will be paramount for these small providers to stay relevant with the big players of the market. Some of the ways smaller providers can create differentiation are by providing tailored solutions in an as-a-service construct, offering flexibility in pricing and scope expansion after SoW signing, and handholding throughout the client’s transformation journey

What’s ahead?

The Big Four will bring a new set of first-generation FAO buyers with them. Progressively, a lot of them will move ahead in the maturity spectrum, exposing them to the breadth of services and providers available in the FAO market. Existing F&A players will have the chance to carve out a share from this larger market, albeit with substantial strategic adjustments. With the four biggest accounting firms jostling to create their space in the FAO services market, it will be intriguing to see how the first movers among the Big Four chart a bold course forward to secure a significant edge in the coming years.

As we continue tracking the changes in the FAO market landscape, stay tuned for the Finance and Accounting Outsourcing (FAO) PEAK Matrix® Assessment 2024 and Finance and Accounting Outsourcing (FAO) State of the Market 2024 reports for more details on the Big Four’s play in the FAO market.

Watch our webinar, Sourcing Leaders’ Key Priorities: Accelerating Growth Through Global Services, to hear our sourcing and pricing analysts discuss action items to attain an accelerated growth trajectory.

From Buzzwords to Reality: Impact Sourcing and AI for Social and Business Advancement | Blog

Discover the transformative power of impact sourcing firsthand through Everest Group’s sustainability teams’ eye-opening visit to a NextWealth center in rural India.

Stepping out of our vehicle after a sixhour trip from our office in Bengaluru, Karnataka, to visit Mahendra NextWealths center in Mallasamudram (near Salem) in Tamil Nadu, little did we know how profoundly our convictions about impact sourcing would deepen. Terms such as automation, AI, inclusion, and sustainability are typically discussed as separate buzzwords in organizations; impact sourcing commendably brings them together. The Everest Group team quickly saw NextWealth’s operationalization of the impact sourcing model seamlessly combines the two worlds. Let’s share more about what we saw during our visit in this blog.

Seeing impact sourcing in action

NextWealth was founded in 2008 to employ graduates in less populated small Indian towns with colleges but limited job opportunities. The founders are Wipro veterans who have made a conscious decision to create opportunities that do not require migration to cities, maintaining social cohesion. Yet the service offerings do not differ from traditional providers, including AI/Machine Learning (AI/ML), Information Technology (IT) services, and Business Process Services (BPS) under a managed services model. Their diverse set of clients include tech, e-commerce, fintech, banking, financial services and insurance (BFSI), and healthcare.

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The Everest Group team with the NextWealth team in Mallasamudram, Tamil Nadu, India.

Leveraging impact sourcing to drive business growth: a three-pillar approach

Everest Group has written extensively about the variety of ways businesses can integrate impact sourcing with their operational strategies. NextWealth specifically achieves this by using a threepillar approach focused on:

  1. Strategic talent location: Hiring the right talent by establishing centers in areas with an ample workforce yet limited career opportunities in those locations
  1. Promising markets: Targeting high-growth services such as data annotation and AI solutions that allow the company to scale operations
  1. Systematic skills development: Creating step-by-step-based training modules for the delivery of services, resulting in increased efficiency and quality, as well as transferable talent

 

Impact sourcing through strategic location selection 

The primary qualifications for impact sourcing are employing typically excluded individuals in a deliberate manner. NextWealth intentionally hires graduates, particularly women, with limited access to quality jobs from India’s smaller cities, creating positive social impact and business gains. The centers are established in towns with colleges, thereby guaranteeing a stream of graduates. These locations also have a reliable internet connection (physical and digital infrastructure), a stable operating and business environment, and cultural ties to the community, including Chittoor, Hubli, Bhilai, Vellore, Puducherry, and Udaipur.  

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NextWealth’s team briefs the Everest Group analysts on how they use data annotation to automate security scans for luggage at airports and railway stations.

Delivery of high-growth services through sustained employment and skilling

Much of the societal discussion about generative AI (gen AI) is the elimination of jobs because of efficiency and automated tasks. Instead, we saw how embracing gen AI can also enable job creation. The NextWealth delivery we witnessed included AI/ML training data solutions, customer experience (CX) design, and auditing these solutions. We saw self-checkout store error analyses, product fraud detection design, and product placement with marketing tools. These services are delivered after rigorous training on the solutions and feedback loops to improve quality/efficiency.

The ultimate objective of impact sourcing is social impact 

Here are some of the social impact outcomes that particularly impressed the analysts and left a lasting mark:  

  • The recruitment focus on women has begun to reshape the perception of their role in society. Their marriage age in surrounding communities has increased by 2.5 years 
  • Hybrid work options have enabled many who might otherwise be unable to pursue careers 
  • The low attrition rate of about 12% is an indicator of a positive workplace culture and employee experience. It has also afforded the opportunity to promote within 

As we set out on our journey back from Mallasarudram to Bengaluru, the fatigue of the trip was overshadowed by the wonder of what we had just experienced. While we are aware of the constant Darwinian evolution of the global services industry, it was truly incredible to witness in practice a firm leveraging impact sourcing to create broader societal impact through a sustainable and prosperous business model. 

Read more about Everest Group’s impact sourcing research and our latest report, Impact Sourcing for Sustainable Development and a Brighter Future: Impact Sourcing State of the Market 2023. Contact the analysts who visited NextWealth: Rita N. Soni, Aiswarya Barjatya, Kanishka Chakraborty, and Mohammed Riyaz.

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