Tag: GIC

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

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

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

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

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

***Register for Complimentary Webinar***

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

Additional highlights from the Market Vista: Q3 2018 report:

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

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

New Enemy of Outsourcing: DIY by Banks | In the News

Here’s the big reason why most of the big IT services companies are still struggling to accelerate: Many large banks have got into a do-it-yourself mode for their IT. Where once they outsourced work, they are now choosing to do more of it in-house, mostly in their own global inhouse centres (GICs) in countries like India.

Peter Bendor-Samuel, CEO of IT research & consulting firm Everest Group, said the Indian players have been living in denial. “They have all been forecasting good years in banking and we have been telling them that for many reasons this was unlikely to happen. The banks’ GICs have matured and they are clearly growing them at the expense of third parties. For some functions, they are also bringing work back on-shore and this work they are keeping in-house. They have largely decided that they like the big Indian firms as their legacy (partners to maintain their traditional IT),” he said.

Read more in The Times of India

Commercial Options for India GIC Setups | Sherpas in Blue Shirts

There are two primary commercial options – or export-oriented schemes – available to GICs looking to export IT/ITES services from India. One is setting up a 100 percent Export Oriented Unit (EOU) under the Software Technology Parks of India (STPI) scheme. This allows operations to be carried out from any location in the country. The other is setting up a delivery center in a specified, demarcated, duty-free enclave called a Special Economic Zone (SEZ). These offer additional economic benefits (e.g., tax holiday) in lieu of positive net foreign exchange earnings from the export of IT/BP services.

Which option is best for your company? Read on to learn the differences, the trade-offs, and the variables you should factor into your decision.

The Major Differences

  • Income tax holiday: SEZ units enjoy a graded income tax holiday period that translates to significant tax savings for a large-scale setup in India. The tax holiday incentive for STPI units expired in March 2011
  • Indirect tax benefits: both SEZ and STPI schemes provide custom duty exemption on imports of capital goods. However, SEZ units are also eligible for a “zero-rated” Goods and Services Tax (GST) that effectively decreases the cost input for domestically procured goods and services
  • Location: STPI units can set up operations in any location in the country. SEZ units are restricted to a designated area.

Key Decision Variables in Selecting SEZ or STPI

  • Financial attractiveness: SEZs outweigh STPIs in both direct and indirect tax incentives. Where cost savings are significant (e.g., a large-scale setup) and need to be prioritized, SEZ is a clear choice for many enterprises
  • Access to a broader ecosystem: Many SEZs offer a complete ecosystem, with easy access to commercial, residential, healthcare, and educational options. Further, SEZs offer quality infrastructure and business continuity planning advantages including:
    • Large reputed SEZs offer a more reliable supply of utilities including electricity, water, telecommunications, and overall security
    • The office space standards and building compliances (e.g., natural disaster preparedness) are typically more stringent in SEZs
  • Access to large talent pool: Given their size, SEZs offer ready access to a large, skilled talent pool with relevant technical, functional, and managerial skills. And the ecosystem often developed in and around SEZs is a significant attraction for the talent pool to work in them
  • Site and scale flexibility: STPI units provide far more location (e.g., financial district or central business district) and scale options than do SEZs. Many small-sized GICs tend to prefer this flexibility
  • Ease of compliance: Compliance and statutory reporting requirements in STPIs are relatively more lenient than in SEZs. For instance, introduction of GST has increased the compliance and record maintenance burden on SEZ units. Exiting SEZs may involve more scrutiny given the higher economic benefits involved.

SEZ vs STPI

How a Financial Services Firm Made the Decision

Everest Group recently supported a U.S.-headquartered financial services company looking to set up a small-scaled GIC in India to deliver high-end niche IT services. Our setup advisory team used a three-step process to ultimately recommend the right facility and commercial model to meet all the client’s requirements: outlining the space, handover timeline, and proximity to the central and/or secondary business districts; assessing potential savings in operating from an SEZ; and evaluating and scoring the additional pros and cons of shortlisted sites to make our final recommendation.

When we evaluated and scored the client’s “must-haves” — scope for expansion or relocation, access to social infrastructure, lower commute time, and proximity to talent hubs – against the limited SEZ options available, it became clear that an SEZ was not the right answer for the client.

Thus, we recommended that the client go ahead with an STPI option in a large IT business park, and register the unit with the STPI to benefit from indirect tax benefits. This option allows the client to take advantage of all the business park’s large talent pool, marquee tenant profile, social infrastructure, and other amenities, and gives it flexibility for any future expansion or potential relocation within or outside the business park.

More than 30 new GICs are set up in India annually, and half of these are first-time center setups. In order to ensure their success, the enterprises establishing these centers must take the time upfront to clearly understand their objectives and requirements against the trade-offs of SEZs and STPIs.

Enterprises Leverage Global In-House Centers (GICs) to Create Centers of Excellence to Drive Innovation, Digital Transformation | Press Release

Growing GIC Center Segment Now Accounts for One-Fourth of $185 Billion Global Services Market—Everest Group

Enterprises are increasingly leveraging global in-house centers (GICs) as strategic partners; GICs are playing a significant role in enterprises’ digital transformation journeys as they move from a “arbitrage-first model” toward a “digital-first model.” According to Everest Group, GICs are perfectly suited to serve as Centers of Excellence, driving innovation for their parent companies. One key way that GICs are accomplishing this is by collaborating with the external ecosystem, such as nimble tech startups.

Three models typically adopted by GICs to engage with external innovation ecosystems comprise:

  1. Startup evaluation: The GIC identifies and shortlists startups for the parent organization. No infrastructure or financial support is offered to the startups, but the GIC typically helps the startups in building domain knowledge.
  2. Project-based engagement: The GIC evaluates startups, which are then hired as technology vendors on commercial terms to implement turnkey solutions. This model offers higher predictability in deriving tangible benefits from the engagement.
  3. Incubation and acceleration: The GIC acts as an incubator and runs the accelerator program: Typically, the GIC engages with three to five startups for a dedicated period, offering infrastructure, technology, financial support and mentorship. This model allows experimenting with future technologies and the bringing in of disruptive innovations.

“GICs typically have an enterprise-wide perspective, deep domain and process experience, and access to niche skills at a favorable cost, and so, for these reasons, GICs are often in a unique position to foster innovation and serve as Centers of Excellence for their parent companies,” said Sakshi Garg, practice director at Everest Group. “Leading GICs are adopting several best practices for fostering innovation, such as dedicated investments for innovation, special recognition for thought leadership, and driving customer centricity to grow beyond the service delivery mindset.”

The global sourcing market continued to evolve and grow rapidly in 2017 to cross US$185 billion, and the global in-house center (GIC) model remains an integral component of this evolution, accounting for one-fourth of the market, according to Everest Group.

The GIC market saw a 10 percent increase in 2017 over 2016 in the number of new GIC setups by companies from technology and communications, manufacturing, healthcare, and energy and utility verticals. The market has grown consistently with more than 2,800 centers set up across leading offshore and nearshore locations, compared to approximately 2,100 about five years ago.

The research supporting these findings is summarized in “Global In-house Center (GIC) Landscape Annual Report 2018 – GICs Emerging as Innovation CoEs for Global Enterprises,” a report recently published by Everest Group. This report provides a deep dive into the GIC landscape and a year-on-year analysis of GIC trends. The research brings out key insights into the GIC market across locations, verticals and functions, and concludes with an assessment of the role played by GICs to drive innovation for the enterprises.

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

Simplifying skilling in Global in-house Centers (GICs) | Sherpas in Blue Shirts

With technological developments and digital disruption driving changes across most facets of global enterprises, it comes as no surprise that talent strategy has evolved from an HR topic to a board room agenda item. Because of their evolving role in how they can best support their parent companies, talent strategy is a top concern for global in-house centers (GIC) as well.

Through our extensive research in the GIC space, we’ve identified several trends among GICs that have experimented with upskilling and reskilling their team members to prepare and enable them to address today’s known and tomorrow’s as yet unknown challenges.

Trend 1: Investments in Skilling Mid-level Employees have been Underwhelming

Skilling Needs in GIC

Most GICs have dedicated skilling programs for senior management (Layer 3) and programmatic hiring and training programs for entry-level talent (Layer 1), including partnerships with universities/agencies. But, interestingly, there’s a big gap in GICs’ skilling practices for mid-level/Layer 2 employees.

Because Layer 2 employees form the backbone of a GIC by providing strong domain and process expertise, and typically have deep organizational knowledge, GICs need to escalate the skilling initiatives targeted to them. The right skilling practices for these individuals will be critical to GIC’s successful evolution and ability to sustainably deliver services in the future.

Trend 2: GICs are Experimenting – Starting Small across Multiple Areas, then Deciding Where to put Their Money

Because they’re lacking clarity on areas to prioritize, GICs are piloting upskilling and reskilling initiatives across multiple functions. These are typically small-scale pilots of less than 50 team members for less than three months. After evaluating the success of the pilots, GICs plan to scale-up the initiatives across their broader employee segments and organizations.

These pilots will help GICs decide where to invest. But they must also consider their peers’ best practices for upskilling/reskilling in the same or similar functions. This will help guide them in how to best avoid unproductive investments.

Trend 3: It’s Largely an In-House Game

GICs are primarily using in-house teams to develop and run their reskilling and upskilling initiatives. They believe they can reduce risk with internal teams that have a strong context and understanding of the business. This approach also allows them to experiment more, given lack of clarity on exact requirements and end results.

However, they may benefit by making selective use of external specialist providers in areas where they lack internal capabilities, such as use of gamification and simulation for training, role mapping and employee suitability assessment exercises, and change management training.

Trend 4: It’s Just a Part-Time, On-the-Job Affair

In most areas, GICs prefer part-time upskill/reskill training for their employees. Full-time training is limited to certain next gen skills, like digital, or across functions, e.g., of contact center employees in the use of analytics. When used, full-time training often occurs over just one to two weeks.

There’s no clear cut, overarching answer on whether the   part-time or the full-time model is a better choice. GICs need to consider factors such as complexity of the new skills, employee time off their current jobs, and the rate of previous training successes to choose the appropriate model in each given situation.

We recently surveyed senior leaders from 80+ GICs across India, the Philippines, and Poland to assess the changing nature of skills/competencies needed for the future, and the roles GICs can play in addressing the changing skill requirements. Contact us here to see the results, and to exchange perspectives on evolving skills needs and approaches to future proof your talent strategy.

And keep your eyes peeled for our next blog on this topic, where we’ll talk about best practices and how some GICs have upskilled and reskilled their team members.

 

GICs are Evolving from “Delivery Centers” to “Capability Centers” | Sherpas in Blue Shirts

Historically, companies have leveraged the GIC model to deliver business process (operations) and IT services. However, as the model is maturing and incremental demand for these services is declining, enterprises are increasingly looking to their GICs to build more strategic Research & Development (R&D) and digital capabilities, drive innovation, and focus more on value-added services. In other words, they want their GICs to be “capability centers,” not just “delivery centers.”

There’s clear evidence that this is happening. In 2017, there was a significant increase in set-up of such capability centers focused on R&D and digital skills, especially in areas such as design, innovation, automation, Artificial Intelligence (AI), Machine Learning (ML), and cybersecurity. Indeed, our recently released GIC Annual Report 2018 shows that the share of centers supporting R&D/engineering services – including digital services – increased by almost 150 percent during 2017, as compared to 2016. And these centers accounted for more than 50 percent of total GICs setup in 2017.

Breakdown of new GIC setups by services delivered

These capabilities are expected to be the key differentiators and success drivers for global enterprises going forward. In 2017, ~46 percent of all new centers were focused on developing or expanding digital capabilities for the enterprise. There are multiple examples where offshore/nearshore GICs have been given a global mandate to lead organizational initiatives in new and emerging areas such as automation and blockchain.

Related: Simplifying skilling in Global in-house Centers (GICs)

So, how exactly are GICs becoming the global capability centers? What are the key enablers? Another of our recent research studies shows that GICs need to take a FORCEful approach:

FORCEful approach to becoming the global capability centers

  • Foster innovation: GIC leadership needs to invest in developing a customer-centric culture, and test small-scale Proof-Of-Concepts (POCs) to demonstrate end-client value and build credibility
  • Orchestrate transformation: GICs should leverage their well-established foundation by identifying their core strengths and upshifting the value they deliver through improved operational excellence with productivity enhancements, optimized pyramids, and better managed external spend. Simultaneous focus on leveraging these new capabilities to drive both growth and efficiencies will be critical to deliver true value to the enterprise
  • Reskill and upskill workforce: GICs must radically change their reskilling/upskilling initiatives to ensure talent readiness for next-generation skills. They also need to adopt a bespoke approach for specific requirements, and undertake pilots in areas with the highest skills gaps to assess the effectiveness and relevance of the capability centers model
  • Collaborate with ecosystem: GICs should proactively leverage the external ecosystem – specialist providers, startups, educational institutions, etc. – to develop holistic solutions, increase agility, and reduce go-to-market time
  • Expand existing capabilities: GICs have a unique insider’s view that enables them to provide strategic insights to orchestrate enterprise-wide digital/technological transformation, facilitate integration between IT and operations, and break functional siloes to achieve truly breakthrough results

Related: How we support shared services centers (or GICs)

To learn more about the research behind our FORCEful approach, please click here. And if you’ve already established a capability center, or are in the process of doing so, write to us at [email protected] or [email protected]. We’d love to hear your thoughts and experiences!

Global Services Providers in the ‘Right Segments’ Will See Double-Digit Surge in 2018, But Others Will See Revenue Tide Recede—Everest Group | Press Release

Everest Group predicts enterprises will express preference for GICs and make significant shifts in their locations strategies in the year ahead.

 Although 2018 will see a modest increase in demand for global services overall, some leading service providers in select segments will experience a double-digit surge in revenues this year, according to Everest Group. Labor-arbitrage focused service providers will continue to create a drag on the market; however, digital-focused service providers will more than offset that, especially in key segments such as engineering services, business process outsourcing (BPO), and consulting and systems integration.

“Throughout 2017, outsourcing transaction activity was driven by an increased adoption of digital services, and this trend will continue in 2018 as more enterprises move beyond exploration and pilot projects to large-scale digital implementations,” said Salil Dani, vice president, Global Sourcing, at Everest Group. “The industry is ready to act: enterprises have undertaken copious research and testing, service providers have invested in acquiring the digital capabilities needed, and the market is being lifted by availability of funding, cheap capital, tax cuts in the United States, and low interest rates.”

Global In-house Center (GIC) setup activity was at an all-time high in 2017, and Everest Group predicts that the Do-It-Yourself, in-house model will become even more popular in 2018, with small and mid-sized enterprises driving Global In-house Center (GIC) setup activity.

Moreover, large enterprise outsourcing adopters will begin to undertake significant, long-term shifts in their location strategies, including the following:

  • Large-scale consolidation of services, as technology takes away huge sections of demand through straight-through processing (STP), self-service and automation
  • Rebalancing of work across locations
  • High-degree of co-location as growing technology and digital adoption blurs the boundaries between IT, non-voice business processes and voice processes
  • Creation of niche onshore and offshore centers of excellence to handle complex, exceptions-based work
  • Increased focus on onshore delivery due to regulatory changes and the need for agile, co-located innovation teams
  • Gradual shift of offshore centers from delivery of transactional to complex work through upskilling and cross-skilling talent bases.

These findings and more are discussed in Everest Group’s recently published report, “Market Vista™: 2017 Year in Review and Outlook for 2018.” This annual report covers the key forces and metrics defining the global sourcing market, including trends in outsourcing, digital adoption, and Global In-house Centers (GICs), as well as insights into location activity in offshore and nearshore geographies. The report also reviews 25 leading service providers on their annual performance, capability enhancements, merger and acquisition landscape, and other key events.

***Download a complimentary abstract of “Market Vista™: 2017 Year in Review and Outlook for 2018”.***

GICs Winning the Analytics Game | Sherpas in Blue Shirts

Enterprises are increasingly looking to analytics to achieve top line impacts – think marketing and pricing analytics to support new product launches and better understand consumer behavior – and positive contributions to their bottom line through, for example, risk and fraud analytics. And they’re increasingly favoring GICs over third-party providers to support their analytics initiatives.

Why? By the nature of their engagement model, GICs are tightly integrated with the parent organization, which better enables the high levels of governance and management that are essential to deliver analytics services. GICs also have an edge as they can bundle analytics services into the business process services they deliver to provide integrated solutions.

Real-world Value Examples

Here are just a handful of examples of the types of value GICs are delivering to their parent companies.

  • The India GIC of an European financial services firm helped increase product revenue by 15 percent through analytics on product positioning in the retail market
  • A leading retail company’s India GIC leverages analytics to study the shopping patterns of customers in 20+ countries to predict how the market will grow or decline, understand customer loyalty patterns, etc.
  • By delivering more than 50 percent of a global bank’s consumer business marketing analytics, the India GIC has enabled targeted outreach that has increased consumer card sales
  • The Poland GIC of a leading U.S.-based consumer goods company implemented prescriptive analytics algorithms on its AdWords account to eliminate inefficient spend on paid searches, in turn saving substantial amounts of money.

How GICs Can Jumpstart Their Analytics Capabilities

Of course, the quality of the analytics and the impact of the resulting outcomes are directly related to the analytics talent the GIC employs.

Some GICs have chosen to upskill and reskill their existing workforce. While one has made it mandatory for select teams to undergo analytics courses and training, others have provided monetary incentives to team members who willingly opt into the training. Both approaches make GICs talent-ready to deliver analytics capabilities and face demand fluctuations. GICs are also exploring partnerships with specialist firms that can provide resources for a short duration, as needed.

Upping the Ante

To deliver even greater value, many GICs are proactively identifying areas within their operations to plug-in the analytics layer. To facilitate this, they have established analytics as a shared horizontal capability in their organization structure so that the skills and knowledge attained from one team can be leveraged by others. Further, GICs are heavily investing in training data scientists, and providing them global exposure to understand business needs better.

The days of providing just arbitrage are long gone. If your GIC wants to deliver the value your parent company needs in today’s business environment, analytics capabilities must enter into your equation.

To learn more about our view on GICs’ analytics capabilities, be sure to attend our sessions at the NASSCOM GIC Conclave (note, Everest Group is the Strategy Partner for the event) and visit us at Stall 7.

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