Tag: global sourcing

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

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

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

Everest Group—a consulting and research firm focused on strategic IT, business services and sourcing—predicts a continued decline in the outsourcing growth rate1 over the next one to three years, falling to as little as 1.9 percent by late 2019, as a result of macro uncertainties, technological disruptions and competition.

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

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

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

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

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

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

About Market Vista™

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

1 in organic constant currency terms

Is the Philippines More a Paper Tiger than a Real Tiger? | Sherpas in Blue Shirts

The Philippines has been in the news a lot lately, for a range of negative reasons. But is its risk profile becoming such that U.S. enterprises should stop evaluating it as a global sourcing destination, or that those already there should consider pulling out?

That depends on your perspective, especially when you look at both its risk and benefits profiles. I believe one can argue that the current dynamics in the Philippines are potentially a hidden positive for the global sourcing industry. Yes, this bad thing could actually be a good thing.

Before you tell me I’m off my rocker and should be put in a padded room, hear me out.

Among other things, Philippine President Rodrigo Duterte made statements regarding “separation from the U.S.” This understandably caused concerns among multiple global companies with one or another type of exposure to the Philippines. But the Philippine government subsequently tried to clarify that the statements were reflective of intent in foreign and military policy, not business ties. Although a general tilt in military and foreign policy away from the U.S. may eventually hamper business relations, there will probably be little impact in the near term.

That said, while the uncertainty and noise surrounding the Philippines will cause some companies to slow or moderate their exposure to the country’s labor market, a slowing of its offshoring industry growth could be incredibly helpful.

For example, with somewhat less demand for talent, attrition rates should decrease. With somewhat lower attrition rates, employees are likely to develop in their roles to a greater level of proficiency. Additionally, salary increases are also likely to moderate and, with likely less investment into the Philippines, the Filipino peso may weaken and lead to a more attractive cost base.

In other words, assuming that the actual work environment is not disrupted by the new posture, the labor pool should become more attractive – lower cost and more stable – for those organizations continuing to operate in the Philippines.

From an economic standpoint, despite President Duterte’s saber rattling and the unnerving optics, the ties between the two countries won’t be threatened any time soon. The IT and Business Process Association of the Philippines (IBPAP) reported that the IT-BPS industry represented revenue of US$22 billion to the Philippines, and employed ~ 1.2 million FTEs in the country in 2015. With those kinds of numbers, an economic split can’t happen.

Socially, there are very deep ties between the U.S. and the Philippines, much of which is rooted in the fact that English is one of the two official languages in the country. One of the strongest predictors of social ties is language, as the more easily you can communicate with each other, the easier it is to talk about family, share jokes, discuss vacations…topics that help forge bonds.

It’s true that the Philippines’ risk profile appears to be shifting, but largely in ways that seem unlikely to materially impact business ties. For enterprises willing to manage and continue to operate within that environment, it would appear that the benefits of more skilled, language- and culturally-aligned talent at lower prices could easily outweigh the perceived risks.

Of course, there are numerous things you and your location-scoping team should monitor when considering the Philippines as a sourcing destination. The top five are:

  • Trade agreements with the U.S.
  • Taxes and incentives for U.S. firms
  • Travel policies, including visa’s and travel advisories
  • Actions and sentiments of market participants
  • 2022 Philippines roadmap for IT-BPO; relative emphasis on the U.S.

Is your enterprise already offshoring to the Philippines, or in the process of evaluating it against other destinations? We’d love to hear your thoughts, perceptions, concerns, and experiences!

Everest Group Expands Research Practice to Meet Rising Demand for In-depth Insights to Navigate Political Uncertainty, Changing Technology | Press Release

Global Sourcing executives demand fact-based analyses to remain competitive in environment of rapidly evolving business models for IT, Business Services and Sourcing

Everest Group, a consulting and research firm focused on strategic IT, business services and sourcing, is expanding its research practice in response to increased demand for services in the wake of rising political and technological uncertainty and change. To date, the expansion features office and staffing additions; three new research offerings; and a major redesign of the firm’s digital service platform.

Staff Additions

In 2016, Everest Group has opened a new office in Bangalore, moved to larger offices in Delhi, and expanded its research staff by 26 percent, including the addition of five senior-level practitioners to its leadership team:

  • Patricia Blair, vice president, Digital Strategies, manages the digital business operations for Everest Group, which includes delivering exemplary user experiences via the firm’s digital properties. Most recently, she was with Fossil Group.
  • Gunjan Gupta, practice director, Information Technology Services, is a leader in Everest Group’s Application & Digital Services subscription offering, driving syndicated as well as custom research. Prior to joining Everest Group, Gupta was with CEB.
  • Julian Herbert, vice president, Information Products, provides leadership to Everest Group’s subscription and custom research and leads the firm’s benchmarking offerings in Europe. Herbert most recently ran a business that tracked large construction, infrastructure and oil and gas projects.
  • Anil Vijayan, practice director, Business Process Services, is a leader in Everest Group’s HR Outsourcing (HRO), Recruitment Process Outsourcing (RPO) and Managed Service Provider (MSP) offerings. Prior to joining Everest Group, Vijayan was with Ernst & Young.
  • Megan Weis, vice president, Business Process Services, heads local market efforts in North America, providing leadership in the delivery of custom projects and syndicated research. Weis was with Accenture before joining Everest Group.

New Research Offerings

Everest Group’s research practice continually tracks 200+ global cities, 150 service providers and 44 sourcing functions across Business Process Services and Information Technology Services. In the past year alone Everest Group has released 40 PEAK Matrix reports—highly anticipated assessments of the relative market success and overall capability of service providers based on Performance, Experiences, Ability and Knowledge—and hundreds of other research reports. To this rich research portfolio, Everest Group added three new offerings in 2016:

  • Service Optimization Technologies: analyzes service optimization technologies and their impact on the global services market. Technologies covered include those that have the potential to significantly enhance or augment services and/or disrupt the market. Examples include analytics, the Internet of Things (IoT) and Service Delivery Automation (SDA), including both robotic and smart process automation.
  • Healthcare & Life Sciences BPO: comprehensively analyzes the key dynamics of the high-growth healthcare market, focusing on the business processes specific to these industries.
  • IT Services Forecaster™: examines industry growth trends and compares performance among major IT services providers. In partnership with DeepDive Equity Research, Everest Group has developed a systematic methodology to conduct extensive analysis of true growth (organic, constant currency) across 19 IT services market segments.

Enhanced Digital Services

With a treasury of original research, thought leadership and case studies to offer, Everest Group embarked on a website redesign project in 2016 to make relevant data easily accessible and actionable in just a few clicks. The new website and reports portal design, launched in September, features a powerful search function, viewing features and collaboration tools.

Business leaders and sourcing executives today are sailing on turbulent seas and are in dire need of sound data and analysis to help them find their way,” said Eric Simonson, managing partner, Research, Everest Group. “This has been a banner year for our research practice at Everest Group, not only in terms of delivering the fact-based research and analysis our clients need to support their critical decision-making processes, but also in terms of proactively expanding what we have to offer—our research offerings, digital access to our data and insights, and, most importantly, the talented team that makes it all possible.

Surge in Onshoring Shapes Global Sourcing Market | Press Release

Despite macroeconomic uncertainties and reduced investor confidence, global sourcing industry witnesses stable growth in 2016

The global sourcing industry has experienced a surge in setup activity in onshore locations, according to Everest Group, a consulting and research firm focused on strategic IT, business services and sourcing. The proportion of onshore versus offshore delivery centers jumped from 45 percent in 2014 to 52 percent for the period of 2015-H1 2016.

Onshore setup activity increased among the top 20 service providers, with North America’s share surpassing 2012 levels after experiencing significant declines in 2013 and 2014 due to a global slowdown. North America is the most favored onshore location followed by Continental Europe.

According to Everest Group, the factors contributing to this rise in onshoring include:

  • a need for a deeper talent pool to support complex services,
  • the desire for easier coordination and better alignment/training with clients,
  • new data security regulations
  • tier-2 onshore locations gaining credibility for service delivery.

Overall, the global services market grew at a rate of 8-10 percent in 2015, reaching US$161-166 billion, a slight slowdown compared to the 9-11 percent growth rate of 2014.

“We expect that the global services market growth will be lower in 2016—likely 7-9 percent—due to the overall macroeconomic slowdown, currency fluctuations and volatility in equity and investment markets,” said Anurag Srivastava, vice president and director of the Global Sourcing practice at Everest Group. “Political instability associated with Brexit in the United Kingdom and the Trump presidency in the United States will continue to affect the growth rate as well.”

Global technology spending remained flat in 2015, a statistic that obscures the impact that new technologies are having on the industry.

“Going forward, countries such as India are expected to witness a slowdown in the growth of IT services exports, although digital services will continue to grow at a fast pace,” added Srivastava. “Analytics will be one of the key contributors of growth in the BPS segment; conversely, adoption of technologies such as automation will result in a decline in contract sizes and revenue growth.”

These findings and more are discussed in Everest Group’s recently published report “Global Locations Annual Report 2016: Persistent Growth in Uncertain Times.” This research offers insights into the size and growth of the global services market, global services exports by regions and country, an update of locations activity by region and country, and trends affecting global locations (changes in investment environment and exposure to various risks). It also provides industry-leading comparison and analysis of key changes in maturity, arbitrage and potential of global delivery locations through Everest Group’s unique MAP Matrix™ analysis.

Other Key Findings

  • Asia-Pacific (APAC) share of market has been consistently declining since 2012 but continues to constitute more than 60 percent of the share of the global services FTEs. India and the Philippines account for more than 90 percent of the share in the APAC region. APAC also holds the largest share (more than 70 percent) of the global services market in terms of revenue.
  • India and the Philippines retained their leadership status in the global services market, continuing to hold more than one-third of the share in new delivery center setups globally.
  • Nearshore Europe witnessed strong growth in activity during the period of 2015-H1 2016, emerging as the second largest region after Asia Pacific, with the majority of new center activity in Poland, Ireland and Romania.
  • New center setup activity increased in 2015, surpassing pre-2013 levels and reaching a new high since 2011.
  • All locations witnessed a decrease in GIC activity during the period of 2015-H1 2016. In total, global in-house center (GIC) setups continue to outnumber service provider setups. In terms of percentage share, service provider setups exceeded GIC setups for the first time during H1 2016 since dropping below in 2013.
  • Among all regions, Nearshore Europe witnessed the largest increase in new center setups in 2015 compared to 2014.

Global Sourcing Activity Declines in Q3 2016, But GIC Setup Activity Marks All-Time High | Press Release

Trend to watch: Leading service providers are accelerating investments in cybersecurity as enterprise adoption of digital services continues to rise.

Location activity in the global sourcing industry declined significantly in Q3 2016 from the previous quarter, with 404 deals in Q3 compared to 429 in Q2, according to Everest Group, a consulting and research firm focused on strategic IT, business services and sourcing.

Although outsourcing activity across North America increased during the quarter (with share of transactions jumping from 31 to 37 percent), there was a 24 percent decline in the number of deals across Europe (except in the United Kingdom, which reported no change in activity), and the rest of the world experienced a decline as well.

Conversely, Global In-house Center (GIC) setup activity reached 37 setups in Q3 2016, an all-time high, led by new adopters setting up their first delivery centers. GIC activity on a year-to-year basis also witnessed increased traction, reflecting the growing importance of in-house centers to enterprises.

Key Trend to Watch

Everest Group’s Q3 2016 research suggests that a key trend to watch is increasing service provider investments in cybersecurity. Between 2015 and 2016, service providers have ramped up their cybersecurity portfolios via strategic acquisitions, organic growth and collaborative alliances with technology firms.

“As enterprises increasingly adopt digital services, robust cybersecurity programs are becoming ‘must have,’” said H. Karthik, partner at Everest Group. “This, in turn, is forcing service providers to continuously evolve their offerings and move toward end-to-end cybersecurity services.”

“Baseline cybersecurity capabilities of service providers include having personnel that can follow a client’s security initiatives and use basic security tools and products to manage the security of applications and infrastructure. But service providers are moving quickly beyond that to develop more sophisticated services, ranging from designing security architecture to providing insights through security analytics. Leading service providers are pushing the envelope even further, looking to provide even more advanced support, such as pre-emptive threat intelligence, localized managed security services and incident response.”

Market Vista™: Q3 2016 These findings and more are discussed in Everest Group’s recently published report, “Market Vista™: Q3 2016.” This report provides data and analysis highlighting the key trends and developments in the fast-evolving global offshoring and outsourcing market. The research captures the key developments across outsourcing transaction trends, the health of Global In-house Centers (GICs), location risks and opportunities, and service provider developments.

A review of the Market Vista Q3 updates is offered in a webinar: “The Impact of Philippine Political Changes on Global Services, PLUS Market Vista™ Q3 Updates.” This one-hour session hosted by Karthik and Salil Dani, vice president at Everest Group, provides the latest insights on the global services industry, including:

  • Major contributors to global services market growth in Q3 2016
  • Demand geographies contributing to market growth
  • New segments that are driving growth
  • Supply geographies best suited to support incremental demand
  • The market outlook for the remainder of 2016

In addition, the webinar features commentary and analysis on the impact of recent changes to the political climate in the Philippines.

Global In-house Center (GIC) Landscape Grows as GICs are Recognized for Role in Driving Innovation | Press Release

Annual number of new GIC setups reaches four-year high, driven by enterprise demand for digital skills

The global sourcing market continued to evolve and grow rapidly in 2015 to cross the US$160 billion mark. While buyers leveraged a variety of sourcing models, the Global In-house Center (GIC), also known as captive center, model continued to be an integral component of this evolution, accounting for 25 percent (US$38-42 billion) of the global offshore services market.

The success of the GIC model in India and the Philippines led buyers to explore its application in other locations. While both these countries continue to lead GIC activity, companies also established GICs in other parts of Asia, Central & Eastern Europe (CEE), Latin America, and Middle East & Africa (MEA). The CEE region, in particular, is becoming a preferred delivery location for GICs as it offers an attractive cost-talent-operating environment proposition.

Besides the geographic diversification, the GIC market also expanded across verticals and functions. The manufacturing, distribution and retail (MDR) vertical continued to dominate, logging maximum growth and the most new setups in comparison to other verticals. Business process services continued to be the predominant function served by GICs; however, IT and R&D/engineering services witnessed traction due to growing importance of digitalization.

“We expect GIC activity to continue on its growth trajectory, because GICs are no longer seen as only a support unit or cost-saving mechanism for their parent entities,” said Sakshi Garg, practice director at Everest Group. “GICs are being considered a strategic unit for driving innovation. To that end, we increasingly see GICs expanding their ecosystem of partners to include start-ups. The retail and technology verticals are leading this trend, leveraging start-ups in areas such as mobility solutions, business intelligence, cyber security, process automation, and customer experience. ”

Other findings in the research:

  • The GIC market has now grown to reach more than 2,101 centers and one million FTEs across leading offshore and nearshore locations
  • Overall, the GIC market continues to be dominated by U.S.-based large (revenue exceeding US$10billion) companies; however, small firms (revenue less than US$10 billion) are also witnessing an increase in GIC activity
  • A multi-GIC footprint is observed primarily among technology and MDR companies.
  • Technology, MDR, and BFSI (banking, financial services and insurance) firms lead the GIC activity. Emerging verticals such as consulting and professional services, conglomerates, hospitality, media and entertainment, legal and leasing sectors are also adopting the GIC model to support both business process and IT needs.
  • GIC activity in tier-2/3 locations increased; however, tier-1 cities witnessed a marginal decline.

***Complimentary Download of Report Preview***

The research supporting these findings is summarized in a preview report, “Global In-house Center (GIC) Landscape Annual Report 2016 – A Million FTE Strong and Growing!” available for complimentary download here.

Opportunities and Risks in 5 Global Outsourcing Locations | In the News

Everest Group’s 2015 outsourcing year in review report included a quick peek at some important trends taking place in five global outsourcing geographies around the globe including India, China, the United States, Latin America, and Ukraine. CIO.com talked to Aditya Verma, practice director in Everest Group’s global sourcing practice in detail about the opportunities and risks that are arising in these areas. Read more.

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