Tag: India

Obama Goes to India | Sherpas in Blue Shirts

What could be the implications for global services from President Obama going to India?

It’s clear what the United States wants. We want to sell technology and nuclear equipment to India. And the U.S. wants to move India out of the China camp geopolitically into the U.S. camp. The U.S. wants trade and joint efforts in the areas of climate change and energy.

What does India want? They’re also focusing on trade. One of the key flagship industries for India has been outsourcing and global services. Of particular interest is protecting the spectacular growth of the Indian heritage firms such as Infosys, TCS and Wipro and allowing the next generation to flourish. In that important area, what could they ask of Obama?

It’s clear that with two years left in Obama’s term without a Democratic congress, there is a limit to what President Obama can agree to. But there is something big he could agree to that’s within his administrative powers. He could agree to direct the U.S. immigration service to be more flexible in how they interpret the visa laws, specifically around H-1B and L-1 visas.

Obama goes to India

As written, the immigration laws include a great deal of ambiguity, giving much discretion to the immigration services on whether to grant visas and the degree of freedom that companies or individuals have in what work they can do under those visas.

This is an area that is clearly within Obama’s ability to affect, and it would be a substantial win for India. So, Mr. Modi, I don’t know if you have asked for this – but you should.

And in no way would such a move hurt the U.S. It would not only help India but also help the U.S. economy with competitiveness. There simply isn’t enough U.S. tech talent and we have to rely on Indian talent if we’re going to be competitive in driving cloud and other new service models. The agreement could even be constructed to fit in with Obama’s ongoing pressure on Republicans to reform immigration laws.

So it’s a win for both countries.

How Cost Competitive are Global In-house Centers (GICs)? | Sherpas in Blue Shirts

Although GICs are an integral component of the global services market with increasing adoption by buyers, there continue to be questions about their cost competitiveness. To obtain the facts, Everest Group conducted GIC cost competitiveness assessments with both source markets (North America and Europe) and service providers. Following are the key findings from our recently released report on the topic.

GICs offer sustainable arbitrage with source markets across locations/functions, and organizations have the potential to increase savings by fully leveraging efficiency levers

Despite sustainability concerns, our analysis indicates that GICs provide source markets with significant cost savings. Savings typically vary between 30 to 70 percent, across most locations and functions. More interesting is the finding related to change in cost arbitrage across successive years. In India’s case, favorable exchange rates, coupled with a less-than-anticipated impact of wage inflation, has strengthened cost arbitrage over the last two to three years. While the focus in recent years has naturally been on India, it’s important to acknowledge and remember that other leading locations, (i.e., Philippines, China, Mexico, and Poland), also continue to offer similar cost arbitrage compared to the last two to three years.

The report examines the sustainability of cost savings (measured by number of years) in detail by evaluating cost inflation (separate for wages and other cost elements) and forex movements in leading locations. Exhibit 1 provides a synthesized view of our analysis, indicating the sustainability of cost arbitrage for most locations/functions even under aggressive inflation and currency movement scenarios.

GIC Cost Competitiness I1
Exhibit 1

The sustainability analysis is based on labor arbitrage alone, and excludes the impact of efficiency-based levers such as reducing general and administrative expenses, moving to tier-2 locations, increasing capacity utilization, and increasing span of control and deskilling. While not all GICs have been able to fully leverage and exploit these levers, best-in-class GICs have been able to achieve an additional 10-12 percent savings beyond labor arbitrage. 

Comparing GIC costs with service provider pricing is too simplistic; organizations need to evaluate the TCO to assess the relative cost difference

In our experience, most buyers compare GIC costs with service provider pricing to assess the relative cost difference between sourcing models. But this comparison often fails to capture the true financial impact of a sourcing decision. Mature buyers evaluate the Total Cost of Ownership (TCO) metric. In addition to hard costs (e.g., salaries, facilities, technology, and telecom), TCO incorporates the soft costs associated with transition, governance, and relationship/account management, along with net impact of productivity measures (see Exhibit 2).

Annualized TCO for parent/buyer
Exhibit 2

Conducting a TCO analysis yields interesting results. Indeed, there are instances in which GICs have significantly lower TCO costs than service providers for certain kinds of work, even though the GICs’ operating costs would be higher than provider rates.

The relative cost competitiveness between sourcing models is dependent on multiple factors. There are those related specifically to the work and where/how it is delivered (e.g., relative scale, process maturity, nature of work, and domain expertise.) There are also company-specific factors driving differences, such as preferences for a more experienced pool, better pedigree talent, market positioning as an employer of choice, promotion of similar organizational culture, and approaches to gain share.

To truly gauge cost competitiveness of GICs with service providers, organizations need to conduct a TCO analysis that takes into account all hard and soft costs and unique requirements.

We are hosting a webinar on Thursday, November 20, that will discuss how GICs add strategic value to the parent organization and how they can quantify that value. Register here.


Photo credit: Tup Wanders

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