Doing Business in India Series

Emerging Trends and Critical Issues to

Consider When Outsourcing to India
Douglas Long, Tata Consultancy Services
Siva Ganapathi, Aditya Birla Minacs
Gabe Takach, Torys LLP
Daniel Logan, Torys LLP
Friday, January 23, 2009

© 2009 Torys LLP. All rights reserved.

Canadian Outsourcing Trends
Douglas Long – Marketing Director, Canada

March 20, 2009

Canadian approach vs rest of the world

• US (and most of Europe’s) outsourcing journey has been

application development 
IT maintenance 
infrastructure and IT-enabled BPO

• Canadian experience began with hosted infrastrucutre and progressed

through wholesale ITO to app dev and maintenance

March 20, 2009 3

Monolithic vs disaggregated

• First-generation contracts tended to be large and long-lived

• Now seeing move away from single-sourcing

• Greater emphasis on best-in-class providers

• Potentially more complex governance issues for multisourced and co-

sourced outsourcing agreements

March 20, 2009 4

Canadian delivery, offshore or global sourcing
• Canada’s homegrown outsourcers and divisions of infrastructure
players
– Telus, Bell, CGI

• US-based global majors with Canadian presence

– IBM, HP (HP/EDS), CSC, KPMG/PwC/Deloitte etc

• Consulting businesses of software vendors

– Oracle, SAP, Microsoft, IBM

• Global players headquartered outside US

– Tata, Infosys, Wipro; Accenture; BT/Syntegra; Siemens; etc

Many implications for global delivery in terms of governance, accountability, data

protection/security etc

March 20, 2009 5

Increasing maturity in types of services
provided
• Application development & maintenance
– Systems development and integration
– Y2k, legacy management, platform migration/re-engineering
– Move from T&M to turnkey/fixed price commercial models

• Business Process Outsourcing

– More than voice processing (customer interaction)
– Rise of “ITES” – IT-enabled services – for platform-based BPO
– Horizontal BPO: F&A, HR, procurement
– Vertical-specific: LPO (paralegal), insurance (policy origination, claims
processing), transportation (revenue accounting, loyalty scheme
administration), banking (commercial credit risk analysis), telecoms &
utilties (smart meter management, bill-to-pay cycle)

March 20, 2009 6

Increasing maturity in types of services
provided

• Infrastructure services remote capabilities – the art of the possible

– Break-fix servicing
– Remote monitoring
– Datacentre provision
– Optimisation and virtualisation
– Full-service infrastructure management

March 20, 2009 7

Thank you
douglas.long@tcs.com
416 673 1168

March 20, 2009

 Outsourcing Trends

Breakfast Seminar:

Torys LLP

TiE Toronto Chapter

January 23, 2009

March 20, 2009
BPO Landscape

March 20, 2009 10

 Worldwide BPO Market Place

2008 BPO Market - $188 Billion 2005 - 2008 Growth ($M)

Supply Content
Credit
Chain Mgmt
Services
Payments
70,000
CRM Services
1%
Billing 1% 60,000
2%
4% CRM
6%
Insurance 50,000
Finance & Accounting
35% Services
6%
40,000
Card Market Size Supply Management
Services
Services 7%
30,000
HR Services Payment
Services
20,000
Card Processing
16% Insurance Services Billing and Clearing
Services
10,000 Services
HR Content Management
Credit Services Services
22% 0
0 8 10 12 14 16 18
F&A
2005 – 2008 % CAGR

March 20, 2009 11

Worldwide BPO Market Place

2007 BPO Delivery Destination
• India remains a destination of choice for BPO services, especially back-office and KPO
services; For sales and service India is no longer is a preferred destination
– In 2008, size of Indian BPO Market = $10.9B; estimated to employ 700,000
• Canada as a near-shore destination continues to diminish as its currency has
strengthened and higher adoption of offshore locations
• Philippines continues to grow as a preferred destination due to better cultural alignment
with North America. Today it is the #1 destination for voice based services
• Eastern Europe is emerging rapidly especially as an alternative to service Europe
• KPO and judgment based work continues to grow rapidly but requires domain
expertise. Investment in platforms continue to accelerate. The number of Indian KPO
professionals is set to leap from 75,000 in 2006 to 250,000 employees by 2010

Indian BPO Services 2007-08

Other
KPO Horizontal
8% Services
Procurement 4%
Services Vertical-
1% Specific
18%

HR
Management
3%

F&A
22%
Customer
Support
44%
March 20, 2009 12
Global CRM Outsourcing Market

2008 Global CRM Market Agent Positions 2006-2012 Regional Break-out of Agent Positions

2008 Global CRM Market Split Vertical - wise

March 20, 2009 13

* Source: Datamonitor
 Global CRM Outsourcing Market

• The global market for customer care will continue to grow through the coming five years, increasing from approximately 650,000 agent positions (APs) in
2008 to nearly 780,000 by 2012 with a CAGR of 4.7% from 2008-2012
– Principal growth occurring in APAC and EMEA. APAC and EMEA will collectively constitute 55% of this market by 2012, up from 46% in 2006
– North American customer care market will diminish (i) proportionately relative to other regions, and (ii) in AP terms - due to growth in North
American companies adopting offshoring as well as increasing adoption of self-service solutions which further reduces the need for domestic
customer care APs
• Financial services, manufacturing and Telco clients will remain the majority of outsourced contact center users, accounting for ~70% share
– The dominance of these three verticals, in the proportion of APs, will remain till 2012
– In NA, the retail sector is also expected to increase its share of outsourced APs through this period. Among emerging sectors, public sector and
health care are slated for expansion

March 20, 2009 14

 KPO Industry Update

• In 2003, the revenues generated from global KPO Industry stood at US$1.2 Billion and has doubled to $3.05 billion in 2007.
• According to the NASSCOM and Evalueserve, this is expected to grow from $1.2 billion in 2003 to $17 billion by 2010 at a CAGR of around 46%
• India is expected to capture 70% of this market, translating to a market size of U$12 billion
• The number of Indian KPO professionals is set to leap from 75,000 in 2006 to 250,000 employees by 2010

Verticals Using KPO Services Other Potential Destinations:

• Canada and Australia have the levels of talent to support a financial services
KPO industry
• China, South Africa, Singapore, some destinations in Eastern Europe are
also emerging
• Philippines is emerging as a key centre for Legal Process Outsourcing

March 20, 2009 15

* Source: NASSOCM, Evalueserve, Datamonitor and TPI
Impact of Market Dynamics

March 20, 2009 16

 Market Dynamics: Trends
Trends in User (Client) organizations
• Increase pressure to grow top-line due to credit crunch
• Liquidity issues in sectors such as BFSI and Auto
• Pressure of reducing costs resulting in
• Re-evaluating what is core and non-core
• Increase in automation and reduced dependence on human resources
• Exploring alternate delivery locations
• Re-assessment of payment terms
• Increased M&A activities causing
• Integration challenges
• Redundancy even in core/ front-line resources
• Employee / privacy laws being made increasingly stringent
• Focused on reducing number of suppliers vs. adding new
Trends in Service providers
• Consolidation of providers – larger offshore/global players acquiring
smaller/niche providers in order to
• Increase suite of offerings (e.g. TCS - Eserve)
• Increase geographic footprint (e.g. Transworks - Minacs deal
to have delivery in North America, Europe and Asia)
• Move towards people agnostic pricing models: transaction based pricing
• Gain-sharing models: influencing top-line through outsourcing deals or
sharing productivity gains
• Increase in service offering – new services such as KPO, Legal Process
Outsourcing, etc.
March 20, 2009 17
 Market Dynamics: Implications
Short term implications
• Decrease in transaction volumes impacting margins
• Potential credit risk and risk of recovery of payments
• Liquidity crunch of client impacting payment
• Reduction on discretionary spends
• New projects likely to be stalled
• Focus on maintaining non-discretionary spends
• Potential rationalization of vendors
• Exposure to re-negotiations and premature deal closures
Medium/long term implications
• Increase in overall outsourcing by clients especially in the BFSI space
• Expectation of more integrated offerings from providers
• Technology-BPO combination
• Innovative deal structuring, deal sizes and delivery options
• Higher contract value of deals sold
• Better gain sharing and risk-reward
• Alternate delivery options – Offshore
• Captive spin-off by clients
• Increase focus on outsourcing of higher value services
• Outsourcing of more core areas
• Knowledge process outsourcing
March 20, 2009 18
Contract Challenges

March 20, 2009 19

 Traditional Contracting Approach

• Customers define all the process requirements and specific performance metrics to a great detail
• Retain ability to create new service levels to address uncovered areas or new business requirements
• Include complex performance based service credits to protect business performance
• Seek account team continuity and impose workforce turnover limitations to retain knowledge base and quality of service
• Try to own all IP – customer developed, vendor developer or co-developed. Seek transfer of software ownership rights upon development, rather than delivery or payment –
protect software WIP
• Include obligations on the supplier to provide and maintain a plan for dealing with the termination of the contract, and the transition from one vendor to another
• Seek provisions relating to step-in to allow for the customer, or a third party on behalf of the customer, to take over the services for a period of time or terminate services in
case of a disruption to or deterioration of the services
• Right to multiple audits to detect and correct supplier performance, supplier financial stability or even maintain favorable terms

March 20, 2009 20

 Traditional Contracting Approach

• Customers want
– To ensure complete control over operations
– Transfer all the risk to the supplier
– Have multiple remedies to resort to in the event of a default
• In short seek total protection!
• Suppliers would like to have
– Longer term contracts with high barriers to exit
– Minimal performance risks
– No performance improvement obligations
– Annual inflation linked price increases

The adversarial relationship begins!

March 20, 2009 21

 Nature of Outsourcing Relationship

• Interdependent
– Both need each other to grow and prosper
– Not a zero sum game - Success is mutual and failure is collective
– Needs aligned goals
• Scope, scale and nature of service evolve over the relationship
– This cannot be predicted upfront and contracts should have the flexibility to allow this evolution
• Allocate risks and responsibilities to allow both parties to perform, especially when things go wrong

March 20, 2009 22

Thank You

March 20, 2009 23

March 20, 2009 24
Doing Business in India Series
Emerging Trends and Critical Issues to
Consider When Outsourcing to India

Gabe Takach, Torys LLP

Daniel Logan, Torys LLP

Friday, January 23, 2009

© 2009 Torys LLP. All rights reserved.

26
Doing Business in India Series
Emerging Trends and Critical Issues to
Consider When Outsourcing to India
Douglas Long, Tata Consultancy Services
Siva Ganapathi, Aditya Birla Minacs
Gabe Takach, Torys LLP
Daniel Logan, Torys LLP
Friday, January 23, 2009

© 2009 Torys LLP. All rights reserved.