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Low Cost Domestic Sourcing An Overview

Low Cost Domestic Sourcing An Overview. Amrita Tahiliani Joshi President, Ahilia Inc. November 19, 2009. Ahilia Overview. Formed in 2007 by leading experts in global sourcing

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Low Cost Domestic Sourcing An Overview

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  1. Low Cost Domestic SourcingAn Overview Amrita Tahiliani Joshi President, Ahilia Inc. November 19, 2009

  2. Ahilia Overview • Formed in 2007 by leading experts in global sourcing • Spin-off from Conscient Partners which focused on advising Tier 1 & Tier 2 Global Service Providers on Marketing Strategy, Service Portfolio Definition and Influencer Management • Our consultants come from buyer, supplier and advisor backgrounds from companies such as neoIT and Gartner Research Ahilia is a management consulting firm solely focused on the global services industry. Ahilia advises service providers, enterprises & technology companies on how to achieve their business objectives through services globalization.

  3. Agenda What is LCD Sourcing? Drivers of LCD Sourcing Evaluating Potential LCD Locations

  4. What is LCD Outsourcing? Lower cost metropolitan areas and rural communities that can provide a significant cost improvement over Tier 1 IT hubs (~30%) Ruralsourcing Ruralshoring Homeshoring Homesourcing Onshoring Farmshoring Inshoring

  5. Is LCD Sourcing Really New? Yes, somewhat… • Prior to global sourcing or offshoring, companies outsourced primarily for skills & capabilities • When global sourcing took off, domestic outsourcing companies employed one of the following strategies: • Developed an offshore option for their clients by building own offshore operation or partnering/merging with an offshore entity • Focused on specific high end skills or onsite required staff augmentation • Domestic companies did not reinvent themselves to achieve low-cost objective from home

  6. Recent LCD Announcements

  7. Agenda What is LCD Sourcing? Drivers of LCD Sourcing Evaluating Potential LCD Locations

  8. Benefits of LCD Outsourcing • Lower Cost • Relatively Lower Wage Rates from Tier 1 U.S. cities • Significantly less travel and communication costs than offshore • Higher % of FTE can be offsite than offshore • Lower management/PMO/risk management costs • Tax Advantages • Ease of Doing Business • Cultural and Language Affinity • Geographic Proximity • Time Zone Advantage

  9. Benefits of LCD Outsourcing • Increased Speed to Market • Business to IT Alignment • Proximity • Understanding of U.S. Business requirements, etc. • Less Risk • PR • Regulatory/Compliance • Legal • Political • Vendor

  10. Traditional Drivers for LCD Sourcing Negatives of Offshoring Economic Downturns • Dissatisfaction • Quality & Productivity • Communication & Cultural issues • Rising Costs Offshore • Wage Rates • Real Estate & Infrastructure • Exchange Rate Fluctuation • Particularly deflation of the US Dollar against many Asian currencies 2006-2008 • 2001/2002 .Com Bust • 1st major wave of knowledge jobs leaving the U.S. • 2004 Election capitalized on fear • 2009 Recession • More “real” fear • More proactive/positive approach

  11. Today’s Drivers of LCD Outsourcing • High Unemployment • Wage Deflation • Concern over fundamental shifts in American competitiveness • Fewer & smaller projects • Reduced travel • Reduced investment General Economic Environment Economic Impact on Business • Reduced product life cycles, tighter turnaround times • Focus on cost reduction • New IT options (cloud, SAAS, freeware) • New Risks Changing Business Dynamics

  12. Agenda What is LCD Sourcing? Drivers of LCD Sourcing Evaluating Potential LCD Locations

  13. Objectives of the Guide • Assist Governments • Identify which locations would be attractive LCD destinations • Identify potential “niche” focuses • Gain good understanding of what companies are looking for in an LCD location • Assist Companies • Identify specific criteria important when evaluating LCD location • Provide framework, model and process to use when choosing a LCD location

  14. LCD Location Selection Criteria 35% 40% 15% 10%

  15. Cost of Doing Business • Labor Rates • Real Estate Costs • Infrastructure Costs • State & Local Taxes • Economic Incentives • Airport Access • State Debt • Federal Funding Support

  16. Workforce • Nearby Colleges & Universities • Stability of Future Workforce • Skill Sets of Knowledge Workforce • Net Migration Potential • Population/Scale • Current Resource Availability • Labor Supply Competition

  17. Business & Political Environment • Business/Government/College Consortium • Political Support • Labor Laws • Technology & Vendor Ecosystem

  18. Quality of Life • Cost of Living • Housing • Commute • Crime Rates • K-12 Schools • Climate & Geography • Arts & Recreation

  19. Conclusion • Low Cost Domestic Sourcing is not a fad…however, LCD 3rd party providers need to address • Scalability • Sustainability of Low Costs • Enterprises still need to assess if LCD is right for them in the context of global sourcing • LCD Location Selection • Sustainable skilled labor pool is key to selection • Economic incentives of state & local governments is a major factor in final location selection

  20. Questions?

  21. Contact Information Amrita Tahiliani Joshi President, Ahilia Inc. amrita@ahilia.com 503 4th St. Suite B Davis, CA 95616 Office: 800.489.5197 Mobile: 530.304.9026

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