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Agenda

Agenda. Outsourcing clip of the week Looking at country attractiveness Maturity models China v. India Break Models of GITS (Cognizant case) Tom Friedman video: The Other Side of Outsourcing (time permitting). IT Outsourcing Industry Maturation Model. Stage 1: Initial Growth.

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Agenda

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  1. Agenda • Outsourcing clip of the week • Looking at country attractiveness • Maturity models • China v. India • Break • Models of GITS (Cognizant case) • Tom Friedman video: The Other Side of Outsourcing (time permitting)

  2. IT Outsourcing IndustryMaturation Model Stage 1: Initial Growth Stage 2: Shake Out Stage 3: Stabilization Number of firms drops significantly Some consolidation Number of firms stabilizes Bigger players Number of firms growing rapidly Relatively small companies Fragmentation Number of firms Time

  3. IT Outsourcing IndustryChina Stage 1: Initial Growth Many new entrants Majority of companies do not focus on offshore IT services Concentration ratio still small Rankings keep changing

  4. Evaluating the Attractiveness of Offshore Destinations Choice of an offshore destination country Restraining forces Facilitatingfactors Drivingforces Restraining forces Adapted from Lewin (1951) : A Force Field analysis

  5. China as an Offshore IT Destination China English; IT Skills; Western business practices Cost; desirable footprint; Infrastructure; government incentives; human capital Facilitatingfactors IP protection; branding; Large domestic market; industry fragmentation Adapted from Lewin (1951) : A Force Field analysis

  6. India as an Offshore IT Destination Cost; desirable footprint; brand; expertise India Infrastructure; political stability English ; IT Skills; Human capital; vendor ecosystem; younger population; innovation Facilitatingfactors IP protection (?); wage inflation; turnovers Adapted from Lewin (1951) : A Force Field analysis

  7. 2015: A Final Tally

  8. Determining Country Attractiveness

  9. Country Attractiveness • Costs • Availability of desired skills • Host Country Environment • Infrastructure • Risk Profile • Market potential Source: Farell 2006)

  10. Costs • Labor • Infrastructure • Corporate taxes • Others?

  11. Availability of Desired Skills • Size of skill pool • Technical • Management • Language • Vendor ecosystem • Delivery competency • Transformation competency • Relational competency

  12. Host Country Environment • Government support • Business environment • Living environment • Accessibility

  13. Infrastructure • Telecommunications • Real estate • Transportation • Power

  14. Risk Profile • Security risks • Disruptive events • Regulatory risks • Economic risks • Intellectual Property risk

  15. Market potential • Local Market • Adjacent Markets

  16. AT Kearney Rankings • Based on three criteria • Financial attractiveness (4.0) • Skills pool (3.0) • Business environment (3.0) • Top 5 • India (7.00) • China (6.56) • Malaysia (6.12) • Thailand (6.02) • Brazil (5.89)

  17. Top Destinations for 2013 Source: Overby,S., CIO Magazine, Feb 1, 2013 1. Colombia Pros: Large labor pool, low operational costs, attractive domestic marketCons: Low IT services maturity, limited English skills

  18. Top Destinations for 2013 Source: Overby,S., CIO Magazine, Feb 1, 2013 2. Peru Pros: Low operational costs, rapidly growing domestic economyCons: Nascent market, lower quality education system, limited English skills

  19. Top Destinations for 2013 Source: Overby,S., CIO Magazine, Feb 1, 2013 3. Vietnam Pros: Low cost of operations (30 to 50 percent less than India), strong government supportCons: Rampant software piracy, weak intellectual property laws, limited English skills

  20. Top Destinations for 2013 Source: Overby,S., CIO Magazine, Feb 1, 2013 4. Bulgaria Pros: Availability and quality of IT skills, proximity to Western Europe, BPO maturityCons: Low IT services maturity, smaller population

  21. Top Destinations for 2013 Source: Overby,S., CIO Magazine, Feb 1, 2013 5. Turkey Pros: Large labor pool, European language support, potential to support high level research and development workCons: Security and geopolitical risk related to terrorism and international market, nascent IT market

  22. Top Destinations for 2013 Source: Overby,S., CIO Magazine, Feb 1, 2013 6. South Africa Pros: Large English-speaking labor pool, European time zone compatibility, developed infrastructure, attractive domestic and regional marketCons: Higher operating costs than most offshore locations, lower IT services maturity

  23. MBA560: Global IT Sourcing Models, Forms, and Reasons

  24. Global IT Sourcing Models • Models of sourcing • What can be outsourced? • What should be outsourced? • What factors should influence decision?

  25. Forms • Domestic Outsourcing • Third party • Same country • Offshore outsourcing • Third party • Different country • Domestic insourcing • Wholly owned business unit • Same country • Captive Model • Wholly owned subsidiary unit • Different country

  26. What should be outsourced? • Strategic value of activity • Scale of outsourcing • Cost of setup/search • Complexity and size • Type of Technology used • Rapidly changing? • Headcount fluctuations

  27. Common mistakes (Aron and Singh, 2005) • Tend to look at countries rather than processes • Core v. critical v. commodity • Should but do not consider all the risks • Not all or nothing

  28. BPO and KPO • BPO (business process outsourcing) • Business processes including data entry, call centers • Sometimes called ITES • IT enabled services • KPO (knowledge process outsourcing) • Requires specialized knowledge • R&D; legal services; product development

  29. Second Generation Outsourcing Models Global Delivery Model Third Party Vendor Hybrid Model Onsite Offshore JV Build-Operate-Transfer Model Relationship Structure Multisourcing Model Wholly Owned Subsidiary Global Shared Services Model Onsite Offsite (same country) Offshore Location

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