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- Your Competitive Edge - CHINA The New Global Technology Outsourcing HUB

- Your Competitive Edge - CHINA The New Global Technology Outsourcing HUB. Cyrill Eltschinger CEO, I.T. UNITED OutsourceWorld New York -- Metropolitan Pavilion October 17, 2006 --. Table of Contents. Global Trends China: Your Essential Shore Case Study. 1. Global Trends.

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- Your Competitive Edge - CHINA The New Global Technology Outsourcing HUB

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  1. - Your Competitive Edge -CHINA The New Global Technology Outsourcing HUB Cyrill EltschingerCEO, I.T. UNITED OutsourceWorld New York-- Metropolitan Pavilion October 17, 2006 --

  2. Table of Contents • Global Trends • China: Your Essential Shore • Case Study

  3. 1.Global Trends

  4. Industry Forecast - • Worldwide end users spending on IT in 2005 was $625 billion, to increase at 6% CAGR and reach $828 billionby 2010 • Global BPO market$135 billion in 2006, at an 8% CAGR to$182 billionby 2009 • Global ITO market: $50 billion by 2008, at a 20%CAGR Source: Gartner and Nelson Hall (2006); IDC and The Economic Times (2005)

  5. Offshoring – ITO Leads Growth % of Total Offshoring Market (estimated) Offshoring Market Spending$ billion Application Development 35% in 2006 5% in 2006 BPO Infrastructure 3% in 2007 An estimated 1 million programmers needed! Source: The McKinsey Quarterly, July 2006

  6. Offshore ITO & BPO Outlook US$50 billion IT Services US$24 billion BPO Services By 2008 Offshore Spending Source: Gartner Research, 2005

  7. Successful Outsourcing Transactions Top 10 Barriers Top 10 Success Factors Competingresources (48%) Functional boundaries (44%) Change Skills (43%) Middle Management (38%) Long IT lead times (35%) Communication (35%) Employee opposition (33%) HR (people/training) issues (33%) Initiative fatigue (32%) Unrealistic timetables (31%) Ensuring top sponsorship (82%) Treating people fairly (82%) Involving employees (75%) Giving quality communications (70%) Providing sufficient training (68%) Using clear performance measures (65%) Building teams after change (62%) Focusing on culture / skill changes (62%) Rewarding success (60%) Using internal champions (60%) Source: IBM Survey of Global 500 9 out of 10 factors are people related.

  8. Gartner Research: Comparison, Indian & Chinese Software Services Markets. 31-May-2002

  9. Most Attractive Global Business Locations Source: UNCTAD World Investment Report 2005

  10. China Market Gaining Attractiveness • By 2007: Chinese #1 Internet language • By 2010: China to be largest… • Cell phone market • Beer market • Worldwide I.T. market • Advertisement • Automotive car park • Commercial aviation • Chemicals • Waste & recycling treatment, etc. (Accenture 1999)

  11. Top 3 Languages on the Web 1 2 3 China*: users, incl. other Chinese speaking regions Source: www.internetworldstats.com, March 31, 2006

  12. Top 3 World Internet User Groups 1 2 3 China*: Internet users in mainland. Not including Taiwan. Source: www.internetworldstats.com March 31, 2006

  13. Asia-Pacific Cross-Border M&A Source: UNCTAD World Investment Report 2005

  14. Asia-Pacific HQ Relocation • 1970s: Australia • 1980s: Singapore • 1990s: HK & Japan • 2000 onwards: Mainland China • Shanghai • Beijing • Other Cities

  15. Outsourcing Global Play @2006 • India • China • Brazil • Russia Many other destinations, but without volume ability to scale up tech talents & professionals

  16. 2.China: Your Essential Shore

  17. AChina Focus:“Understanding The Market”

  18. China = 4 xUS population China Basics • Slightly larger thanUS, incl. AlaskaPRC area: 9,596,960sq km • 1.3 billion people China about twice the population of EU • 90+% literacy • Government focus on English language development Source: www.worl-gazetteer.com and http://www.cafediverso.com

  19. China FDI Source: Beijing Municipal Bureau of Commerce, 2006

  20. FDI – Geographic Allocation • Eastern Region captures nearly all FDI • 65% in Fujian, Jiangsu, Guangdong, Shandong, and Shanghai $11.69bil $40.77bil $60.63bil ADB, FDI Survey 2005

  21. China Investor Friendliness Source: The US-China Business Council: An Investor’s Guide, 2003

  22. China – Economic Performance 2005 • GDP +10.2% to $2,305.28 billion • 2006 Q1: + 10.2% to $1,314.5 bil • FDI, reaching $60.33 billion (-0.5%) - 2006 Q1: +6.4% to $14.2 billion • Investment in fixed assets +25.7% • Retail sales +13.8% to $76.52 billion (2004) Source: Various, September 2006

  23. 2020 – Economic Targets • GDP overall: $4 trillion (4x higher) • GDP growth: 7.2% annual • GDP per capita: $3’000, up from $1’000 China Development Research Institute, www.china.org.cn, 2005

  24. R&D and Innovation Stages in China HIGH 2006+ Frontier Innovation Create new technologies. 2000 Technology Improvements Improve products, processes and skills to raise productivity and competitiveness, in-house R&D. Effort Dedicated to R&D and Innovation 1990 Significant Adaptation Change products and processes to adapt technology to local or export market – in-house experimentation and R&D. 1980 Basic Production Train workers in essential production and technical skills required for efficient production – quality management, procurement and inventory management systems. LOW HIGH Business Value Source: Gartner Research ID Number: G00138506, May 2006

  25. Decade of Unprecedented Growth of Telecom Infrastructure 435 mil Mobile:06-2006 435 M Fixed*:06-2006 360 M Into Market InnovationDrive Era Sources: MII, May. 2006; China National Bureau of Statistics, 2006 Forecasts – MII * Fixed includes PHS/Xiaolingtong subscribers

  26. Mobile coverage extensive in developed areas, lagging in rural areas Source: GSM World, 2006

  27. China Internet Snapshot • June 2006: 123 mil users • 64mil broadband users, 2nd largest high-speed after US • Only 9.4% of China’s total population • 12+％of total Internet users worldwide • 3rd largest user group, after the EU & US Sources: CNNIC, Internetworldstats.com, November 2005

  28. China Internet Users 123 mil 9.4% population penetration(8.5% 2005 and 7.2% in 2004) Internet users refers to Chinese mainland citizen who use the Internet at least one (1) hour per week. Not including: 1) Hong Kong; 2) Macau; and 3) Taiwan Source: CNNIC, June 2006

  29. Sensational speedof growth Web International Bandwidth 214.2 Gbp/s 1999 2003 06/2006 Not including: 1) Hong Kong; 2) Macau; and 2) Taiwan) Source: CNNIC, June 30, 2006

  30. BTechnology OutsourcingIndustry Focus

  31. A Matured Marketplace – New EraBooming: Engineering Services Keep in House To Services • High value • High-end skill sets • Engineering services BusinessKnowledge 2003-2004:Key Turnaround From Manufacturing • Cheap labor • Low skill sets • Factory workers Outsource Gradually Technical Knowledge

  32. China: Eastbound – JP/ USA Depart Beijing At 1:00pm, Any Day… Land in the US Before DepartureSame Day

  33. China: Westbound - Europe 200 flights a week To EU Depart Beijing At 11:30am, Any Day… Land in the UK 3:15pmSame Day

  34. Outsourcing Industry Forecasts • Global IT outsourcing market will grow at a compound annual growth rate (CAGR) of 20% • China's outsourcing market is expected to grow at 36.5% ACGR through 2008/1010 • Rapidly “Moving” China outsourcing software industry size and tech talents availability Sources: IDC Group 2005, Global Outsourcing Report 2005

  35. China SW & IT Services Exports Revenues Outlook $4.6bil In Million USD$ Source: Sino-India Cooperative Office, Beijing 2005

  36. China - Annual Computer Science & Software Graduates 400k E. 250k 189k 140k 89k 62k 41k 33k 29k E. Not including Hong Kong & Taiwan Source: China National Statistics Bureau 2005; and China Ministry of Education 2005

  37. Software Technology Parks-TORCH Program- Beijing #1 Xi’an #3 Shanghai #2 Top-3 HigherEducation Cities 53 High-tech parks29 National software parks Source: TORCH Center 2005

  38. China – Software Export Markets Hong Kong 10.9% Others 7.4% USA & EU 22.5% Japan 59.2% Source: Analysis International, April 2006

  39. China Outsourcing Hotspots • Beijing, Shanghai, Shenzhen [First tier cities] • Chengdu, Dalian, Xi’an, Tianjin, Suzhou [Second tier cities] 53 High-Tech National-level Economic Zones • Which includes 29 software parks, incubators and R&D centers** Source: TORCH Center 2005

  40. China New Era: Booming Engineering Services Sector to China 2003-2004: Turnaround Hourly Rates Increasing Hourly Rates Widening Gap India 2006 ChinaTier-1 (-5%) China Tech Services Critical to Global Competitiveness (-15%) ChinaTier-2 (-25%) 2006 2007 2008 2009 2010

  41. Beijing’s Play in Outsourcing Ranked 6 times #1 in national rankings: • Software (SW)exports (~40% of China) • Number of SW products delivered / year • Technologyexports • Number of software enterprises • Highest reimbursement for SW-related VAT • Highest concentration of SW professionals Source: Beijing Municipal Bureau of Commerce 2005

  42. Software Export – Beijing Outlook: $2bil by 2010 E. Data reported to customs software exports bureau. Actual figure much larger. Source: Beijing Municipal Bureau of Commerce 2006

  43. Top-5 Overseas Concerns in Considering Offshoring & Services to China • English Language Capabilities?! • Intellectual Property Rights ?! • Information Security ?! • Tech Talents Quality ?! • Staff Loyalty/ Turnover ?!

  44. China’s Outsourcing Challenge • Overseas Marketing! Too many conferences inside China, little/no participation at overseas trade shows • International Internet controls • International Standards. Number of certifications as of 2005, i.e.: • QMS: 7’754 (BJ) / 138’042 (Total) • CMM3/CMMI3: 38 (BJ) / 112 (Total) • CMM5/CMMI5: 5 (BJ) / 17 (Total) • Communications, rapidly improving • India’s 25years head start

  45. 3.Case Study

  46. – Smooth Project Migration – Successfully Growing Your Offshore Partnership Doug Rosenthal, I/T Development Manager, Dell Cyrill Eltschinger, CEO, I.T. UNITED – Gartner Outsourcing Summit, Orlando, FL – April 3, 2006

  47. Partners at a Glance

  48. Dell Profile • Founded in 1984 • Diverse technology and service provider • No. 28 on Fortune 500 • 65,200 employees globally • Publicly traded (NASDAQ) • Revenue of $56 billion

  49. Dell and Offshoring • Global organization encompassing offshore employees and partnerships • Offshore facilities for engineering, manufacturing, and customer service • I/T development centers in Asia, Europe, LA • Global network of suppliers

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