Offshore IT and India

1. Offshore IT and India François Hucher – CGEY IDATE – Nov 19th, 2003

2. India is a large, fast-growing market for providing IT services. • More than 350.000 people currently working in IT services & outsourcing in India, expected to pass: • 1 million before 2008 • 3 millions in 2015 • IT Services exports from India (USD billion): • 4 in 1999, • 10 in 2002, • 18 in 2005 • grown by over 36% on average “India dominates, and will continue to dominate, the offshore market, with approximately 80 percent percent of total revenue.” - Gartner, December 2000 FH – IDATE Nov 19th, 2003

3. India leads the off-shore market with a 80% market shareIndia exportsalready 4% of NA and 2% of WE IT markets IT Services - Apr’ 02 to Mar ’03(Figures in USD Billions) FH – IDATE Nov 19th, 2003

4. Most top companies outsource their software requirements to India… • General Motors • General Electric • United Airlines • Sears • Wal-Mart • AT&T • Marks & Spencers • Coca Cola • Pepsi • Boeing • CitiGroup • American Express • Walt Disney • Visteon • Daimler Chrysler • Ericsson • Philips • Oracle • SAP • Integrators... More than 300 of the Fortune 1000 companies outsource their software requirements to India… FH – IDATE Nov 19th, 2003

5. (Source: McKinsey Quarterly, 2001) Low • Russia Russie ? • China Chine ? Inde ? • India • Philippines Philippines ? ? • Malaysia Malaisie ? Hongrie • Hungary Cost • Mexico Mexique ? ? • Singapore Singapour • Ireland Ireland ? • Israel Israël ? High TS Packages OS IM Low High Quality 6% 1% OS AM Penetration of Offshore IT Services(Current Usage or Planned Usage) by Industry 36% “40% of the annual growth in the offshore market will come from Western Europe by 2004” TS AD&I 57% Offshore IT Services By Discipline IT Services - Apr’ 02 to Mar ’03(Figures in USD Billions) Source: Gartner Dataquest (August 2002) Rightshore – Offshore IT services from India Growth in Indian IT Services Exports(Figures in USD Billions) “By the end of 2004, 10% of IT resources from US IT vendors and services providers will be provided offshore” 2006 +36%CGAR 12.00 9.88 10.00 7.65 8.00 6.22 6.00 3.96 4.00 2.60 1.76 2.00 0.00 1997 1998 1999 2000 2001 2002 “60% of Fortune 500 companies already work with Indian offshore companies” Source: Gartner Dataquest (February 2003) FH – IDATE Nov 19th, 2003

6. Several factors strengthen the business case for remote services in India... • Factor cost differential – Wage costs about 20% of US levels; real estate costs about 25% of US levels • Time zone advantage – The nearly 12-hour time zone difference between US and India enables ‘follow the sun’ 24x7 coverage • Robust telecom infrastructure – India’s telecom infrastructure today is world-class and cost-competitive, with various long-distance connectivity options, high-bandwidth local loop networks and high-speed Internet access • Government incentives – The government of India is keenly promoting offshore services, by setting up technology parks and other infrastructure, speeding up investment approvals and providing attractive tax incentives FH – IDATE Nov 19th, 2003

7. …Including the size and quality of its resource pool CMM qualifications 2001/2002 • Second largest pool of English-speaking professionals in the world • Currently has 400,000 IT professionals • Large base of graduates (16 million) and post-graduates (5 million) • Generates 80,000 engineers each year +20% (58 level 5/6) +50% (74 level 5/6) FH – IDATE Nov 19th, 2003

8. Nordic 55 BE 45 US 100 UK 105 CE 58 France 49 India 23 SE 40 We have to disconnect the place where we sell from the place where we deliver Average COR per region in 2001 North America COR = base 100 FH – IDATE Nov 19th, 2003

9. IT companies Positions Pure India Players People People Multinational Players FH – IDATE Nov 19th, 2003

10. CGEY in India • Our Global Delivery Model, Rightshore • Our Global Network of Industrialized Centres: ASEs, ADCs, AMSCs, IMSCs, BPOs • Our Methodology: • End-to-End CMM Value Delivery • Single set of integrated methods, tools and standards used across FO/BO • Remote Development with Local Execution • Local Intimate Business Know-how • From Initial Creation to Long Term Evolution • Win Centers VISTEON VERIZON JP MORGAN DELMAS TOTAL FH – IDATE Nov 19th, 2003

11. Offshore AM Delivery Model Back Office CGE&Y AMSC INDIA Front Office CGE&Y / Customer Of course, the split of responsibilities between front and back offices may change! User Community External Agencies 1st level Help Desk 2nd and 3rd Level Support Front Office Functional Responsibilities Back Office Functional Responsibilities Common tool-sets and Process - DELIVERTM Knowledge Base Service Management Quality Management Technical Infrastructure FH – IDATE Nov 19th, 2003

12. Client’s Helpdesk Back Office Mumbai CGE&Y Front Office Support Team Client’s Systems Sample Workflow CGE&Y Service Delivery Manager monitoring AM operations Periodic face to face meetings Client Front Office Back Office Client’s Business Users* Establish 2-way communication with user and work collaboratively till the ticket is closed 4 Manage Contingencies Log ticket 1 Ticket assigned to CGE&Y Ticket assigned to Back office 2 3 3 Manage Contingencies Access Client’s Applications for Problem Resolution *Even though the client’s business users are shown along with the client and the help desk, it must be noted that these users may be located anywhere in the world Onsite Offshore FH – IDATE Nov 19th, 2003

13. CGE&Y Competitor Profile • CGE&Y faces competition from both local and MNC companies • The top 5 local competitors include: • Tata Consultancy Services • Wipro • Infosys • Satyam • Patni Computer Systems • The MNC’s currently in the market include: • Accenture • IBM/PwC • EDS/A.T. Kerney • In this section we will try to profile some of the above companies… FH – IDATE Nov 19th, 2003

14. TATA CONSULTANCY SERVICES (TCS) • Key Highlights: • Projects for over 1000 clients in more than 55 countries • More than 100,000 person years of experience in diverse business domains and technology areas • Major projects won: • United Utilities Water; UK  30 million Pounds • GE  $120 million – largest deal in Indian IT services history • Strengths and Weaknesses: • Strengths: • Giant size – over 21000 employees • Ability to cut prices and play on volumes • Weaknesses: • Dearth of value added offerings • Up to 70% of revenues come from on-site work in the US – too much reliance on one market • Growth Strategy: • Price aggression • Increase in Onsite work • Geographical diversification by setting up global development centers in Hungary, Australia, Uruguay, Japan, Mexico, USA, UK and China • Expansion / Acquisition Strategy:: • Takeover of CMC a local player has enhanced local presence especially in the Government sector • Company IPO expected to come through shortly – this will increase the resources available with the company for further investment / acquisitions FH – IDATE Nov 19th, 2003

15. INFOSYS TECHNOLOGIES • Key Highlights: • Company’s brand name is major plus in both domestic and international market diverse business domains and technology areas • Over 10,000 IT practitioners and domain consultants and presence in 14 countries worldwide • Ranked as No. 1 among Indian IT organizations • Infosys claims 293 clients with 85% repeat business • Finacle, BankAway and PayAway – the banking products of the company, now contribute to 4% of the company’s Turnover • Strengths and Weaknesses: • Strengths: • Ability to predict and react quickly to market trends • Ability to cut prices and play on volumes • Known for reliability and fair business practice • Weaknesses: • Low focus on R&D and high-end high value added work • Too skewed in favour of the US market • Growth Strategy: • Price aggression • Focus on offshore delivery model and BPO services to international clients • Partnership with leading local companies of the targeted country • Expansion / Acquisition Strategy:: • Banking, FSI & Retail verticals will have more focus as per future strategy • Building up presence in Europe and Latin America • Plans to move up the value chain by building its Management Consulting practice FH – IDATE Nov 19th, 2003

16. WIPRO TECHNOLOGIES • Key Highlights: • Ranked 7th among the software services companies in the world by Businessweek (2002) • 30 offices worldwide, 13,000 IT practitioners and domain consultants • World's first PCMM, CMMi and CMM level 5 company • More than 300 customers across USA, Europe and Japan (50 of these are Fortune 500 companies) • Perceived as a ‘trustworthy’ and ‘fair business practices’ company • Strengths and Weaknesses: • Strengths: • Ability to predict and react quickly to market trends • Ability to cut prices and play on volumes • Availability of 13000 skilled IT resources skilled in international projects • Weaknesses: • Constant Organizational Restructuring can hamper quick decision making • APAC business has not grown as fast as it should have • Growth Strategy: • Price aggression • Increase in Onsite work • Provide end-to-end IT solution including network, hardware/Software and SI services • Partnership with leading local companies of the targeted country for market entry.     • Expansion / Acquisition Strategy:: • Banking, FSI & Retail verticals will have more focus as per future strategy • Entered in Call Center Business through acquisition of Spectramind Ltd. - this is now one of the major thrust area FH – IDATE Nov 19th, 2003

17. Investments in the Indian IT Sector According to a Mckinsey Survey 80 percent of the top 40 global IT services firms have a presence in India … • Accenture: • Has announced plans to invest close to $180m over the next four years towards providing Business Process Outsourcing (BPO) service • Plans to hire another 1,500 employees to make its Indian technology centre a strategic hub, and double its Indian software and back-office staff to 2,500 within two years • EDS: • Has announced plans to move about 700 jobs to India. EDS said it will spend $12 million on a new customer call center in Mumbai, India, next year, resulting in a phased transfer of 700 jobs to that region. • IBM / IBM Global Services: • IBM Global has over 3000 professionals across 6 development centers in the country. It is aiming at adding 7000 professionals over the next 3 years • IBM Global Services in Bangalore has bagged a mammoth outsourcing project from AT&T. The work, pertaining to application development, enhancement and maintenance, has been contracted for a 10-year period. IBM will increase its workforce dedicated to this project by 250 people by the end of next year. Eventually, there could be around 5,000 people working on this project. • Deloitte Consulting • Has now a 450-people centre in India, providing BPO and SAP Support services FH – IDATE Nov 19th, 2003

18. Investments in the Indian IT Sector..(contd.) • Computer Science Corporation: • Is setting up two development centers in Noida and Hyderabad with manpower strengths ranging from 300-400 personnel. The company will be creating solutions for segments such as insurance, financial services, ERP, CRM, e-commerce, and databases. • CSC is also planning to acquire a company in the Southern region, to expand its operations in that market. • Cognizant: • The company added more than 900 professionals to its existing staff in 2001-02. It had plans to cross the 5000 mark by end 2002. • GE: • Has announced that its fresh round of investments in the Indian market are likely to be directed towards the InfoTech sector. Software exports from India are expected to rise to $3 billion by 2004 with software outsourcing expected to account for a third of the export targets • GE has 11,000 employees in 3 centres in India – this is to be expanded to 27,000 employees in 9 centres In addition to the above a few others such as Perot Systems, Deloitte & Touche and Groupe Bull are either sub-contracting work to Indian companies or have formed joint ventures with local players. Valtech is subcontracting to Hexaware, Deloitte & Touche has a joint venture with Mastek, and Perot with HCL. FH – IDATE Nov 19th, 2003

19. Consequences • Off shore production and maintenance for software creates a real risk of loss of skills and jobs for the most advanced countries : whereas for manufacturing it’s generally admitted that it takes 10 years for a sub-contractor to gain full knowledge and to be able to design by himself, in the software industry, this times is probably reduced by a factor 3, because there is almost no boarder between the design and the production itself. Subcontracting the production then means exporting the know how. • IT Indian companies are now strong global players • Large (US) integrators will take advantage of the off shore IT production • Need for Europe to organize near shore in Eastern Europe FH – IDATE Nov 19th, 2003