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Global Sourcing: State of the Market and Future Trends

Frances Karamouzis

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IT Services Continues to Play a Critical and Strategic Role

Source: Gartner's Forecast Analysis, Worldwide

Overall IT Market: Gartner Analysis of IT Forecasts

0

200

400

600

800

1,000

1,200

2006 2007 2008 2009 2010 2011 2012

Billions of Dollars

Software IT Services Hardware Telecom

$852 Billion

$820 Billion

$312 Billion

$172 Billion

$297 Billion

$184 Billion

$333 Billion

$235 Billion

$1,015 Billion

$991 Billion$882 Billion

$827 Billion

External IT ServicesAlmost $1 Trillion

by 2012

High-Level Direction for Global Services

$820bn

$991bnGrowth Rate

Ranges for

Each Year:

1% to 6.5%

WW Totals for All

Types ofIT Services

WW Totals for All

Types ofIT Services

2008 2012

Estimated IT Services Delivered via GDM*

Estimated IT Services Delivered via GDM*

~$70bn~$70bn

~$120bn-$150bn

~$120bn-$150bn10 % to 30%

*Not a Gartner forecast

Dynamics of Professional Services:CIO Must Choose Wisely

IBM: $47.1 billion12.7% AGR

EDS: $21.7 billion3.4% AGR

Accenture: $19.9 billion19.6% AGR

2007 Worldwide Professional Services $589 billion — Five-Year CAGR: 8.0%

Source: Gartner IT Services Market Share Analysis, IT Professional Services Only

CSC: $16.1 billion7.7% AGR

Fujitsu: $15.8 billion4.5% AGR

Lockheed Martin: $10.1 billion10.2% AGR

Capgemini: $11.8 billion18.9% AGR

Northrop Grumman: $9.0 billion11.5% AGR

HP: $8.6 billion9.8% AGR

SAIC: $8.4 billion7.0% AGR

All Other Providers

72.2%

Important FactsTop 10 Providers = 27.8% Other Providers = 72.2%

Less than 100 companies worldwide exceed $1 billion in revenue.Top 6 India providers:• 2006 to 2007 AGR of

top 6 India providers = 41.3%

A Glimpse of the Vast Global Sourcing "Solar System" of Vendors

VietnamVietnam

TMA

FPT SoftwareLogiGear

Global CyberSoftPyramid

FCG

VietSoftware

Russia/CEERussia/CEE

Exigen

LuxoftEPAM

DataArt

Auriga

IBA

Reksoft

Artezio

NessMera Networks

Illustrative lists only;not intendedto be comprehensive

AugmentumAchievo

ChinaChina

Objectiva

iSoftStoneNeusoft Symbio

VanceInfoSofttek Asia

hiSoft

Beyondsoft

Dextrys

Longtop

Neoris

PolitecStefanini

CPM Braxis

DBAccessSofttek

Tivit

Latin Latin AmericaAmerica

Ci&T

Hildebrando

BRQ

ChinaSoft

A Glimpse of the Vast Global Sourcing Solar System of Vendors

TraditionalTraditional

HP(EDS)IBMAccenture

Satyam

MasconiGate

Perot

L&T Infotech

Hexaware

ITC Infotech

India-CentricIndia-Centric

US Tech.

Syntel

Atos Origin

Capgemini

i-flex BlueAllyPolaris

MastekRCG

IntelligroupNIITFujitsu MindTree

Deloitte

Virtusa

India MajorsIndia Majors

Wipro

Cognizant

TCS Infosys

Satyam

HCLTech Mahindra

Genpact

Zensar

CSCLogica

Birlasoft

Sapient

Illustrative List OnlyNot Intended to be

Comprehensive

Sampling of Countries

MexicoBrazil

Argentina & Chile

Philippines

Central & Eastern Europe

India

Russia

China Vietnam

Asia/Pacific Region Low "Wage" Rate

Ukraine

EMEA

Americas

City Choices: Different Phases of Evolution

India China

1. Bangalore2. Mumbai3. Delhi4. Chennai5. Hyderabad6. Pune

3 cities = 70% occupancy levels

7. Kolkata7. Kolkata

1. Dalian2. Chengdu3. Shanghai4. Xi'an5. Shenzhen6. Beijing7. Hangzhou8. Tianjin9. Nanjing10. Jinan11. Wuhan12. Suzhou

1. Dalian2. Chengdu3. Shanghai4. Xi'an5. Shenzhen6. Beijing7. Hangzhou8. Tianjin9. Nanjing10. Jinan11. Wuhan12. Suzhou

7 cities = 90% of delivery

Market Events

EconomicRecession

Terrorist Attacks

GeopoliticalShifts

SatyamScandal

Banking Crisis

Operating Environment

Exchange Rates

Attrition Rate Increases

Labor RateIncreases

$$$

Operating Environment

Deal Flow &Price Pressure

Increased Financial & Governance

Vendor ScrutinyVisa

Issues

Past Predictions (Published 4Q06) Yield Current Realities

By 2010, 30% of Fortune 500 enterprises will source from three or more countries.By 2010, 30% of Fortune 500 enterprises will source from three or more countries.

By 2012, India's dominant position as an offshore locationwill be significantly diluted by effectivealternative destinations.Footnote — from highs of 90+% to current 54% levels

By 2012, India's dominant position as an offshore locationwill be significantly diluted by effectivealternative destinations.Footnote — from highs of 90+% to current 54% levels

Through 2012, GDM will be perfected inall major categories of IT (BPO, AO and ITO).Through 2012, GDM will be perfected inall major categories of IT (BPO, AO and ITO).

Through 2012, service providers will "adapt or die"(relative position in Global Sourcing and Servicecategory landscape).

Through 2012, service providers will "adapt or die"(relative position in Global Sourcing and Servicecategory landscape).

Past Predictions (Published 4Q04) Still Looming

Gartner predicts the following major shifts will take hold by 2015:

• Global sourcing will reach the top of the "food chain" because 30% of the most-influential CEOs will not hail from the United States. • Thirty percent of all traditional professional IT services jobs will be delivered by people who come from emerging markets rather than the First World. • More than 30% of total worldwide purchasing power will reside outside the United States.

Gartner predicts the following major shifts will take hold by 2015:

• Global sourcing will reach the top of the "food chain" because 30% of the most-influential CEOs will not hail from the United States. • Thirty percent of all traditional professional IT services jobs will be delivered by people who come from emerging markets rather than the First World. • More than 30% of total worldwide purchasing power will reside outside the United States.

By 2015, service recipients will consider viable service providers as those that define their offerings through agility-based pricing structures.

By 2015, service recipients will consider viable service providers as those that define their offerings through agility-based pricing structures.

Major Trends and Issues for Offshore Services

Supply Side Demand Side

Range of Services (BPO, AO, Infrastructure)

Country Options

Dynamics ofVendor Landscape

Mergers and Acquisitions

Alternative DeliveryModels/Automation

Risk Management

How Do They Define Value? How Is It Measured?

Cost or Value: What Do Buyers Really Want?

Governance(Ongoing Mgmt.)

Human Capital Management

Notes accompany this presentation. Please select Notes Page view.These materials can be reproduced only with written approval from Gartner. Such approvals must be requested via e-mail: vendor.relations@gartner.com. Gartner is a registered trademark of Gartner, Inc. or its affiliates.

Global Sourcing: State of the Market and Future Trends

Frances Karamouzis