Can GICs retain and enhance costcompetitiveness in the medium and longterm?20 March 2012
IntroductionsPanelistsAvtar MongaManaging Director, Global Delivery Center of ExpertiseBank Of AmericaCharlie RobersonExec...
Highlights from Everest-NASSCOM Research onGIC cost competitivenessKey Findings 1. GIC model is growing and diversifying o...
The GIC model continues to grow and evolve ...
GICs are delivering significant cost savings TCO savings for BPO – Transaction Processing | U.S. - India ...
The impact of wage inflation at 6-8% is much lowerthan often perceived ...
Arbitrage in India likely to sustain for at least 12-15years from a US perspective ...
While arbitrage should sustain, it only tells a part ofthe story of GICs competitiveness  Skills shortage ...
Appendix Proprietary & Confidential. © 2012, Everest Global, Inc. 9
TCO savings vary across functions but the variation acrossindustry verticals is relatively limitedTypical TCO savings betw...
Infact, wage differential between India and onshorelikely to hold steady for next few years ...
While the above analysis is true for a majority of the workoffshore today but there will be meaningful exceptions ...
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NASSCOM GIC Conclave 2012 - Can GICs retain and enhance cost competitiveness in the medium and long term? - Nikhil Rajpal (Session 4)

Published on: Mar 3, 2016
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Transcripts - NASSCOM GIC Conclave 2012 - Can GICs retain and enhance cost competitiveness in the medium and long term? - Nikhil Rajpal (Session 4)

  • 1. Can GICs retain and enhance costcompetitiveness in the medium and longterm?20 March 2012
  • 2. IntroductionsPanelistsAvtar MongaManaging Director, Global Delivery Center of ExpertiseBank Of AmericaCharlie RobersonExecutive Vice President, Enterprise Expense ManagementWells Fargo Bank NAKush KamraSenior Vice President, Global Operations, Chairman & Managing Director, Global Operations Support Center,MetlifeModeratorNikhil RajpalPartner, Everest Group Proprietary & Confidential. © 2012, Everest Global, Inc. 2
  • 3. Highlights from Everest-NASSCOM Research onGIC cost competitivenessKey Findings 1. GIC model is growing and diversifying on multiple dimensions2. GICs are delivering 40-70% savings even from a TCO perspective3. True inflation in GIC costs at 6-8% is much lower than often perceived4. Arbitrage in India/ Philippines will likely sustain for at least 12-15 years5. There will be exceptions… …also, GICs have several competitiveness levers Proprietary & Confidential. © 2012, Everest Global, Inc. 3
  • 4. The GIC model continues to grow and evolve GICs of leading global companies (#) New GIC set-up between 2009-2011 (#) 3,000+ GICs exist across industries, functions, and Eastern geographies Europe ~500 43 East Asia Middle East & Africa 84 India ~1000 24 ~100 Latin America 66 ~800 ~500 16 Proprietary & Confidential. © 2012, Everest Global, Inc. 4
  • 5. GICs are delivering significant cost savings TCO savings for BPO – Transaction Processing | U.S. - India BPO- Transaction processing US$ 000s per FTE per annum U.S.-India 70-80Other expenses 4-8 Facilities 4-8 Operating cost savings TCO savings 60-75% 65-75% People costs 60-70 21-27 18-21 2-3 1-2 2-3 2-3 13-18 0.00 U.S. parent India GIC Set-up and Governance TCO operating cost operating cost transition Proprietary & Confidential. © 2012, Everest Global, Inc. 5
  • 6. The impact of wage inflation at 6-8% is much lowerthan often perceived Inflation in other Wage inflation Real estate cost items differential inflation (telecom, hardware) Manager Team leader Senior Entry-levelMost often discussedfor junior roles 3-5% p.a. Largely stable ~8-9% p.a. after accounting for pyramid and attrition/ promotion Proprietary & Confidential. © 2012, Everest Global, Inc. 6
  • 7. Arbitrage in India likely to sustain for at least 12-15years from a US perspective IT - ADM EXAMPLE TCO (in US$) U.S. inflation: 1-2% Base case scenario U.S. Tier-1@ 90-100KGIC costs lower than Hurdle ratehurdle rate would @ 60-70%allow meaningfuloffshoring Sustainability will be longer from a India Tier-1@ European 35-40K perspective 12-15 years Time  With favorable macro-economic movements, arbitrage may sustain for 20 years  Even real worst case assumptions suggest longevity of 8-12 years Proprietary & Confidential. © 2012, Everest Global, Inc. 7
  • 8. While arbitrage should sustain, it only tells a part ofthe story of GICs competitiveness  Skills shortage  Operational improvement  Macro-economic shocks  Alternate lower cost locations  Regulations  Business impact  Increased competition Cost Competitiveness of GIC Proprietary & Confidential. © 2012, Everest Global, Inc. 8
  • 9. Appendix Proprietary & Confidential. © 2012, Everest Global, Inc. 9
  • 10. TCO savings vary across functions but the variation acrossindustry verticals is relatively limitedTypical TCO savings between GICs and parents U.S.-INDIA EXAMPLEUS$ 000s per FTE per annum Across functions 65-75% 55-70% 55-70% 100-110 90-100 70-80 35-40 35-45 21-27 BPO- IT-ADM BPO-F&A Transaction processing (Judgment-intensive) BPO – TRANSACTION PROCESSING Across verticals 65-75% 70-80 18-21 18-21 20-23 22-27 Financial services Manufacturing Healthcare Telecom U.S. India GIC Note: Costs for U.S. corresponds to Tier-2 cities, whereas, costs for India correspond to Tier-1 citiesSource: Interactions with GICs; Everest Group analysis Proprietary & Confidential. © 2012, Everest Global, Inc. 10
  • 11. Infact, wage differential between India and onshorelikely to hold steady for next few years BPO- Transaction processing People cost projections between India and U.S. U.S.-India US$’000s per FTE 70 U.S. India 60 Reduction in wage 50 gap Wage differential 40 holds steady 30 20 10 0 2012 2015 2018 2021 2024 Proprietary & Confidential. © 2012, Everest Global, Inc. 11
  • 12. While the above analysis is true for a majority of the workoffshore today but there will be meaningful exceptions SOURCE LOCATION U.S. Current arbitrage sustainability (base case) Parent/source location – U.S. >8 years 5-8 years <5 years BPO – BPO – Transaction JudgmentGIC location IT – ADM processing intensive IT – R&DIndia  Sustainable for medium-term duration across functionsPhilippinesChinaPoland  Potential challenges with currencyChile appreciation in recent monthsMalaysiaCzech RepublicIreland  May lose competitiveness due to unfavorable currency movements andBrazil high cost baseSource: Everest Group analysis Proprietary & Confidential. © 2012, Everest Global, Inc. 12

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