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The Global Services 100: Weathering a Downturn

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CIOL Bureau
New Update

The Global Influence and Spread

U.S. and India lead the distribution of the Global Services 100 companies in terms of where they are headquartered: Forty four companies in the U.S. and 31 in India, accounting for three-fourths of the list.

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But a closer look reveals that amongst companies headquartered in the U.S., many of them owe their heritage to either India, Eastern Europe, China or Latin America in that they have strong delivery capabilities in these respective locations. That is, the spread of emerging global services companies is not polarized towards the U.S. — though India leads the numbers, the other regions or countries have a fair share that is increasing.publive-image

In terms of customer locations, of all the companies in the Global Services 100 survey, the U.S. definitely leads with 95 percent of the companies having a U.S. customer, closely followed by Western Europe where 84 per cent of the companies have customers. The narrow gap between the U.S. and Western Europe signifies the geo-led diversification strategies of companies, and the opening up of Western Europe to global sourcing.

An interesting find here is that India and China with 52 and 27 percent respectively, points toward the potential and uptake for IT services and BPO in domestic markets, again borne out of the need to diversify away from locations like the U.S. and Europe. For one, the domestic markets in these countries are maturing but an even stronger and tactical reason is that these markets protect the companies from dollar-related currency fluctuations.

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In terms of presence of full-time employees engaged in service delivery, the Global Services 100 participants reveal the most impressive story. The companies have presence across 31 countries in the world covering all the regions. This factor makes the Global Services 100 companies truly global in terms of their reach and capability to deliver.

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A healthy spread of delivery locations in Latin America, Eastern Europe and Asia suggests a geographically distributed delivery model adopted by the Global Services100 companies.

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Service-mix and Client-mix

Within IT services, application development and maintenance and package implementation are the the two service lines that have a vendor concentration. Infrastructure management under the managed services model is seen to be a growth area with many vendors now doing it from remote locations albeit most of them concentrating on one or two of the pieces of the solution like IT helpdesk or network management.

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The large IT services firms straddle across all the service areas but many of the Global Services 100 providers pursue finer niches like Outsourced Product Development (OPD) and engineering services.

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BPO activity related to customer care which includes voice-based customer support services continues to lead the BPO area. But financial process related work (which includes mere accounting support to management and optimization of financial functions) is rapidly evolving as a service offering.

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Industry-specific BPO and knowledge processing continue to evolve as strong niches that the Global Services 100 companies are pursuing.

Large clients continue to be the mainstay of Global Services 100 companies and this trend continues undisturbed since the last three years. In fact, in some cases, the trend has intensified. Seventy-one percent of the companies in 2008 had more than 50 percent of their revenues coming in from large clients compared to 67 per cent in 2006.

Fifty three per cent companies had between 10 to 30 per cent of business coming in from mid-size companies, a slight rise seen in the last three years. Small companies still are not amenable to global outsourcing services as evidenced by more than two thirds of the companies getting less than 10 percent of their revenues from small companies.

Supply-side Dynamics

More than two-thirds of the service providers cite currency fluctuations as their major area of concern during the year. Understandably, this is so because the dollar had appreciated against most other currencies during the year which adversely affects the cost structure of many non-U.S. companies.

Currency fluctuations have been severe enough to adversely affect the financial statements of companies. For instance, Infosys, one of the IT and BPO services leaders, posted a forex loss of $41 million due to heading at mark-to-market value rate when the rupee depreciated to Rs 48.71. That is the reason that the company has brought down its hedging amount in the forex market to $576 million to minimize the risk of currency rate fluctuation in H1 ‘09.

In fact, another major Indian service provider, TCS, which reported 18 percent decrease in net income, attributes the loss to $51.4 million forex loss. In the cases of some companies, the foreign exchange hedges have gone wrong.

Low valuations have driven the M&A trend in the industry during the year 2008. Large acquisitions like the $505 million TCS-Citi deal (in Oct. ‘08), the $127 million Wipro-CTS deal (in Dec. ‘08), the $800 million HCL-Axon acquisition deal (in Sept. ‘08), the $400 million Capgemini-Getronics deal, and finally, the HP-EDS merger happened in H2 ‘08 across the globe.

While it may be premature to call that the trend of bundled IT and BPO services went mainstream this year, there was lot of action for sure. Nearly two-thirds of the companies surveyed in Global Services 100 reported that customers were increasingly seeking bundled IT and BPO services. Strictly speaking, the trend covers a gamut of possibilities ranging from customers seeking the same vendors for IT and BPO services to an advanced integrated IT and operations scenario. Other variations of this trend like platform BPO has also been gaining strength, especially driven by BPO arms of IT-services companies like Infosys BPO.



Global Services 100 - Methodology

Hundreds of global IT and BPO service providers were invited to participate in this year’s Global Services 100 survey. As was expected, the response this year again was overwhelming. Service providers from 19 countries, with delivery centers across 31 countries, comprised the list of participants.

Functionally, these providers cover a range of services across IT services including IT application services, infrastructure services, product development and BPO services including finance and accounting, human resource management and contact centers.

The top 100 list and the ranks in the 10 categories are based on a scientific methodology which we have consistently improved upon over the last few years. Broadly, we evaluated responses on four parameters:

• Size (revenue, employee strength, global delivery capability, and such),

• Customers (customer base, client references and case studies, average contract size, and such),

• Skills (depth and breadth of offerings, delivery capability, quality initiatives, industry verticals covered, and such), and

• Employee Factors (attrition, training initiatives, investment in employee retention, and such).

A weighted scoring scheme was used to rate each question. For each category, different weights were assigned to bring out specific supplier strengths and capabilities relevant to the category. The scoring scheme was designed by a panel comprising of Global Services and neoIT team.

Care was taken to ensure that all service providers (global, niche or regional) were given a level playing field. For a revenue based question, for example, if the scoring scheme gave weight to higher revenue, small or niche companies pared this disadvantage by scoring high on better growth rates.

At each stage, Global Services and neoIT experts validated the data received. During this exercise, we found that some companies that would otherwise have gotten a high ranking did not make it to the category lists because they had sent incomplete information.

Capgemini, for example, is one company that would have certainly qualified in the “Top 10 IT Services” providers list, but did not only because their survey response was incomplete. We would like to highlight that companies such as Accenture, Cognizant and IBM do not figure in the top 100 list because they did not participate in this year’s survey.

Finally, Satyam has been excluded from this year’s list, as a result of the recent accounting fraud.

With inputs from Govind Maheshwari, neoIT and Namita Goel, Global Services

©Global Services

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