Agenda n Outsourcing clip of the week Outsourcing clip of the week n Looking at country attractiveness n Maturity models n China v. India n Break n Models of GITS (Cognizant case) n Tom Friedman video: The Other Side of Outsourcing (time permitting)

IT Outsourcing Industry Maturation Model Stage 1: Initial GrowthStage 2: Shake OutStage 3: Stabilization Number of firms growing rapidly Relatively small companies Fragmentation Number of firms drops significantly Some consolidation Number of firms stabilizes Bigger players Time Number of firms

IT Outsourcing Industry China Stage 1: Initial Growth Many new entrants Majority of companies do not focus on offshore IT services Concentration ratio still small Rankings keep changing

Evaluating the Attractiveness of Offshore Destinations Choice of an offshore destination country Facilitating factors Driving forces Restraining forces Adapted from Lewin (1951) : A Force Field analysis

China as an Offshore IT Destination China Facilitating factors English; IT Skills; Western business practices IP protection; branding; Large domestic market; industry fragmentation Adapted from Lewin (1951) : A Force Field analysis Cost; desirable footprint; Infrastructure; government incentives; human capital government incentives;

India as an Offshore IT Destination India Facilitating factors IP protection (?); wage inflation; turnovers Adapted from Lewin (1951) : A Force Field analysis Cost; desirable footprint; brand; expertise English ; IT Skills; Human capital; vendor ecosystem; younger population; innovation Infrastructure; political stability

2015: A Final Tally FactorChinaIndia Compensation IT Infrastructure Taxes and regulation Travel Management quality Business Process experience Education quality English Attrition rates Western business practices Political Stability Intellectual Property Vendor Quality

Determining Country Attractiveness 8

Country Attractiveness n Costs n Availability of desired skills n Host Country Environment n Infrastructure n Risk Profile n Market potential 9 Source: Farell 2006)

Costs n Labor n Infrastructure n Corporate taxes n Others? 10

Availability of Desired Skills n Size of skill pool – Technical – Management – Language n Vendor ecosystem – Delivery competency – Transformation competency – Relational competency 11

Host Country Environment n Government support n Business environment n Living environment n Accessibility 12

Infrastructure n Telecommunications n Real estate n Transportation n Power 13

Risk Profile n Security risks n Disruptive events n Regulatory risks n Economic risks n Intellectual Property risk 14

Market potential n Local Market n Adjacent Markets 15

AT Kearney Rankings n Based on three criteria – Financial attractiveness (4.0) – Skills pool (3.0) – Business environment (3.0) n Top 5 – India (7.00) – China (6.56) – Malaysia (6.12) – Thailand (6.02) – Brazil (5.89) 16

n September 2006 in Xiamen, Fujian province n Policy announcement – 1000 mid-large offshore outsourcing enterprises of international quality – 100 “world famous multinationals” transfer services to China – 10 – 10 service outsourcing base cities n $1 billion in government support 17

Where in China? Back

MBA560: Global IT Sourcing Models, Forms, and Reasons

Global IT Sourcing Models n Models of sourcing n What can be outsourced? n What should be outsourced? n What factors should influence decision?

Forms n Domestic Outsourcing – Third party – Same country n Offshore outsourcing – Third party – Different country n Domestic insourcing – Wholly owned business unit – Same country n Captive Model – Wholly owned subsidiary unit – Different country

What should be outsourced? n Strategic value of activity n Scale of outsourcing – Cost of setup/search – Complexity and size n Type of Technology used – Rapidly changing? n Headcount fluctuations

Common mistakes (Aron and Singh, 2005) n Tend to look at countries rather than processes – Core v. critical v. commodity n Should but do not consider all the risks n Not all or nothing

BPO and KPO n BPO (business process outsourcing) – Business processes including data entry, call centers – Sometimes called ITES n IT enabled services n KPO (knowledge process outsourcing) – Requires specialized knowledge n R&D; legal services; product development

Location Relationship Structure Onsite Offsite Offsite (same country)Offshore Third Party Vendor JV Wholly Owned Subsidiary Second Generation Outsourcing Models Global Shared Services Model Build-Operate-Transfer Model Global Delivery Model OnsiteOffshore Hybrid Model Multisourcing Model