A Global Sourcing Primer for EDAs & Government Agencies

Transcription

1 A Global Sourcing Primer for EDAs & Government Agencies September 10,

2 Why Should You Care? IT Services FTE Rural Areas FTE Tier 2 Cities Masters Education Undergraduate Degrees Technical Trade BPO Services FTE Rural Areas FTE Tier 2 Cities Undergraduate Degrees High School Diploma Good Job Creation 2

3 Agenda Outsourcing Industry 101 What is Domestic Sourcing? Why Now? Site Selection Key Takeaways for EDAs 3

4 Outsourcing Definitions Global Sourcing used to refer to trend of sending services overseas regardless of location offshore or nearshore (currently preferred term over offshoring) Offshoring When a US firm outsources services to locations such as India, China, Malaysia or Russia Nearshoring When a firm outsources services to a country near home such as Canada or Mexico Domestic Sourcing - Outsourcing services to a domestic or global provider where the work is taking place in the United States 4

5 What is Being Outsourced? Information Technology (IT) Business Process Outsourcing (BPO) Application Development Application Support & Maintenance Infrastructure Management R&D Software Product Development Engineering Services Tech Support Human Resources Finance and Accounting Back Office Administration Payment Processing CRM Industry Specific Functions 5

6 Cost Reduction was the Major Driver Offshore Driver DOMINANT REASONS Lower costs Direct labor 75% - 90% savings Total project savings 20%- 50% Relieve internal resource constraints Access to variable resources Response to competitive pressure Achieve 24 x 7 operation and reduce cycle times SECONDARY REASONS Focus on competencies Improve service levels Enhance internal IT and business processes Gain access to offshore markets 6

7 Agenda Outsourcing Industry 101 What is Domestic Sourcing? Why Now? Site Selection Key Takeaways for EDAs 7

8 What is Domestic Sourcing? RURALSOURCING ONSHORING INSHORING HOMESHORING FARMSHORING RURALSHORING HOMESOURCING Outsourcing (or Insourcing) to lower cost metropolitan or rural areas that can provide significant benefits over Tier 1 metropolitan cities or offshoring. 8

9 Is It Really New? Yes, somewhat Prior to global sourcing or offshoring, companies outsourced primarily for skills, capabilities & risk reduction When global sourcing took off, domestic outsourcing companies employed one of the following strategies: Developed an offshore option for their clients Focused on niche high end skills or onsite required staff augmentation Focused on regulated industries that put barriers to offshoring 9

10 Traditional Drivers for Domestic Sourcing Negatives of Offshoring Dissatisfaction Quality & Productivity Communication & Cultural issues Rising Costs Offshore Wage Rates Real Estate & Infrastructure Exchange Rate Fluctuation Particularly deflation of the US Dollar against many Asian currencies Economic Downturns 2001/2002.COM Bust 1st major wave of knowledge jobs leaving the U.S Election capitalized on fear 2009 Recession More real fear More proactive/positive approach 10

11 Today s Drivers for Domestic Sourcing General Economic Environment Economic Downturns High Unemployment Wage Deflation Concern over fundamental shifts in American competitiveness Domestic Sourcing Drivers Fewer & smaller projects Reduced travel Reduced investment Changing Business Dynamics Reduced product life cycles, tighter turnaround times Focus on cost reduction New IT options (cloud, SAAS, freeware) New Risks 11

12 More than labor arbitrage. Direct Costs Domestic Sourcing can for Generate Cost Savings Labor Arbitrage Pyramid Model / Specialization Real Estate Increase Onsite/Offsite Ratio Productivity Shared Resources Cost Avoidance True Agile Teams Quality Faster 12

13 Other Benefits to be Reaped Ease of Doing Business Cultural and Language Affinity Geographic Proximity Time Zone Advantage Less Risk Regulatory/ Compliance Legal Political Vendor PR Speed to Market Business to IT Alignment Proximity, leading to better feedback loops Understanding of U.S. Business requirements, etc. Business Development Opportunities Government contracts Businesses looking for domestic options 13

14 Domestic Sourcing Strategy 15%-30% Cost Savings to Tier 1 Cost Savings IT Rural, Tier BPO Rural, Tier 2 Scale Role within Global Strategy Scope of Services Specialized IT, Speed to Market, High Degree Interaction, Agile BPO: Cultural Context, Regulated/Sensitive Industry, Transactional vs. Judgement based Mix of Services (IT, Call Center, Business Process) Mid-level to Senior IT Talent Complimentary capacity for nearshore/offshore Engagements with high % of onsite requirements Short engagements/ quick turnaround 14

15 Agenda Outsourcing Industry 101 What is Domestic Sourcing? Why Now? Site Selection Key Takeaways for EDAs 15

16 LCD Location Selection Criteria 40% Cost of Doing Business 15% Business & Political Environment LCD Location Selection Criteria 35% Workforce 10% Quality of Life Future Revenue Potential 16

17 Cost of Doing Business Labor Rates* Real Estate Costs* Infrastructure Costs* State & Local Taxes* Economic Incentives* Airport Access* State Debt Federal Funding Support 40% Cost of Doing Business 15% Business & Political Environment LCD Location Selection Criteria Future Revenue Potential 35% Workforce 10% Quality of Life 17

18 Workforce Nearby Colleges & Universities* Stability of Future Workforce* Skill Sets of Knowledge Workforce* Net Migration Potential Population/Scale Current Resource Availability Labor Supply Competition 40% Cost of Doing Business 15% Business & Political Environment LCD Location Selection Criteria Future Revenue Potential 35% Workforce 10% Quality of Life 18

19 Business & Political Environment Business/Government/College Consortium* Political Support* Labor Laws Technology & Vendor Ecosystem 40% Cost of Doing Business 15% Business & Political Environment LCD Location Selection Criteria 35% Workforce 10% Quality of Life Future Revenue Potential 19

20 Quality of Life Cost of Living* Housing Commute Crime Rates K-12 Schools Climate & Geography Arts & Recreation 40% Cost of Doing Business 15% Business & Political Environment LCD Location Selection Criteria Future Revenue Potential 35% Workforce 10% Quality of Life 20

21 Challenges of Domestic Sourcing Tier 1/2 Locations Workforce retention Sustainability and fluctuation of cost savings (labor, real estate, etc.) Tier 3/4 Locations Scalability especially IT Breadth of skill sets especially IT Lack of business ecosystem Availability of appropriate real estate 21

22 North Texas Example Typical Population in Main Cities Typical Skill sets Available Typical Size Limits for an Outsourcing Firm Communities Like Grayson 50,000 or more 25,000 or Less Mostly Low- to Mid-Level, Some High-Level BPO/Call Center: Up to Maximum of 300 Employees IT: Employees (dependent on educational requirements) Communities Like Fannin Mostly Low-Level, Some Mid-Level BPO/Call Center: Up to maximum of 100 Employees Typical Outsourcing Activities All levels for Call Centers and BPO, Low-Level ITO Call Centers, Low Level BPO Main Challenges Workforce Availability Workforce Retention Marketing Workforce Skill Set Workforce Availability Marketing Real Estate Availability Business Ecosystem 22

23 Agenda Outsourcing Industry 101 What is Domestic Sourcing? Why Now? Site Selection Key Takeaways for EDAs 23

24 Key Takeaways - EDA 1. Ensure close relationship b/w education, business and government agencies 2. Add labor related incentives to real estate incentives that you have (training dollars & job creation hiring) 3. Availability of real estate will be key in final decision 4. Workforce development agencies should focus on assisting with hiring & have ability to develop customized training courses 5. Think through revenue generation opportunities for companies coming in as extra value add 6. Appoint one liaison to coordinate with companies and other agencies 24

25 Amrita Tahiliani Joshi CEO Ahilia Inc mobile 2012 Ahilia, Inc. All Rights Reserved 25

26 Thank you! 26