Summary Findings: Corporate Clients Future Plans Study Prof. Arie Y. Lewin Dr. Keren Caspin-Wagner Jeff Russell Zhuo Chen February, 2014
Duke ORN History and Scope Academic Research Informed by and Informing Managerial Practice Duke ORN, established in 2004 at Duke University CIBER, Fuqua School of Business, is the most recognized international research network for global sourcing. Duke ORN is comprised of a global university research partner network that combines academic rigor with a practitioner perspective through research, academic and practitioner publications, and industry focused senior executive roundtables. 2 2
Duke ORN History and Scope ORN Buy-Side Survey (2004-2013) Includes more than 2000 companies that do, do not, or are considering offshoring. Covers all industries (e.g. financial services), all functions, (e.g. IT), all locations (e.g. Latin America), and all delivery models (e.g. captive, hybrid). ORN Service Provider Survey (2007-2013) Includes more than 900 companies that provide global sourcing services. Covers all industries, all functions and all locations. 3
Duke ORN History and Scope Focused Studies and Surveys (2011-2013) Industry- and firm-level comparative studies, organizational sourcing capabilities, organizational future plans. Duke ORN Senior Executive Roundtables Extension of member firms research capabilities. Facilitation of open discussions with peer member executive panels that actively address critical industry challenges. In-person meetings three times per year and conference calls to share best practices and lessons learned. Focused studies on emerging topics. 4
Corporate Clients Future Plans Study 5
Survey Purpose and Design Purpose Provide timely, actionable insight into the global sourcing future plans 18-36 months out of companies. Includes breadth and scope of services outsourced, as well as locations. Structure Designed to be focused and time efficient. Sample 72 companies completed the survey. 45 companies are currently offshoring, 7 considering offshoring, and 20 not offshoring and not considering. The analysis is based on the 45 companies that are currently offshoring. 6
Key Findings 67% of companies plan to expand activities in their providers offshore locations (p.14). 58% plan to expand activities in their captive(s) offshore locations (p.14). 56% plan to add cloud computing solutions (p.14). 53% plan to add new providers (p.14). 31% plan to relocate to another offshore location part or all offshore activities (p.14). 29% plan to relocate back to home country part or all offshore activities (p.14). The most important drivers for relocating back to home country are: Quality (78%), access to talent (67%), domain expertise (56%), customer experience (44%), cost (22%), communication barrier (22%), time zone (11%), political backlash (11%), and cultural issues (11%). (p.21) Tax purposes, risk, and regulatory limitation were not selected as most important drivers for relocating back to home country (p.21). 8% of companies plan to implement new sourcing activities onshore (intentionally instead of offshore) due to domestic political reasons (p.25). 7
Key Findings (Cont.) 24% plan to add a new captive center(s) (p.14). 18% plan to divert out of captive(s) (p.14). 13% plan to transfer part or all outsourced offshore activities to a captive/ wholly owned subsidiary offshore p.14). 11% plan to spin off part or all offshore activities from a captive / wholly owned subsidiary to a third-party service provider (p.14). Companies planned direction vary across functions (p.15-20). 64% of companies already implemented or considering to implement a shared services organization (p.22). Software development and Analytical/ knowledge services will experience the highest growth in new implementations offshore in the next 18-36 months (p.23). The selected governance model (captive/provider) and geographic destination for new implementations vary across functions (p.24). 8
Demographics: Headquarter Location and Company Size Q4. In which country is your company headquarters located? Q6. What is your company s total number of full-time equivalent (FTE) employees? 9
Demographics Primary Industry Sector (n=45) Software 18% Business Services 13% Manufacturing 11% Consumer Goods 9% Insurance 7% Health Care Equipment & Services 7% Drugs & Biotechnology 7% Media & Entertainment 4% Telecommunications Services 4% Banking 4% Diversified Financial 4% Mining 2% Marketing & Sales 2% Utilities 2% Technology Hardware & Equip 2% Other 2% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% Percentage of Companies Other: Electronics Distribution and Value Recovery of electronic equipment Q5. What is your company s primary industry sector? 10
Offshored Functions/Processes by Sourcing Model Q8. Please select the functions or processes that your company is offshoring, by sourcing model(s). 11
Largest and Most Recently Offshored Functions Q8. Please select the 3 largest functions (in terms of executed contracts value, or, number of FTEs), and 3 functions that were offshored most recently. 12
Companies Planned Direction for the Next 18-36 Months 13
Companies Overall Planned Direction for the Next 18-36 Months (n=45) What is your company planned direction for offshored activities in the next 18-36 months? 14
Companies Planned Direction by Function: Software Development (n=26) Relocate most strategic development in-house Relocate product development from India Web development and maintenance,.net and SQL application development Embedded Systems Internal systems software Small project delivery in a prospective captive in Lima, Peru where we have business operations Relocate part of software development and testing from India to Mexico Selected business processes and supporting applications to Philippines internal systems software Q11. What is your company planned direction for Software Development offshored activities in the next 18-36 months? 15
Companies Planned Direction by Function: IT Infrastructure (n=18) data entry/conversion Utility computing and applications remote network monitoring Utility computing and applications Q11. What is your company planned direction for IT Infrastructure offshored activities in the next 18-36 months? 16
Companies Planned Direction by Function: Call Center/Customer Contact (n=14) Order Capture Processing - China and/or Mexico Customer, marketing and financial data analysis IT Help Desk, 1st level support Higher competence in Radio access systems. Madrid, Spain Customer facing Agents for discrete business units IT Help Desk, 1st level support Pre-sale marketing calls Customer, marketing and financial data analysis Q11. What is your company planned direction for Call Center/ Customer Contact offshored activities in the next 18-36 months? 17
Companies Planned Direction by Function: Human Resources (n=10) Hiring and firing employees Training, Buenos Aires (ARG) data mgt and org. mgt activities Q11. What is your company planned direction for Human Resources offshored activities in the next 18-36 months? 18
Companies Planned Direction by Function: Supply Chain and Facilities (n=10) supplier management purchase order process Q11. What is your company planned direction for Supply Chain and Facilities offshored activities in the next 18-36 months? 19
Other Functions: Across all other functions (Marketing and Sales, Analytical and Knowledge, Finance and Accounting, Engineering Services, Legal Services, Product Design, and Research and Development): More than 50% of companies plan to expand the activities in current providers and captive(s) offshore location(s). 30-50% of companies plan to add cloud computing solutions. Q11. What is your company planned direction for offshored activities in the next 18-36 months? 20
Most Important Strategic Drivers for Relocating Activities Back to the Home Country (across functions) Quality 78% Access to talent 67% Domain expertise 56% Customer experience 44% Cost Communication barrier 22% 22% Time zone Political backlash Cultural issues 11% 11% 11% Tax purposes Risk Regulatory limitation 0% 0% 0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Q11.3 Please select your company s 3 most important strategic drivers for relocating activities back to the home country. 21
Plans to Implement a Shared Services Organization (n=42) Q12. Is your company planning to implement a shared corporate Global Business Services Organization to centrally coordinate and support sourcing of business processes? 22
Plans to Offshore New Implementation (n=38) Q13. Does your company plan to launch new implementations offshore in the next 18-36 months? 23
New planned Implementation by Governance Model and Destination* (n=38) N=5 N=8 N=8 Korea Mexico (Mexico City) India, Russia N=8 N=8 N=8 N=10 N=10 N=12 N=9 N=14 N=10 India, Korea India (Bangalore, Gurgaon) India (Chennai), China(Shanghai) India (Chennai, Jaipur), Egypt (Cairo) Philippines (Manila) India (Greater Noida, Bangalore, Gurgaon), Slovakia (Bratislava), Russia (St. Petersburg) * The listed destinations are only for some of the companies. India (Pune, Hyderabad), China (Shanghai), Hungary (Budapest) Q13. Please indicate the governance model and offshore destination of the new implementations offshore that your company plan to launch in the next 18-36 months? 24
Plans to Implement New Sourcing Activities Onshore (intentionally instead of offshore) Due to Domestic Political Reasons (n=38) Q14. Does your company plan to implement new sourcing activities onshore (intentionally instead of offshore) due to domestic political reasons over the next 18-36 months? 25
Key Takeaways 67% of companies plan to expand activities in their providers offshore locations (p.14). 58% plan to expand activities in their captive(s) offshore locations (p.14). 56% plan to add cloud computing solutions (p.14). 53% plan to add new providers (p.14). 31% plan to relocate to another offshore location part or all offshore activities (p.14). 29% plan to relocate back to home country part or all offshore activities (p.14). The most important drivers for relocating back to home country are: Quality (78%), access to talent (67%), domain expertise (56%), customer experience (44%), cost (22%), communication barrier (22%), time zone (11%), political backlash (11%), and cultural issues (11%). (p.21) Tax purposes, risk, and regulatory limitation were not selected as most important drivers for relocating back to home country (p.21). 8% of companies plan to implement new sourcing activities onshore (intentionally instead of offshore) due to domestic political reasons (p.25). 26
Key Takeaways (Cont.) 24% plan to add a new captive center(s) (p.14). 18% plan to divert out of captive(s) (p.14). 13% plan to transfer part or all outsourced offshore activities to a captive/ wholly owned subsidiary offshore p.14). 11% plan to spin off part or all offshore activities from a captive / wholly owned subsidiary to a third-party service provider (p.14). Companies planned direction vary across functions (p.15-20). 64% of companies already implemented or considering to implement a shared services organization (p.22). Software development and Analytical/ knowledge services will experience the highest growth in new implementations offshore in the next 18-36 months (p.23). The selected governance model (captive/provider) and geographic destination for new implementations vary across functions (p.24). 27
Thank You For more information on the Offshoring Research Network: Visit our Website: http://offshoring.fuqua.duke.edu Visit us on Wikipedia: http://en.wikipedia.org/wiki/offshoring_research_network Join our groups on www.linkedin.com and www.xing.com! Contact us: Professor Arie Y. Lewin, Lead Principal Investigator ORN ayl3@duke.edu Jeff Russell, ORN Director of Research Operations jrussell@duke.edu, +1 919 660 4099 Dr. Keren Caspin-Wagner, ORN Senior Research Associate Keren.caspin@duke.edu 28