Shared Services India 2011

India Shared Services opportunity
Nov 2011
This report is solely for the use of Zinnov client and Zinnov personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from Zinnov.
IT, BPO, KPO delivered from a Global center are typically shared by business units across the organization & hence the name Shared Service Center
Shared Services Center

Shared Service Center: Definition Shared services involves bringing together a set of back office or front office services common to multiple business units within a single organization or across a number of organizations. These services tend to share relatively standard end to end processes and associated enabling technology. The relevant parts of these are placed into a single delivery structure that is customer focused and performance managed. Services suitable for sharing can be characterized as: Transactional process driven Common processes that can be standardized High Volume Geographically independent Requiring specialist personnel
IT Services
IT Services delivered for the parent Organization
Enabling Process Services

Corporate Processes that are support structures to the main business
Core Business Services

Processes that administer the core business of the company Example: Auto: Complete Vehicle Repurchase administration Dealer Parts Location & Ordering Support Retail: Order Management Returns Management Promotional Planning Banking: Credit card processing Mortgage processing Asset Servicing
Application Development Analytics Infrastructure Management Services Application Support & Maintenance
HRO Finance & Accounting AP AR GL Payroll Reconciliation Sales & Marketing Procurement Vendor Management Marketing / Campaign Management
Source for Shared Service Center: Definition - www.cbi.org.uk

Zinnov Management Consulting Pvt Ltd (Confidential)
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Scope of discussion
India the hottest destination for Shared Services
Innovation is the new India Value Proposition
Increased Global Competition & Challenges for India Centers
Evolution of India Centers
Vertical Specific Insights
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Agenda
India The hot destination for Shared Services
Global Competition & Challenges for India centers
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Forbes Global 2000 is a comprehensive report that analyzes the world's biggest companies and the best performing of these titans
Geographical spread of HQ of Global 2000 Africa 2% Australia 3% Europe 22%
350 300 250 200 150 100 50 0
Top 15 verticals contribute to about 1500 companies
Verticals considered for analysis by Zinnov
Americas 41%
Asia 32% Revenue based distribution of Global 2000

>$100bn 2% $50100bn 4% 50 45 40 35 30 25 20 15 10 5 0
Next 12 verticals contribute to about 500 companies
<$10bn 63%
$1050bn 31%
Source: Forbes Global 2000 report
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Almost all the centers were set up in the last decade when Cost and Talent were the drivers of Globalization in the Shared Services space
Captive Centers Per Geographic Region
160
140 120 100 80 60 40 20 0 India China Rest of South Africa Eastern Ireland Asia America EU + / Wales Russia
Source: Prof: Illan Oshri
Location Criteria
Infrastruct ure Country 6% Governme Risk nt Policy 3% 7%
146
80 52 52
Unknown 37%
Cost 18% Talent 29%
11
Source: Zinnov Research, Prof: Illan Oshri
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BFSI segment accounts for about 30% of the centers; Bangalore is the leading location
Vertical wise spread of Global 2000 firms with India center
35 30 25 20 15 10 5 Europe 35% N. America 54% N. America Europe Asia Australia Africa Asia 9% Australia Africa 1% 1%
HQ wise distribution of companies with India presence
Location spread of MNC Subsidiaries in India

NCR 20% Others 6% Bangalore 31%
Distribution of Services offered from India center

IT Services 35%
Chennai 10%
45%
Business / Knowledge Services Others
Hyderabad 9%
Mumbai/Pun 20% e 24% Source: Zinnov Analysis of Forbes Global 2000 companies, Secondary Research
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Agenda
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Lot needs to be done to sustain the India value proposition as emerging offshore service locations are fast catching up on cost & talent arbitrage
Newly established captive centers per period per region
25 20
The rise in establishment of new captive centers in Eastern EU is primarily due to the accession of 12 countries into the EU (10 in 2004 and 2 more (Bulgaria and Romania) in 2007 Some locations present unique opportunities with specialist talent Example: Hungary has the largest talent pool for procurement management skills, Sri Lanka has the most number of UK certified accounting professionals etc,. Energy majors like Chevron and Shell and Logistics majors like DHL have significant presence in Malaysia because of availability of specialist talent between Malaysia and Singapore Countries like Morocco, Tunisia, and other Latin American countries leverage on their European language skills to attract shared service centers Most of the competing offshore destinations offer 10 year tax exemptions on IT/ITeS exports and labor costs are near the same as an Indian destination
20
17
15 12 10 10 6 5 4 6 9 5 5 6 44 4 7 6
18
18
India China 8 6 Rest of Asia Eastern EU+Russia

Source: Outsourcing Strategies Evolving Captive Center models
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This phenomenal growth and transformation that India centers have undergone over the last decade has resulted in a new set of challenges
India center Challenges Year 2000 - 2010 India center Challenges Year 2010 and Forward Aspiration Management Lack of integrated career paths Inadequate domain experience Lack of value / maturity assessment capabilities Poor knowledge management Lack of vendor management experience Inadequate engagement models to align closely with the business Lack of clarity in the vision for the center In sufficient span of control to make strategic investments Lack of support structures for innovation
Productivity & Utilization Cost Escalation Attrition Competition from Service Providers
Building a Business Case for Globalization
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Agenda
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India centers will continue to adapt to changing business demands by adopting various business models
Offshored Function 1
Outsource to Local Vendor
Basic Model (Completely In-house)
Hybrid Model TESCO (In-house + Outsource)

Build strong capability in a given function and start servicing external clients
Client 1 Client 2 Offshored Function 3 Offshored Function 4 Client 3
Shared Model BOSCH (In-house + Service other clients)

Source: Zinnov Analysis and Secondary Research
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With increased maturity & capability in service delivery, India centers are better placed to support the parent companys globalization efforts
Globalization Adoption Curve* Across Functions
Application Development & Maintenance
Technical Support/ Customer Support
Infrastructure Management Services
Engineering Services/ Software Product Development
Globalization Rate
Finance & Accounting Sales & Knowledge Marketing Based Services Procurement & Logistics Human Resource
Professional Services IT Consulting, System Infrastructure
Year 2000 Year 2011
Emerging
Rapidly Growing Maturity
Mature
Note: *Directional Only Source: Zinnov Analysis of the interviews from Country Managers of 40 captives across different domains in India; Secondary Research Zinnov Management Consulting Pvt Ltd (Confidential)
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Agenda
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Banking, Financial Services and Insurance segment has utilized India centers the most, with 20 large corporations having back office operations
Revenue wise split of Financial Institutions that have India center
20 18 16 14 12 10 2 5 <$10bn <$10bn $10-50bn $50-100bn
Revenue wise distribution of Global 2000 Banking and Financial Services companies & how they have leveraged India Shared Services Opportunity
+
Growth Opportunity India Shared Services presence Growth Opportunity Total
$10-50bn
$50-100bn
8
6 4 2 0 5
>$100bn >$100bn 0 20 40 60 80
100
Source: Zinnov Analysis of Forbes Global 2000 report and Secondary Research
Source: Zinnov Analysis of Forbes Global 2000 report and Secondary Research Chennai Hyderabad Bangalore Mumbai / Pune
Notes:
The financial institutions cover both Banks (13) and Diversified Financial services firms(7)
There is a huge opportunity, with the trend of Banks making $50-100bn USD revenues, planning to set up India centers to increase their processing capacity & improve operational efficiency
The spurt in derivatives and mortgage business in the US, triggered the set up of India centers for increased throughput processing. Over the last year, these financial captive centers are evolving Bangalore continues to be a preferred ITO destination of most of these financial services institutions. Pune/Mumbai and NCR lead the pack on BPO / KPO front
NCR
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7 out of the Top 20 Insurance majors have Shared Services Operations in India
HQ of the Insurance Majors with India Service Centers
1 $10-50bn
Revenue wise distribution of Insurance companies in Global 2000 & how they have leveraged India Shared Services Opportunity
2
5 $50-100bn
Growth Opportunity India Shared Service presence
Growth Opportunity
Europe US Canada
Total
>$100bn
0 Source: Zinnov Analysis of Forbes Global 2000 report and Secondary Research
10
20
30
40
Notes:
Contrary to the overall trend of North American companies leveraging India Services capabilities, in the Insurance segment, European majors are way ahead of the pack NCR There are about 64 Insurance companies with Sub $10 bn revenue. They do not have India presence Most of the U.S Insurance companies still do not have a captive center Aviva and AON had India service centers in Bangalore which were later acquired by WNS and Hewitt Mumbai Bangalore
Trivadrum
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Drugs, Healthcare & Bio-tech vertical has seen a spurt in IT/ITeS sourcing, with 7 MNCs setting up their Indian subsidiaries since 2005
12 10 # of companies 8 6 4 2 0 1995
Typical Services delivered from India center

IT (ADM / ASM / Infra) Clinical Trials Drug development (R&D) Clinical Data Management (ITeS) Business process support F&A Literature Search Regulatory Submissions Analytics
1997
1999
2001
2003
2005
2007
2009
Notes:
Clinical trials and drug development are the core focus areas of 3 (Amgen, of the firms. China is the clear leader in Clinical Trials segment
Patent / IP regulation in India is a cause of concern for most of these companies and hence the are hesitant to set up India R&D centers. So, this particular segment cannot avail the trend of MNC subsidiaries setting up R&D / Engineering services and then leveraging the IT / ITeS capabilities
Hyderabad Chennai Others
NCR
Bangalore
However companies like Pfizer, Novozymes, Novartis, Merck still source significant IT / ITeS services from India
UHG & Cardinal Health (Operating under CareFusion brand) are couple of large Healthcare service providers that have India centers delivering IT and BPO services to their parent businesses
Mumbai/Pu ne
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6 Auto majors have set up India service center since 2003. Denso will soon establish a technical center in India
Coming soon
Chennai is the leading location for Automotive shared service centers
NCR Chennai Bangalore
Notes:
Typical Services delivered from India center

Financial Services (F&A) processes Dealer Management IT Management Transactional processing e.g. Ford Credit Market Research Global Warranty fulfillment management Marketing support Customer Relationship Management
Growing domestic demand has resulted in many new auto companies entering the India market As the domestic business of the auto companies grows, the need for servicing India business and customers will also grow. This could trigger a move for Globalizing their service operations via the India center Volvo IT, Daimler, Renault Nissan, Ford, Yamaha Motors all have shared services operations that cater to the IT / ITeS needs of their parent organizations
Introduction of Formula 1 in India will fuel the growth of automotive segment in India Continental already has a Engineering center in India, this could potentially be followed by Goodyear, Bridgestone, Michelin,
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Aerospace and Energy/Oil & Gas are two segments to watch out for, since there has been a significant focus in India business operations lately
Shell Business Services delivers following processes to support their Global Finance Operations
Order to Cash Purchase to Pay Record to Report MIS Manual of Authority BI & Strategy Analysis Control & Compliance GSAP Continuous Improvement & Service Delivery
Source: Company Website and Secondary Research
Notes:
Since the Indian Defense Offset Policy of 2007, Aerospace companies have made significant investments in Engineering captive centers, which could potentially become Shared Service centers NCR region has 6 centers for Aerospace & Defense Engineering Services Shell is the pioneer in leveraging ITeS services in the Energy & Oil/Gas segment United Technologies (has an India delivery center) & is a typical example of a Shared Service center that caters to 7 business houses, through one centralized service center for technology
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Agenda
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Moving on from the head start given by cost and labor arbitrage, Innovation will be the key to demonstrating India value proposition
The Next Growth Wave for India centers INCEPTION CURRENT STATE
Competency Creation Innovation from India Centers
Paradigm Shift
Ease of Knowledge Transfer Business Continuity Risk
Maturity Levels Increasing Maturity

Transformation Hub Capability Unit Delivery Center Operations Center
Direct Cost Savings
Innovation Capability
Management Overheads
Employee Productivity
None
Low
Medium
High
Very High
Favorable
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4 brick and mortar retailers have re-fit their India centers to build and grow innovation or new business initiatives instead of commoditized services
Set up 2004 .com business set up in 2009
Outsources traditional IT Set up Walmart e-commerce division in late 2009
Set up in 2005 .com and e/m-commerce teams set up in early 2010
Set up in 2009 .com product development focus 2011 Employee Strength: Ramp up plans to about 400 (Techology)
Employee Strength: ~900 (Technology & Operations)
Employee Strength: 45 (Technology)
Employee Strength: ~250: (Technology & Operations)
Innovation Structure: Yes Innovation Infrastructure: Retail Test Labs Engineering (Online & Mobile), Marketing, Search & Social Media, Operations Development, Finance, Publishing
NA
Innovation Structure: Yes, Focus on Smart Design Engineering (Online), Content Management, Online-brand Management, Marketing, Search & Social Media, Merchandise Planning
Innovation Infrastructure: Proof of Concept Labs
Engineering (Online)
Engineering (Online & Mobile)
CEO visit - 2011
VP Engineering hired in Dec 2011
CIO visit 2011
CIO visit 2011
Source: Media, Secondary Research

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With increase in sourcing of high end capabilities from captive centers, the India centers will be required to deliver business transformation projects
Finance Processes
HR Processes
Procurement Processes
Financial Planning/ Modeling / Analysis Governance, Risk & Compliance Management Strategy and Governance Learning & Development and Performance Management Recruiting and Staffing
Source to Pay Strategy
Spend Data Management
Value Growth
Treasury & Tax
Strategic Sourcing
Closing & Reporting
Vendor Management
General Accounting
Benefits Administration
Demand Management
Finance Operations
Payroll Management
Workforce Administration and Leave Management
Procure to Pay Procurement Systems Management
MIS
Sample set of processes and growth in value of services delivered from India center
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Knowledge Services offers higher intellectual arbitrage and large MNCs will look set up specific practices and build new capability
Domain Company Target Insights Have dedicated business analytics teams Global head of analytics of Target operates out of Bangalore Center. TIME magazine has set up a specialized division in India to source only analytics capability Patent Network Team Intellectual Property Research for GE Corporate Dell Global Analytics has a team operating out of Bangalore with strong plans for growth
Distribution of Services Lines

Business Research Data Management Data Analytics Market Research Legal Research Others
Retail
1%
12% 17% 19% 7% 44%
Media
TIME
Conglomerate
GE - JFWTC
Electronics
Dell
Source: NASSCOM, Zinnov Research
Source: Zinnov Research
Drivers of Knowledge Services Sourcing

Knowledge Economy Improved Time to Market Need for Business Analytics Access to specialized skills
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Introduction of disruptive technologies and focus on emerging markets will be the pivotal drivers for the next wave of growth of shared service centers
Business Drivers to set up Shared Services Centers
Technology Disruption Online Operations Enterprise Mobility Big Data
India Value Proposition

Installed Specialist Talent Pool for Business services Availability of talent & R&D eco-system to deliver cutting edge software products
Banking & Financial Services
Insurance
U.S Insurance majors having to cope with the recently passed HealthCare reforms
Cost and Talent arbitrage
Retail
Changing Business Models Online Operations Big Data
Increasing Digital Startups in the e/m commerce space and hence increased opportunity for tech and business process innovation
Automotive
Market & Capacity Expansion
Innovation capability (New product Development, Engineering Services and Knowledge of Services provisioning for emerging markets) | 25
It is a great exaggeration when analysts talk about death of captive centers, instead we see that captives have evolved & adapted well
160 140 120 100 Outsourced operations Captive Operations
100% 90% 80% 70% 60% 50% 40% 30% 20% No Change to Captive Strategy
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Captive Centers Captive Centers 9% 6% 11% 13% 61% Wholly owned Terminated Divested Shared Hybrid
80
60 40 20 0 Large Global Corporations
Changed their Captive Strategy
10% 0%
Source: Prof. Ilan Oshris assessment of 80 captive centers of large global companies (in India)
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Key Takeaways
India: Most preferred destination Global Competition & Challenges for India centers
Sheer number of Global 500 firms having India service centers re-affirms the proposition of captive centers as a viable sourcing strategy. With about 115 MNCs having set up their own centers,India continues to be the hottest offshore destination There is an increased competition from other Global locations and cost and talent arbitrage are not sufficient conditions for location choice anymore Innovation and value addition are emerging as the new India Value Proposition and many companies have recognized this trend IT services is the first port of call for some of the newer captives, and they have subsequently gone on to expand the range of services they source from India. These centers have grown in maturity and capability and have adapted well with innovative business and delivery models Banking/Financial Services & Insurance are the most mature segments with most of the industry leaders leveraging India for their Shared Services needs Retail and Healthcare (Drugs/Bio-Tech/Pharma) are the emerging verticals, as far as the shared services opportunities are concerned. Both these segments have significant technology and increased processing throughput needs to expand their business operations Many Shared Service Centers support scaled operations, drive innovation, have reached the critical mass and, are a huge success delivering optimal value to the parent Many India centers have taken Global Leadership roles through increased focus on innovation and value creation There have been innumerable literature about how unviable the captive centers are and some even predicted the death of captive centers. But the captive center segment has evolved and adapted well and continue to grow

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A typical Combined Services Center has significant upsides and can help drive better operational efficiencies
Captive centers can leverage economies of scale and hence deliver more for every $ spent on services provisioning End-to-End process ownership provides for an integrated global career path and hence helps in improving retention rates at India centers Build true Centers of Excellence and hence deliver better efficiencies to the parent Provides the center with a clear vision and hence enables the site leadership to make strategic investments
Helps create and operationalize a sustained innovation agenda
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List of Global 2000 companies that source Shared Services capability through their India center
Insurance: (9)
AXA Group Allianz Cornhill MetLife Prudential Financial Swiss Re Group Sun Life Financial Fortis Willis Group Holdings Fidelity National Financial
Banking & Finance: (22)

Bank of America JPMorgan Chase HSBC BNP Paribas Wells Fargo Royal Bank of Scotland Barclays Deutsche Bank Socit Gnrale Goldman Sachs Credit Suisse UBS Morgan Stanley ANZ Banking American Express Bank of New York Mellon Nomura Franklin Templeton Fidelity The Northern Trust World Bank Lloyds Bank
Retail: (6)
TESCO Target Wal-mart Amazon E-Bay Sears Metro
Healthcare: (8)
Cerner UHG TriZetto Pfizer Novartis Novozymes Johnson & Johnson Merck
Automotive: (7)
Toyota Motor Ford Motor Daimler Volvo Group Renault*Nissan Yamaha BPO Continental
Industrial: (16)
SIEMENS Royal Philips Electronics ABB Honeywell International 3M Schneider Electric Emerson Electric John Deere Ingersoll-Rand Eaton Vestas Wind Systems SKF Group Flowserve Rockwell Automation United Technologies Dupont
Hi-Tech / Telecom: (19)

AT&T Avaya Hewlett-Packard Verizon Communications Microsoft Dell Cisco Systems Intel BT Group Arrow Electronics EMC Qwest Communications Applied Materials CA NetApp Adobe Systems Amdocs Vmware Citrix Systems
Others: (2)
Shell Business Services Maersk
Non-Exhaustive
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India Shared Services opportunity

Shared Services Center

Enabling Process Services

Core Business Services

Source for Shared Service Center: Definition - www.cbi.org.uk

India the hottest destination for Shared Services

Innovation is the new India Value Proposition

Increased Global Competition & Challenges for India Centers

Evolution of India Centers

Vertical Specific Insights

Zinnov Management Consulting Pvt Ltd (Confidential)

India The hot destination for Shared Services

Global Competition & Challenges for India centers

Evolution of India Centers

Vertical Specific Insights

Innovation is the new India Value Proposition

Zinnov Management Consulting Pvt Ltd (Confidential)

Top 15 verticals contribute to about 1500 companies

Verticals considered for analysis by Zinnov

Asia 32% Revenue based distribution of Global 2000

Next 12 verticals contribute to about 500 companies

Source: Forbes Global 2000 report

Cost 18% Talent 29%

Source: Zinnov Research, Prof: Illan Oshri

Zinnov Management Consulting Pvt Ltd (Confidential)

HQ wise distribution of companies with India presence

Location spread of MNC Subsidiaries in India

Distribution of Services offered from India center

Business / Knowledge Services Others

India The hot destination for Shared Services

Global Competition & Challenges for India centers

Evolution of India Centers

Vertical Specific Insights

Innovation is the new India Value Proposition

Zinnov Management Consulting Pvt Ltd (Confidential)

India China 8 6 Rest of Asia Eastern EU+Russia

Source: Outsourcing Strategies Evolving Captive Center models

Zinnov Management Consulting Pvt Ltd (Confidential)

Building a Business Case for Globalization

India The hot destination for Shared Services

Global Competition & Challenges for India centers

Evolution of India Centers

Vertical Specific Insights

Innovation is the new India Value Proposition

Zinnov Management Consulting Pvt Ltd (Confidential)

Outsource to Local Vendor

Basic Model (Completely In-house)

Hybrid Model TESCO (In-house + Outsource)

Shared Model BOSCH (In-house + Service other clients)

Technical Support/ Customer Support

Infrastructure Management Services

Engineering Services/ Software Product Development

Professional Services IT Consulting, System Infrastructure

Year 2000 Year 2011

Rapidly Growing Maturity

India The hot destination for Shared Services

Global Competition & Challenges for India centers

Evolution of India Centers

Vertical Specific Insights

Innovation is the new India Value Proposition

Zinnov Management Consulting Pvt Ltd (Confidential)

Zinnov Management Consulting Pvt Ltd (Confidential)

Growth Opportunity India Shared Service presence

Zinnov Management Consulting Pvt Ltd (Confidential)