Brazil Outsourcing SeminarGaining New Customers and Managing Them Well : Brazil Outsourcing Seminar Gaining New Customers and Managing Them Well David L. Ross July 7th, 2005


Introduction: Introduction David L. Ross – Partner Consultant Email: dross@itesa.com Phone: 312.498.4770 ITESA – IT Enabled Services Alliance Headquarters in New York City Offices in New York, Chicago, Bangalore, Manilla, Hong Kong Global Call Center/BPO/IT Consulting We help clients outsource, build or market their operations onshore, near shore or offshore. We offer strategic planning guidance, provider or site selection services, deal flow analysis, and technology/optimization studies. We partner with clients for greater value and profit. We optimize people productivity & quality using technology enabled solutions and “best practices.” Independent Organizationally Geographically


US IT Outsourcing Market Growth and Trends: US IT Outsourcing Market Growth and Trends Currently IT outsourcing $17 Billion annually – IDC India 7.5B China 1.6B Canada 2.1B Latin America total 135 Million IT outsourcing offshore will be… $50 Billion by 2007 – Gartner $125 Billion 2008 – Global Insight 20% annual compounded growth each year – IDC and reported separately by the Meta Group 8 out of 10 CIOs will have offshored at least a piece of their business by 2015 making up a $136 Billion market – Gartner 80% of multinationals will have offshore presence by the end of 2005 – Global Insight That presence is expected to diversify and involve multi-country strategies to reduce geopolitical and other risks 74% of IT Managers and Directors expect to increase their level of IT outsourcing within the next 12 months - DiamondCluster Aging of the US population and work force will lead to labor shortage by 2010 – US Congressional Budget Office


Top 5 reasons US-based companies are starting global sourcing programs: Top 5 reasons US-based companies are starting global sourcing programs 1) To focus on core competencies 2) To reduce and/or variablize costs 3) To gain expertise that is not currently in house 4) To increase quality, efficiency, and speed of delivery 5) To be able to scale operations effectively Source:  ITESA


What types of work will US-based companies look to send to Brazil?: What types of work will US-based companies look to send to Brazil? Work-types US companies avoid sending offshore: Relationship-oriented work Process where repeatable process map cannot be created Roles with complex industry structure and/or long product learning curves Success criteria are not well defined or measurable Strategic aspect to the business High levels of sensitive intellectual property are shared across wide groups of people


What types of work will US-based companies look to send to Brazil?: What types of work will US-based companies look to send to Brazil? High transaction volume High repeatability Low domain knowledge needed Low mission criticality Few touch points Low complexity Low training efforts Non-strategic Well defined process and metrics Easily transmitted over electronic wires Outcomes can be easily managed Key service opportunities for Brazilian IT firms


How do US-based customers become familiar with services?: How do US-based customers become familiar with services? Personal Relationships Partnerships Web Search Conferences in the USA Advertising Direct Marketing Consulate Contacts Associations


What are the many ways Brazil can be part of global sourcing from the USA?: What are the many ways Brazil can be part of global sourcing from the USA? Legal Structures Build Joint Venture Outsource M&A BOLT Incubate Quantity Single Source Multi-Source Geographical National Nearshore Offshore Rightshore/Multi-shore 64 methods to achieve similar goals!


How are your potential customers conducting site selection activities?: How are your potential customers conducting site selection activities? Gut Feel Pro vs. Con SWOT Analysis Weighted Average


How does Brazil Compare?: How does Brazil Compare? Why and How? Large Labor Pool Good educational system Good IT skills and technical management Good project management and strict following of process and documentation Needs to control the economy and IP protection Cheapest country in the region only China, India, Russia are less costly Best amongst Latin American countries Still not as advanced as India or China AT Kearney CIO Insight


India: India Source:  Strategic Interventions, CIA Factbook, And Executive Planet Government World’s largest democracy New Prime Minister (trade reforms) English common law system Economy Growth rate of 6% annually since 1990 23% services GDP $2,600 British accounting system Advantage in experience Y2K Culture Family business Feelings and faith over facts and evidence Authority and the meaning of “Yes”


India: India Labor Largest English speaking country in the world Multi-lingual support is limited Labor force 472 million 1 million college graduates/year Real Estate 6 mature cities Telecom 30 million main line telephones 3 international major points of contact Inbound 2.9 billion minutes, outbound 800 million minutes Total telco costs 155% of average USA based operation High demand and waiting list for private lines Steady improvement due to public and private investment Technology All major international system integrators World class local technology Competition Intense competition for talent in major cities Job hopping is common Source:  Strategic Interventions, CIA Factbook, And Executive Planet


India Advantages: India Advantages Low cost Native English Early market entrance Governmental software export strategy since 1972 Early adoption to quality standards Strong educational programs Government incentives Technology park development Tax advantages and tax breaks Low import duties


India Disadvantages: India Disadvantages Geo-political risk with Pakistan Electrical Power issues 24 hour travel Time zone Costly Turnover Salaries rising 20% annually for skilled workers Mid-manager staffing difficulties Cultural differences


China: China Source:  C-Solutions, Inc CIA Factbook, and Executive Planet Government Communist since 1948 “A complex amalgam of custom and statute, largely criminal law; rudimentary civil code” Economy Command style economy GDP $5,000 10% in services Growing 8%/year 2nd largest only to USA Culture Sun Tzu, The Art of War Friends first, business later


China: China Real Estate Major cities on the eastern coast Over a dozen with populations over 2m Property ownership issues Labor 778 million labor force Majority Asian languages No significant English penetration Importation of workers to various cities Telecom 500 million fixed line and mobile telephones Heavily regulated with significant variation amongst regions/provinces International fiber-optic links to Japan, South Korea, Russia, and Germany Inconsistent infrastructure in remote areas Technology Dispersed and uncertain technology support Issues of piracy Competition Not heavy competition for labor Government access is limited corruption can be an issue Source:  C-Solutions, Inc CIA Factbook, and Executive Planet


Issues w/ China outsourcing: Issues w/ China outsourcing Focused on Japanese and Asia-Pacific market English Cultural differences and inward thinking Uncertain governmental actions Communist effect on property laws Intellectual property theft is rampant Poor infrastructure Manufacturing focus Poor customer service Need for local representation/local partner Indian offshore companies are having problems with offloading their own work to China


What India and China do well: What India and China do well Certifications ISO, CMM (India 48 companies with CMM level 5), PMI, others Government and Associations Trade minister now Prime Minister Nasscom Leverage nationals Projects Financing TIE Diligence


Why would a US company choose Brazil?: Why would a US company choose Brazil? Time Zone Proximity Culture Diversification Labor Entering into Brazil market for products Specific strength of a particular service provider Specific and trusted relationship with a sales delivery team Special deals Tax advantages Lines of credit Local competencies not dealt with by India/China


Areas for Brazil to Improve: Areas for Brazil to Improve Two Quotes "Brazil is a sleeping giant with a tradition of high-quality software" – Computerworld "Brazil has an internal market that is at least half a decade ahead of India," the report's authors wrote. "But in terms of its export sector, it is now where India was probably about a decade ago." - MIT study Focus on exports - National export marketing plan 2001: $8 billion total with only $100 million exports 2004: Between $100-400 million exports Brazillian Agency of Industrial Development goal of $2 billion by 2007 Solve Intellectual property problems Improve English skills Work with universities and improve the profile of working in IT outsourcing for US based companies Reduce brain drain Further develop technology parks and free trade zones Comply with International Standards of quality


Connecting with American Culture: Connecting with American Culture Top things average Americans think of when they think of “Brazil” The beach and “watch your husband” Rio de Janeiro – Copacabana and Girl from Ipanema  Relaxing Carnival – crazy party and samba music  Fun Fuitbol/soccer – Goooooooooolllllll – Soccer Moms and Dads  Champions Racial mixing  admiration and curiosity Street Crime  dangerous Huge country in Latin America  sizeable nation Amazon and rainforest  wild and untamed Top things American Investors think of when they think of Brazil Hyperinflation  financial risk mostly in the past Brazil is growing so fast that Wall Street now counts it in the same league as other strong, emerging markets like Russia, India and China. And some money managers even have a shorthand term for these four economic powers — “BRIC.” - MSNBC Poverty and Street Crime  dangerous and risky Coffee and commodities “It’s like the India of South America”


Key opportunities for Brazilian IT firms : Key opportunities for Brazilian IT firms Specialize and optimize – horizontal and vertical Follow Hot industry and horizontal market areas Lobby for governmental support Demand English fluency of your staff and used at the workplace Adopt International Quality Standards Learn the US Market Leverage multinationals to bring suppliers to Brazil Leverage Brazillian powerhouses to bring foreign suppliers to Brazil More than just software ADM – ERP, BPO, Call Center, etc Improve infrastructure Partnering with Indian firms Pursue firms that are diversifying to reduce risk


Keeping customers by managing them well: Keeping customers by managing them well Add on and cross sales from excellent performance and satisfied customers Dedicated relationship manager to manage expectations and objectives with the client Meet both hard goals of quality metrics and on time on budget but also soft goals of customer satisfaction and contentment Proactively solve problems before they get bigger Anticipate challenges Reward staff for identifying new opportunities within your existing clients – add on sales awards Mirror the client organization Best practices and apply methodologies when appropriate Transcend cultural barriers ( reference English class) – know USA culture Transparency furthers a partnership Be a strategic partner, conduct strategic account workshops – proactively be a part of their growth Offer not only IT services but also expertise and training of their staff Utilize consultants to help you implement best practices Communicate, communicate, communicate


Thank You!: Thank You! David L. Ross dross@itesa.com 312.498.4770