Effect of Globalization on IT Service Providers in Europe

Effect of Globalization on IT Service Providers in atomic number 63Opportunities and disputes presented by Globalization IT Service winrs in Continental europiumEXECUTIVE SUMMARYEnterprises within Europe are increasingly trying to designk the advantages of world-wide sourcing. Unlike enterprises in U.S. or U.K., continental European countries have historic anyy been reluctant to engage with onshore interpretrs. The reasons were far stretched, ranging from political sensitivity, labor laws, cultural compatibility and actors line requirements. Globalization, however, is creating virgin avenues that European companies can not ignore. A recent report by Gartner shows the strength IT Offshoring tradeplace to be in the range of about $ cc to 240 Billion. The commercialise is evaluate to register double digit growth for grades to come. The current shoreward spend by firms amounts to just $17 Billion worldwide. This intelligibly shows a big gap, a huge marketplace author ity which is yet to be exploited. The huge demand has also led to emergence and growth of some(prenominal) new-made pbeds in the field of IT Outsourcing/ Offshoring dish ups, this is leading to ever increasing competition in the marketplace. In order to cope up with this increased competition and to interpret better run, these help impartrs are increasingly adopting Global legal transfer models. By selecting an advantageous and damage utile pro pct of resources worldwide, Global Delivery Model boosts railway line performance while also lowering make ups. It also helps the supplier deliver requirements that are met on-time, within bud rifle, and with proud prime(prenominal) greater efficiency and responsiveness to their clients. In Europe, nearshore models still dominate the market. But these models are continuously being updated, with to a greater extent(prenominal) and more providers setting up Offshore Development Centers in locations like India. A framework for ra mp uping an optimal conclave of onsite, nearshore, and shoreward rescue capabilities is provided by Capgeminis Rightshore model.A recent Gartner report has suggested that, the current US economical slowdown is birthed to lead buyers of IT operate to con fontr increasing the percentage of their labor in shoreward locations. India all toldow prevail the dominant location for IT offshore services for marriage American and European buyers as a result of its scale, timber of resources and strong presence of topical anaesthetic and traditional service providers.INTRODUCTION EUROPEAN IT MARKETThe European market stay puts a exaltedly complex and competitive market with a monstrous number of providers. Mergers and acquisitions ordain continue just will be balanced by new market entrantsOutsourcing adoption in Europe is increasing for both infrastructure and applications the widespread neediness of well defined sourcing strategies among buyers and the realities of dynami c contrast requirements will generate frequent deal negotiations and renegotiationsGlobal pitch and utility services are irreversible trends evolving at different speeds among various European countries. The European multi country, multi row/culture composition increases the evolutionary complexity of these trendsSelective outsourcing with multiple providers will remain the preferred model of engagement for European buyers. governing body and end-to-end integration/management of different providers/solutions are the most challenging aspects of itITO market maturity varies UK is the most matured IT market in Europe. The separate European markets are maturing at different speeds. An acceleration in ITO adoption is now apparent in countries much(prenominal) as France and Ger numerousA focus on achieving service saving uprightness and the best value/quality balance is increasingly driving European organizations ( in particular those beyond the first generation deal) to con situ ationr selecting multiple providers for an outsourcing contract. For example, in the IT Telecom sector, the most common division is by service tower, with customers opting to choose different providers for their ne iirk, desktop, data center and application competencies. At the moment, however, providers tend to join forces in an opportunistic manner, as a response to customer demands. This is the cause behind the changing composition of the providers teams as a consequence, consolidating best practices to manage IT service whirl offs amongst different providers in an effort to guarantee end-to-end service delivery uprightness remains challenging. As the number of providers engaged is set to increase, this dispute is likely to intensify. It will also be considern by another(prenominal) market characteristics, which involve a persistent tactical use of outsourcing by European customers, insufficient process maturity, and lose of clarity in the definition of roles and responsi bilities.As we look at globular delivery, it is fair to say that there are 2 major misconceptions that still exist among the European market 1) Global delivery is often considered as a synonym of offshore, and 2) IT services delivered through world(a) delivery capabilities are application services. In reality, in the foregone few course of studys, the European market has witnessed a considerable expansion in terms of both geographic location options (in areas such as Eastern Europe or conjugation Africa, for example) and portfolio of services offered (now including, for example, help desk and remote infrastructure management services). Global delivery and offshore, however, remain the bring up deal characteristics that need to be treated with extra care in numerous European geographies, and as a consequence, many deals remain confidential. handed-down providers investment will be directed toward enhancing existing capabilities ( specially near shore in Eastern Europe) and ensuring process solidity. Offshore providers investment on the other side will be centered on creating front-end capabilities with a focus on particular(prenominal) country and vertical-oriented competencies. While these spheric delivery models mature and are thin/ optimized, customers satis incidention will remain a challenge.KEY TRENDS SHAPING IT OUTSOURCING MARKET IN EUROPETRENDSCHARACTERISTICSSelective Outsourcing With Multiple Providers* Embraced by majority of European companies * Objectives IT excellence and cost optimization * Integration and governance challengesGlobal Sourcing and Global Delivery Models* Near shore proximity disclose for European market * Expanding portfolio of outsourcing services * key fruit area of investment for providers and buyersIT Utility* Industrialization is accelerating * Convergence of IT utility and international delivery * learn take aimrs flexibility, efficiency, optimized cost, speedAggressive ESP Competitive Landscape* National, ball-shaped and offshore ESPs converging * Mergers, acquisitions and divestitures to continue * Providers are implementing new carrefourion line models * New offshore market entrantsApplication Outsourcing to Grow* Drivers portfolio rationalization, legacy modernization * Global delivery will gain acceptance * Multitude of providers competingSourceGartnerThe U.K., Netherlands, Sweden and Finland are examples of countries more attracted by the globose delivery model. However, in the meantime, the impact of global competition has started to drive countries such as Germany and France to consider global delivery as a workable option to be considered strategically, rather than when all other options have been exhausted. in spite of a slower gestation and the event that a complete infrastructure utility (IU) offering has not yet been developed, the IU model is continuing to attract new offerings and/or new providers. In the meantime, European customers, attracted by the idea of be ing able to attack IT services in a flexible way, remain guarded as they gestate except clarity on issues such as unit definition, pricing mechanisms, integration to existing systems, and security port competency In the near future, we expect that the IU for ERP platforms will remain the most common battleground for providers other providers are judge to instead mask their IU offering behind a package that implicates intersection point and musical accompaniment services. The concept of software system package as a service (SaaS) or ready-to-use applications will continue to generate lot of interest. Expectations for a solid delivery and detail functionalities will drive providers to specialize their offerings.Finally, gains in terms of process efficiency will be keep in linen as crucial to deliver enhanced competitiveness, flexibility, insouciance and cost optimization.GLOBAL TRENDS IT OUTSOURCING and OFFSHORING MARKETIT Outsourcing market is showing an average growth o f 9% p.a.IT Outsourcing Worldwide forecast (Million $)Source Gartner DataquestIn terms of volume, North America continues to be the leader in IT outsourcing.Latin America and APAC have shown good growthEurope has fast emerged as a big IT outsourcerGlobal offshore expending is continuing to register double digit growth.Worldwide Offshore IT run Spending by Importing Region (million $)Source Gartner Dataquest, cc4 and Worldwide and U.S. Offshore IT service 2006-2010 ForecastIn terms of volume, the North America continues to be the leader in IT offshoring.Once averse to the idea of outsourcing, Europe is now steadily adopting an IT offshore model to boost the economyGlobal offshore spending is projected to increase to 29400 $ Million in 2010The graph on the next page shows the potential market for various types of sourcing options. This distinctly depicts that he IT and Business crop offshoring market has grown at a tremendous rate over the gone 7 year and the market provides a hu ge potential which is yet to be exploited.IT and BPO marketSource Gartner, Dataquest, Aberdeen Group, McKinsey, Evalueserve, Infosys, IDC and Nasscom strategic review 2008Currently we are not hitherto exploiting 10% of the potential market size ( IT services off shoring just at $17 Billion, whereas market potential is about $200-240 Billion *) harmonise to a new research by Gartner, the market is likely to grow elevate after the financial slowdown, as firms will try aggressively to expurgate costs and improve efficiencyDifferent Sourcing ModelsIn-sourcing / Shared Services Sourcing from internal sources or from an affiliated firm in the home economyOnshore Outsourcing Sourcing from a non-affiliated firm in the home economyCaptive Offshoring Sourcing from an affiliated firm located abroadOffshore Outsourcing Sourcing from a non-affiliated firm located abroad component partal DYNAMICS ACROSS EUROPEThe following section will describe the memberal ITO trends and topical anaestheti c dynamics across different European locations.UK and IRELAND2005 17.2B 2010 25.7B 2005-2010 CAGR 8.3%ITO drivers Improve IT quality for end users, speed/flexibility, retrieve to technical skills, cost reduction Inhibitors Loss of control, lack of trust, security/privacy, IP fall upon trends Most mature market in Europe with wider number of mega deals (public sector) Deal sophistication, including government. Increasing interest in new pricing schemes, line of merchandise enhancement and shared services More selective sourcing and global delivery Areas such as Scotland and Ireland feeling twinge of Indian and Eastern European operations Wide potential for application engagements to mature from project engagements into outsourcing base engagements in spite of being the salientst and most mature market in Europe, the U.K. remains also one of the fast-growing ones. Here organizations opinem to have go aside from the equation of outsourcing = cost reduction. While cost remains a key component, other objectives exposem more important, such as improving IT service delivery, gaining limited skills, especially for application outsourcing deals, and becoming a more flexible organization. (See Appendix F) Inhibitions remain related to a general lack of trust in the magnate to join forces with the providers to manage security, control over IT operations and IP.The U.K. market is characterized by a sizable number of mega deals, especially in the public sector. These outsourcing deals often include initiatives that have classically been carried out through project engagements and now are increasingly being performed in the initial phases of an IT outsourcing or BPO deal. This change reflects the growing swear of customers for a tighter link among investment and results (for which the outsourcer is responsible during the duration of the contract) and the important shift in role for the internal IT department. Rather than foc utilize on solicitation and manag ing all of the necessary skills and capabilities to meet a certain objective, IT organizations, in this scenario, are responsible for coordinating the objectives of the Business Unit and the internal and external providers engaged to house them. Often infrastructure outsourcing is at the core of these complex relationships.At the kindred time, the U.K. is also the longst market in terms of adoption of IT services delivered through a network of global delivery capabilities (which include nearshore and offshore locations). From this point of view, areas that used to be considered as low cost for outsourcing operations (Scotland and Ireland) continue to feel the ram of Indian and Eastern European capabilities.Finally, organizations that have engaged for a long period of time in project- found application deals are planning to elevate them into more-strategic, long application management engagements. This will allow them to gain a longer-term commitment from the service provider an d the relevant support to re-evaluate their application portfolio.NORDIC COUNTRIES2005 5.2B 2010 7.6B 2005-2010 CAGR 8.2%Drivers Cost reduction, access to technical skills (especially in application outsourcing engagements), support in global operations, focus on core businessInhibitors Loss of control, security/privacy, lack of trust underlying trends Nordic market generally mature. Many large deals are in second or third generation. Some likely to evolve toward multi sourcing Large corporations see global delivery as a exe enchant byable option. SMBs see nearshore option more favorably Consolidation drives specialization by geography, vertical market or horizontal service Increased competition between domainal and global ESPs Cultural affinity seen as crucial to guarantee deal success/ senior statusEach of the four country markets that compose the Nordic contribution has its own distinct characteristics and buying behaviors in IT services. However, if we look at the forecast g rowth between 2005 and 2010, we expect the region to grow at a similar speed (despite size differences) of about 8%.Denmark Sometimes seen as the entry point for the global service providers to the Nordics. Expected growth is from 856 million in 2005 to 1.2 billion in 2010 (CAGR of 7.8%).Finland Unique in the Nordic region as buyers focus much more on business value of an outsourcing deal rather than just cost. Expected growth is from 1 billion in 2005 to 1.45 billion in 2010 (CAGR of 7.5%)Norway Remains the smallest outsourcing market in the region. Expected growth is from 1.2 billion in 2005 to 1.8 billion in 2010 (CAGR of 8.1%)Sweden Largest market and very cost-competitive. Probably the Nordic country indicateed most by offshore providers currently. Expected growth is from 2 billion in 2005 to 3.1 billion in 2010 (CGR of 8.7%)From a client perspective, the Nordic region market is generally mature, with many large corporations in second- or third-generation outsourcing deals. Gl obal delivery is widely accepted as an option. rivalry between regional providers and global providers is increasing this was initiated by the inability of local providers to support the operations of key Nordic organizations around the globe.However, recent acquisitions and divestitures by both local and international providers prove that the market has still got room for further maturation and consolidation.NETHERLANDS2005 3.4B 20105B 2005-2010 CAGR 8%Drivers Cost reduction above all, legerity/flexibility, improving service to end usersInhibitors Loss of IP and control, security/privacy, high cost signalise trendsMarket shows mixed signs of maturity (organizations accept global delivery) and immaturity (sourcing outline is often neglected)Market split between large global corporations and wide portion of SMBsIncreased competition for local/national championsApplication under scrutiny for externalizationThe market in the Netherlands is one of the more modern IT outsourcing enviro nments in Europe, well-nigh following the U.K. in many trends. A focus on global delivery and the expansion of many deals into the application or business process shape points to more market maturity.This maturity is driven primarily by the relatively high proportion of large (and often transnational) enterprises headquartered in the Netherlands and competing in major markets such as financial services.But there are some contradictory characteristics that point to an immature market (cost slenderizeting is by far the major driver, and sourcing schema is often neglected) this, as a consequence, often inhibits the potential success of outsourcing initiatives.The market remains very challenging and competitive. This is due to the high presence of small and midsize businesses (SMBs), which traditionally tend to consider outsourcing as a threat more than an opportunity and require a higher take of customization, which tests the profitability model of service providers.contention re mains strong for national champions as global and offshore providers continue to posterior opportunities in the country. Increasingly, application outsourcing opportunities are emerging as organizations look at portfolio rationalization, legacy system transformation, and custom application software development initiatives and accessing application utility solutions.FRANCE2005 6.6B 2010 10B CAGR 8.4 %Drivers Cost reduction, refocus internal IT, speed/flexibilityInhibitors Loss of control, lack of trust, security/privacy cay trendsBeyond its reliance on staff augmentation, Frances outsourcing market shows opportunities in all facets of outsourcing infrastructure, applications and BPOSelective outsourcing has gained acceptance, and organizations show cagey interest in global service deliveryNational champions remain under competitive pressure from the global and multinational providersFrance has long been considered behind in the outsourcing trend. Now, however, the French outsourcin g market is consolidating and growing, while the long-standing reliance on staff augmentation is losing strength. The major driver that will support a CAGR of over 8% between 2005 and 2010 is the need for French organizations to scale down cost and enhance their level of competitiveness in the market by re focal point their internal IT skills on more-strategic tasks while gaining flexibility. On the other side, it is interesting to see that challenges related to HR management have lost strength, compared with the traditional fears related to loss of control and security and lack of trust.Large organizations have recently locomote toward the adoption of selective outsourcing with multiple providers. This model has gained acceptance as organizations look at maximizing the balance between cost and service delivery excellence. there is also a new focus on application outsourcing. This trend is important not only because it signals an acceleration in the growth of outsourcing in France overall, scarce because it signals a major change in the way French organizations use different kinds of IT services. Increase in application outsourcing deals also touches on one of the major taboos of IT services in France offshore outsourcing. As such, although offshore remains a word to be used with extra care in the French market, many organizations would consider that access to global delivery models is an appealing part of outsourcing, especially when delivered by traditional players. In this case, North Africa (Morocco, for example) is emerging as a viable near shore location.National champions, the providers that focus on a peculiar(prenominal) region or country, remain under competitive pressure from the global and multinational providers.GERMANY2005 10.6B 2010 16B 2005-2010 CAGR 8.6%Drivers Cost reduction above all, focus on core business, refocus internal ITInhibitors Security/privacy, lack of trust, loss of control report trendsGlobal economic pressures have forced m any organizations to look at outsourcing as a viable optionIn the short term, objectives such as flexibility and agility are secondaryPressure to divest internal IT departments or internal shared service organizations remains strongGlobal delivery gaining ground especially toward Eastern EuropeIntensifying competition between strong German players and global onesLegacy system modernization will remain a key objectiveThe German market is federated in some(prenominal) ways government responsibilities, industrial centers, buying centers within enterprises, and management structures in place. All of this makes doing business in Germany (and negotiating significant IT service deals) unique. Decision processes tend to be longer, require more consensus mannikining and often entail more travel than in other parts of Europe. For a long time, the majority of German organizations have considered IT operations as a key component to maintain or enhance their level of competitiveness in the mar ket. This has, as a consequence, slowed the outsourcing growth. In the past two years, however, economic pressures have forced many organizations to look at outsourcing tactically to cut cost. While in the short term, achieving flexibility is a secondary objective, organizations look at outsourcing as a way to refocus their internal capabilities while foc utilize on their core business. The traditional inhibitors around security, trust and loss of control apply.While non-German external service providers (ESPs) still find it difficult to position themselves in Germany (exceptions are IBM Germany, which established itself early on as a German ESP, and HP, based on its early SAP hosting business and penetration as a technology provider), German providers maintain strong domestic positions and are starting to focus on expanding their international presence (through T-Systems).In the short term, German organizations will still consider selling their own IT capabilities, while global pro viders will see these as viable targets to build capabilities as long as they provide financial support through a semipermanent outsourcing deal.Finally, beyond potential healthy growth for ERP application outsourcing initiatives (especially SAP), as many organizations look at legacy system modernization, it is likely that many projects will evolve and deploy model to include the long-term management of applications.EASTERN EUROPE2005 1.1B 2010 1.6B 2005-2010 CAGR 7.9%Drivers Acquisitions made by large Western European organizations, increased competition, need to revamp obsolete IT environments (leap-frog)Inhibitors Low expertise to manage OS deals, high cost of OS, loss of control come upon trendsSlow internal consumption of outsourcingKey nearshore delivery hub for providers supporting operations of European organizationsLocal Eastern European service providers will remain target for acquisitionsLong-term growth will be supported by increasing competition, acquisitions made by We stern companies and the penetration of Western ESPs in the regionThe region has become a strong global delivery hubRecent admission to the European Union has transformed countries such as Poland, Romania and the Czech Republic into irresistible locations to establish global delivery capabilities designed to deliver IT services to European or global customers. Eastern Europe has been identified as an ideal region to establish a service delivery hub by U.S.-based providers (IBM, Accenture and EDS), European ones(Atos Origin, Capgemini, T-Systems, SIS and ST) and offshore ones (Ness, TCS, Satyam, Infosys and Wipro). When necessary, providers are openly seeking acquisitions to gain scale it is the case for SIS, which acquired ELAS, HT Computers in Slovakia, and Ibis-Sys in Serbia (February 2005). Others, like Austrian-based ST, are pursuing a strategy of becoming the provider of choice in Eastern Europe through a combination of organic development and local acquisitions. ST acquired Co mputacenter Austria to strengthen its product resale capabilities.Although internal consumption of outsourcing has been slow, it is expected to grow rapidly, thanks to increasing competition driven by the fact that private-sector companies and public-sector organizations are now focusing on bringing their systems into line with market standards. This is leading to some leapfrogging effects the IT utility approach, for example, holds significant appeal without posing the aforementioned(prenominal) transition challenges as elsewhere but because these markets are fairly immature, there is still a strong focus on products and product support services rather than more-sophisticated IT service engagements.Italy and Spain are two other major countries with an expected ITO market size of about 5 Billion $ each by the year 2010.GLOBAL DELIVERY MODELGDM is a unique approach to outsourcing and off shoring, which offers the best of both worlds by blending onsite, onshore and offshore resourc es and locations. By using a far-reaching network of onsite, onshore, and offshore resources, GDM aims to cuts across geographies to access the right resources, in the right place, at the right cost.By selecting the most advantageous and cost potent proportion of resources worldwide, Global Delivery Model boosts business performance while also lowering costs. It also helps the supplier deliver requirements that are met on-time, within budget, and with high quality greater efficiency and responsiveness to their clients.In this section we would discuss in detail, the key drivers to a successful GDM.Source Capgemini, 2008KEY DRIVERS OF A successful GDMSTRONG bear onESStrong processes are the backbone of a successful Global Delivery Model. there is a strong need for detailed, documented and time-tested processes for all the activities and interfaces.Strong quality and project management processes ensure delivery excellence.World class processes for knowledge management and sharing r esources encourage improved learning among teams. shapees for managing gift ensure that the projects get the best and most motivated people.Strong processes for interaction and communication within team make it possible for globally distributed groups to interface and gather in an effective manner while delivering excellence on a continuous basis.On the other hand, processes, while strong, should leave ample space for creativeness and flexibility. It is only then that the Global Delivery Model (GDM) can create far more value than the traditional sourcing models. Here is what it will translate intoQuicker, broadloom transitions, and early project ownershipOptimum onsite/ offshore mixes through intelligent allocation of the available resourcesHigh degree of predictability through processes, sharing and reuseA strong relationship approach to ensure continuity and business focusSharing of best practices and tools across the enterpriseDepth and quality of resources, continuously pr oficient and re educate to suit project needsAdherence to SLA based pricing models to ensure good Return on Investment (ROI) and drive customer satisfaction subroutine ARCHITECTURECompanies rely on processes to consistently deliver high quality solutions while executing a number of engagements from multiple locations. gibe to the policies adopted by a leading IT services provider values, vision and policies should form the first level of the three-tiered process architecture. These are then implemented through process accomplishment at the next level. These processes are defined with clear ownership and clear defined roles and responsibilities.Quality System DocumentationQuality System Documentation defines clearly all the processes that should be put into place. These documents provide the engineers and consultations with a vast repository of detailed procedures, templates, standards, guidelines and checklists.The comprehensiveness of these documents supports all tasks from high er-level information abstraction and definition to tasks such as coding and documentation. This is crucial to assure clients with the delivery of high quality and predictable IT solutions that meet their business needs. These documents should also be monitored and updated regularly.Knowledge SharingEmployees are habituated a forum like a website portal, to share knowledge gained from their experience at the organization. It is meant to be a central repository of the knowledge that can be tapped by peers and as sometimes external clients as well. The collection of documents on this portal is reviewed and classified into different areasSoftware development life-cycle activities such as requirements specification, design, build and testing documentation.Software-related topics such as tools and quality documentation.Topics of general or operational interest such as travel or HR policies, etc. cognitive operation AssetsThis is a repository to facilitate sharing and giving out of engage ment learning across the organization. The user has the facility to submit to the repository, retrieve from the repository and sire information on the status of the repository.A process asset can be any information ranging from an engagement, which can be re-used by future engagements. typically these include project plans, configuration management plans, requirements documents, standards, checklists, design documents, test plans, causal analysis reports and utilities used in the engagement, etc. march DatabaseThe Process Database is a software engineering database to study the processes at the organization with respect to productivity and quality. More specifically, its purpose areas are as followsTo aid estimation of effort and project defectsTo get the productivity and quality data on different types of projectsTo aid in creating of a process capability baselineProcess Capability Baseline (PCB)Process Capability baseline is used to specify, what the performance of the process is , i.e. what a project can expect when following the process. This estimation is done based on the past data. The performance factors of the process areEffect of Globalization on IT Service Providers in EuropeEffect of Globalization on IT Service Providers in EuropeOpportunities and challenges presented by Globalization IT Service providers in Continental EuropeEXECUTIVE SUMMARYEnterprises within Europe are increasingly trying to seek the advantages of global sourcing. Unlike enterprises in U.S. or U.K., continental European countries have historically been reluctant to engage with offshore providers. The reasons were far stretched, ranging from political sensitivity, labor laws, cultural compatibility and language requirements. Globalization, however, is creating new avenues that European companies can not ignore. A recent report by Gartner shows the potential IT Offshoring market to be in the range of about $ 200 to 240 Billion. The market is expected to register double digit growt h for years to come. The current offshore spending by firms amounts to just $17 Billion worldwide. This clearly shows a big gap, a huge market potential which is yet to be exploited. The huge demand has also led to emergence and growth of several new players in the field of IT Outsourcing/ Offshoring services, this is leading to ever increasing competition in the marketplace. In order to cope up with this increased competition and to provide better services, these service providers are increasingly adopting Global delivery models. By selecting an advantageous and cost effective proportion of resources worldwide, Global Delivery Model boosts business performance while also lowering costs. It also helps the supplier deliver requirements that are met on-time, within budget, and with high quality greater efficiency and responsiveness to their clients. In Europe, nearshore models still dominate the market. But these models are continuously being updated, with more and more providers sett ing up Offshore Development Centers in locations like India. A framework for building an optimal combination of onsite, nearshore, and offshore delivery capabilities is provided by Capgeminis Rightshore model.A recent Gartner report has suggested that, the current US economic slowdown is expected to lead buyers of IT services to consider increasing the percentage of their labor in offshore locations. India will remain the dominant location for IT offshore services for North American and European buyers as a result of its scale, quality of resources and strong presence of local and traditional service providers.INTRODUCTION EUROPEAN IT MARKETThe European market remains a highly complex and competitive market with a large number of providers. Mergers and acquisitions will continue but will be balanced by new market entrantsOutsourcing adoption in Europe is increasing for both infrastructure and applications the widespread lack of well defined sourcing strategies among buyers and the r ealities of ever-changing business requirements will generate frequent deal negotiations and renegotiationsGlobal delivery and utility services are irreversible trends evolving at different speeds among various European countries. The European multi country, multi language/culture composition increases the evolutionary complexity of these trendsSelective outsourcing with multiple providers will remain the preferred model of engagement for European buyers. cheek and end-to-end integration/management of different providers/solutions are the most challenging aspects of itITO market maturity varies UK is the most matured IT market in Europe. The other European markets are maturing at different speeds. An acceleration in ITO adoption is now apparent in countries such as France and GermanyA focus on achieving service delivery excellence and the best value/quality balance is increasingly driving European organizations (especially those beyond the first generation deal) to consider selecti ng multiple providers for an outsourcing contract. For example, in the IT Telecom sector, the most common division is by service tower, with customers opting to choose different providers for their network, desktop, data center and application competencies. At the moment, however, providers tend to join forces in an opportunistic manner, as a response to customer demands. This is the cause behind the ever-changing composition of the providers teams as a consequence, consolidating best practices to manage IT service tailspin offs between different providers in an effort to guarantee end-to-end service delivery excellence remains challenging. As the number of providers engaged is set to increase, this challenge is likely to intensify. It will also be driven by other market characteristics, which include a persistent tactical use of outsourcing by European customers, insufficient process maturity, and lack of clarity in the definition of roles and responsibilities.As we look at global delivery, it is fair to say that there are two major misconceptions that still exist among the European market 1) Global delivery is often considered as a synonym of offshore, and 2) IT services delivered through global delivery capabilities are application services. In reality, in the past few years, the European market has witnessed a considerable expansion in terms of both geographical location options (in areas such as Eastern Europe or North Africa, for example) and portfolio of services offered (now including, for example, help desk and remote infrastructure management services). Global delivery and offshore, however, remain the key deal characteristics that need to be treated with extra care in many European geographies, and as a consequence, many deals remain confidential. traditionalistic providers investment will be directed toward enhancing existing capabilities (especially near shore in Eastern Europe) and ensuring process solidity. Offshore providers investment on the other side will be centered on creating front-end capabilities with a focus on specific country and vertical-oriented competencies. While these global delivery models mature and are supple/ optimized, customers satisfaction will remain a challenge.KEY TRENDS SHAPING IT OUTSOURCING MARKET IN EUROPETRENDSCHARACTERISTICSSelective Outsourcing With Multiple Providers* Embraced by majority of European companies * Objectives IT excellence and cost optimization * Integration and governance challengesGlobal Sourcing and Global Delivery Models* Near shore proximity key for European market * Expanding portfolio of outsourcing services * Key area of investment for providers and buyersIT Utility* Industrialization is accelerating * Convergence of IT utility and global delivery * Key drivers flexibility, efficiency, optimized cost, speedAggressive ESP Competitive Landscape* National, global and offshore ESPs converging * Mergers, acquisitions and divestitures to continue * Providers are impleme nting new business models * New offshore market entrantsApplication Outsourcing to Grow* Drivers portfolio rationalization, legacy modernization * Global delivery will gain acceptance * Multitude of providers competingSourceGartnerThe U.K., Netherlands, Sweden and Finland are examples of countries more attracted by the global delivery model. However, in the meantime, the impact of global competition has started to drive countries such as Germany and France to consider global delivery as a viable option to be considered strategically, rather than when all other options have been exhausted.Despite a slower gestation and the fact that a complete infrastructure utility (IU) offering has not yet been developed, the IU model is continuing to attract new offerings and/or new providers. In the meantime, European customers, attracted by the idea of being able to access IT services in a flexible way, remain cautious as they expect further clarity on issues such as unit definition, pricing mec hanisms, integration to existing systems, and security portability In the near future, we expect that the IU for ERP platforms will remain the most common battleground for providers other providers are expected to instead mask their IU offering behind a package that includes product and support services. The concept of software as a service (SaaS) or ready-to-use applications will continue to generate lot of interest. Expectations for a solid delivery and specific functionalities will drive providers to specialize their offerings.Finally, gains in terms of process efficiency will be seen as crucial to deliver enhanced competitiveness, flexibility, agility and cost optimization.GLOBAL TRENDS IT OUTSOURCING and OFFSHORING MARKETIT Outsourcing market is showing an average growth of 9% p.a.IT Outsourcing Worldwide forecast (Million $)Source Gartner DataquestIn terms of volume, North America continues to be the leader in IT outsourcing.Latin America and APAC have shown good growthEurope has fast emerged as a big IT outsourcerGlobal offshore spending is continuing to register double digit growth.Worldwide Offshore IT Services Spending by Importing Region (million $)Source Gartner Dataquest, 2004 and Worldwide and U.S. Offshore IT Services 2006-2010 ForecastIn terms of volume, the North America continues to be the leader in IT offshoring.Once averse to the idea of outsourcing, Europe is now steadily adopting an IT offshore model to boost the economyGlobal offshore spending is projected to increase to 29400 $ Million in 2010The graph on the next page shows the potential market for various types of sourcing options. This clearly depicts that he IT and Business Process offshoring market has grown at a tremendous rate over the past 7 year and the market provides a huge potential which is yet to be exploited.IT and BPO marketSource Gartner, Dataquest, Aberdeen Group, McKinsey, Evalueserve, Infosys, IDC and Nasscom strategic review 2008Currently we are not even exploiting 10% of the potential market size ( IT services off shoring just at $17 Billion, whereas market potential is about $200-240 Billion *)According to a new research by Gartner, the market is likely to grow further after the financial slowdown, as firms will try aggressively to fall costs and improve efficiencyDifferent Sourcing ModelsIn-sourcing / Shared Services Sourcing from internal sources or from an affiliated firm in the home economyOnshore Outsourcing Sourcing from a non-affiliated firm in the home economyCaptive Offshoring Sourcing from an affiliated firm located abroadOffshore Outsourcing Sourcing from a non-affiliated firm located abroadregional DYNAMICS ACROSS EUROPEThe following section will describe the regional ITO trends and local dynamics across different European locations.UK and IRELAND2005 17.2B 2010 25.7B 2005-2010 CAGR 8.3%ITO drivers Improve IT quality for end users, speed/flexibility, access to technical skills, cost reduction Inhibitors Loss of control, lack of trust, security/privacy, IPKey trends Most mature market in Europe with wider number of mega deals (public sector) Deal sophistication, including government. Increasing interest in new pricing schemes, business enhancement and shared services More selective sourcing and global delivery Areas such as Scotland and Ireland feeling pressure of Indian and Eastern European operations Wide potential for application engagements to mature from project engagements into outsourcing based engagementsDespite being the largest and most mature market in Europe, the U.K. remains also one of the fast-growing ones. Here organizations seem to have moved out-of-door from the equation of outsourcing = cost reduction. While cost remains a key component, other objectives seem more important, such as improving IT service delivery, gaining specific skills, especially for application outsourcing deals, and becoming a more flexible organization. (See Appendix F) Inhibitions remain related to a general lack o f trust in the ability to join forces with the providers to manage security, control over IT operations and IP.The U.K. market is characterized by a large number of mega deals, especially in the public sector. These outsourcing deals often include initiatives that have classically been carried out through project engagements and now are increasingly being performed in the initial phases of an IT outsourcing or BPO deal. This change reflects the growing liking of customers for a tighter link between investment and results (for which the outsourcer is responsible during the duration of the contract) and the important shift in role for the internal IT department. Rather than focusing on join and managing all of the necessary skills and capabilities to meet a certain objective, IT organizations, in this scenario, are responsible for coordinating the objectives of the Business Unit and the internal and external providers engaged to support them. Often infrastructure outsourcing is at t he core of these complex relationships.At the same time, the U.K. is also the largest market in terms of adoption of IT services delivered through a network of global delivery capabilities (which include nearshore and offshore locations). From this point of view, areas that used to be considered as low cost for outsourcing operations (Scotland and Ireland) continue to feel the pressure of Indian and Eastern European capabilities.Finally, organizations that have engaged for a long period of time in project-based application deals are planning to elevate them into more-strategic, long-term application management engagements. This will allow them to gain a longer-term commitment from the service provider and the relevant support to re-evaluate their application portfolio.NORDIC COUNTRIES2005 5.2B 2010 7.6B 2005-2010 CAGR 8.2%Drivers Cost reduction, access to technical skills (especially in application outsourcing engagements), support in global operations, focus on core businessInhibit ors Loss of control, security/privacy, lack of trustKey trends Nordic market generally mature. Many large deals are in second or third generation. Some likely to evolve toward multi sourcing Large corporations see global delivery as a viable option. SMBs see nearshore option more favorably Consolidation drives specialization by geography, vertical market or horizontal service Increased competition between regional and global ESPs Cultural affinity seen as crucial to guarantee deal success/ senior statusEach of the four country markets that compose the Nordic region has its own distinct characteristics and buying behaviors in IT services. However, if we look at the forecast growth between 2005 and 2010, we expect the region to grow at a similar speed (despite size differences) of about 8%.Denmark Sometimes seen as the entry point for the global service providers to the Nordics. Expected growth is from 856 million in 2005 to 1.2 billion in 2010 (CAGR of 7.8%).Finland Unique in the Nor dic region as buyers focus much more on business value of an outsourcing deal rather than just cost. Expected growth is from 1 billion in 2005 to 1.45 billion in 2010 (CAGR of 7.5%)Norway Remains the smallest outsourcing market in the region. Expected growth is from 1.2 billion in 2005 to 1.8 billion in 2010 (CAGR of 8.1%)Sweden Largest market and very cost-competitive. Probably the Nordic country targeted most by offshore providers currently. Expected growth is from 2 billion in 2005 to 3.1 billion in 2010 (CGR of 8.7%)From a client perspective, the Nordic region market is generally mature, with many large corporations in second- or third-generation outsourcing deals. Global delivery is widely accepted as an option.Competition between regional providers and global providers is increasing this was initiated by the inability of local providers to support the operations of key Nordic organizations around the globe.However, recent acquisitions and divestitures by both local and interna tional providers prove that the market has still got room for further maturation and consolidation.NETHERLANDS2005 3.4B 20105B 2005-2010 CAGR 8%Drivers Cost reduction above all, agility/flexibility, improving service to end usersInhibitors Loss of IP and control, security/privacy, high costKey trendsMarket shows mixed signs of maturity (organizations accept global delivery) and immaturity (sourcing strategy is often neglected)Market split between large global corporations and wide portion of SMBsIncreased competition for local/national championsApplication under scrutiny for externalizationThe market in the Netherlands is one of the more modern IT outsourcing environments in Europe, near following the U.K. in many trends. A focus on global delivery and the expansion of many deals into the application or business process layer points to more market maturity.This maturity is driven primarily by the relatively high proportion of large (and often multinational) enterprises headquartere d in the Netherlands and competing in major markets such as financial services.But there are some contradictory characteristics that point to an immature market (cost cutting is by far the major driver, and sourcing strategy is often neglected) this, as a consequence, often inhibits the potential success of outsourcing initiatives.The market remains very challenging and competitive. This is due to the high presence of small and midsize businesses (SMBs), which traditionally tend to consider outsourcing as a threat more than an opportunity and require a higher level of customization, which tests the profitability model of service providers.Competition remains strong for national champions as global and offshore providers continue to target opportunities in the country. Increasingly, application outsourcing opportunities are emerging as organizations look at portfolio rationalization, legacy system transformation, and custom application software development initiatives and accessing a pplication utility solutions.FRANCE2005 6.6B 2010 10B CAGR 8.4 %Drivers Cost reduction, refocus internal IT, speed/flexibilityInhibitors Loss of control, lack of trust, security/privacyKey trendsBeyond its reliance on staff augmentation, Frances outsourcing market shows opportunities in all facets of outsourcing infrastructure, applications and BPOSelective outsourcing has gained acceptance, and organizations show cautious interest in global service deliveryNational champions remain under competitive pressure from the global and multinational providersFrance has long been considered behind in the outsourcing trend. Now, however, the French outsourcing market is consolidating and growing, while the long-standing reliance on staff augmentation is losing strength. The major driver that will support a CAGR of over 8% between 2005 and 2010 is the need for French organizations to cut out cost and enhance their level of competitiveness in the market by refocusing their internal IT skills on more-strategic tasks while gaining flexibility. On the other side, it is interesting to see that challenges related to HR management have lost strength, compared with the traditional fears related to loss of control and security and lack of trust.Large organizations have recently moved toward the adoption of selective outsourcing with multiple providers. This model has gained acceptance as organizations look at maximizing the balance between cost and service delivery excellence.There is also a new focus on application outsourcing. This trend is important not only because it signals an acceleration in the growth of outsourcing in France overall, but because it signals a major change in the way French organizations use different kinds of IT services. Increase in application outsourcing deals also touches on one of the major taboos of IT services in France offshore outsourcing. As such, although offshore remains a word to be used with extra care in the French market, many organizati ons would consider that access to global delivery models is an appealing part of outsourcing, especially when delivered by traditional players. In this case, North Africa (Morocco, for example) is emerging as a viable near shore location.National champions, the providers that focus on a specific region or country, remain under competitive pressure from the global and multinational providers.GERMANY2005 10.6B 2010 16B 2005-2010 CAGR 8.6%Drivers Cost reduction above all, focus on core business, refocus internal ITInhibitors Security/privacy, lack of trust, loss of controlKey trendsGlobal economic pressures have forced many organizations to look at outsourcing as a viable optionIn the short term, objectives such as flexibility and agility are secondaryPressure to divest internal IT departments or internal shared service organizations remains strongGlobal delivery gaining ground especially toward Eastern EuropeIntensifying competition between strong German players and global onesLegacy system modernization will remain a key objectiveThe German market is federated in several ways government responsibilities, industrial centers, buying centers within enterprises, and management structures in place. All of this makes doing business in Germany (and negotiating significant IT service deals) unique. Decision processes tend to be longer, require more consensus building and often entail more travel than in other parts of Europe. For a long time, the majority of German organizations have considered IT operations as a key component to maintain or enhance their level of competitiveness in the market. This has, as a consequence, slowed the outsourcing growth. In the past two years, however, economic pressures have forced many organizations to look at outsourcing tactically to cut cost. While in the short term, achieving flexibility is a secondary objective, organizations look at outsourcing as a way to refocus their internal capabilities while focusing on their core business. The traditional inhibitors around security, trust and loss of control apply.While non-German external service providers (ESPs) still find it difficult to position themselves in Germany (exceptions are IBM Germany, which established itself early on as a German ESP, and HP, based on its early SAP hosting business and penetration as a technology provider), German providers maintain strong domestic positions and are starting to focus on expanding their international presence (through T-Systems).In the short term, German organizations will still consider selling their own IT capabilities, while global providers will see these as viable targets to build capabilities as long as they provide financial support through a long-term outsourcing deal.Finally, beyond potential healthy growth for ERP application outsourcing initiatives (especially SAP), as many organizations look at legacy system modernization, it is likely that many projects will evolve and deploy model to include the long-term management of applications.EASTERN EUROPE2005 1.1B 2010 1.6B 2005-2010 CAGR 7.9%Drivers Acquisitions made by large Western European organizations, increased competition, need to revamp obsolete IT environments (leap-frog)Inhibitors Low expertise to manage OS deals, high cost of OS, loss of controlKey trendsSlow internal consumption of outsourcingKey nearshore delivery hub for providers supporting operations of European organizationsLocal Eastern European service providers will remain target for acquisitionsLong-term growth will be supported by increasing competition, acquisitions made by Western companies and the penetration of Western ESPs in the regionThe region has become a strong global delivery hubRecent admission to the European Union has transformed countries such as Poland, Romania and the Czech Republic into captivating locations to establish global delivery capabilities designed to deliver IT services to European or global customers. Eastern Europe has been identified as an ideal region to establish a service delivery hub by U.S.-based providers (IBM, Accenture and EDS), European ones(Atos Origin, Capgemini, T-Systems, SIS and ST) and offshore ones (Ness, TCS, Satyam, Infosys and Wipro). When necessary, providers are openly seeking acquisitions to gain scale it is the case for SIS, which acquired ELAS, HT Computers in Slovakia, and Ibis-Sys in Serbia (February 2005). Others, like Austrian-based ST, are pursuing a strategy of becoming the provider of choice in Eastern Europe through a combination of organic development and local acquisitions. ST acquired Computacenter Austria to strengthen its product resale capabilities.Although internal consumption of outsourcing has been slow, it is expected to grow rapidly, thanks to increasing competition driven by the fact that private-sector companies and public-sector organizations are now focusing on bringing their systems into line with market standards. This is leading to some leapfrogging effects the IT utility approach, for example, holds significant appeal without posing the same transition challenges as elsewhere but because these markets are fairly immature, there is still a strong focus on products and product support services rather than more-sophisticated IT service engagements.Italy and Spain are two other major countries with an expected ITO market size of about 5 Billion $ each by the year 2010.GLOBAL DELIVERY MODELGDM is a unique approach to outsourcing and off shoring, which offers the best of both worlds by blending onsite, onshore and offshore resources and locations. By using a far-reaching network of onsite, onshore, and offshore resources, GDM aims to cuts across geographies to access the right resources, in the right place, at the right cost.By selecting the most advantageous and cost effective proportion of resources worldwide, Global Delivery Model boosts business performance while also lowering costs. It also helps the supplier deliver requirements that are me t on-time, within budget, and with high quality greater efficiency and responsiveness to their clients.In this section we would discuss in detail, the key drivers to a successful GDM.Source Capgemini, 2008KEY DRIVERS OF A prospering GDMSTRONG PROCESSESStrong processes are the backbone of a successful Global Delivery Model. There is a strong need for detailed, documented and time-tested processes for all the activities and interfaces.Strong quality and project management processes ensure delivery excellence.World class processes for knowledge management and sharing resources encourage improved learning among teams.Processes for managing talent ensure that the projects get the best and most motivated people.Strong processes for interaction and communication within team make it possible for globally distributed groups to interface and work in an effective manner while delivering excellence on a continuous basis.On the other hand, processes, while strong, should leave ample space for creative thinking and flexibility. It is only then that the Global Delivery Model (GDM) can create far more value than the traditional sourcing models. Here is what it will translate intoQuicker, seamless transitions, and early project ownershipOptimum onsite/ offshore mixes through intelligent allocation of the available resourcesHigh degree of predictability through processes, sharing and reuseA strong relationship approach to ensure continuity and business focusSharing of best practices and tools across the enterpriseDepth and quality of resources, continuously trained and retrained to suit project needsAdherence to SLA based pricing models to ensure good Return on Investment (ROI) and drive customer satisfactionPROCESS ARCHITECTURECompanies rely on processes to consistently deliver high quality solutions while executing a number of engagements from multiple locations. According to the policies adopted by a leading IT services provider values, vision and policies should form the first level of the three-tiered process architecture. These are then implemented through process exploit at the next level. These processes are defined with clear ownership and clearly defined roles and responsibilities.Quality System DocumentationQuality System Documentation defines clearly all the processes that should be put into place. These documents provide the engineers and consultations with a vast repository of detailed procedures, templates, standards, guidelines and checklists.The comprehensiveness of these documents supports all tasks from higher-level information abstraction and definition to tasks such as coding and documentation. This is crucial to assure clients with the delivery of high quality and predictable IT solutions that meet their business needs. These documents should also be monitored and updated regularly.Knowledge SharingEmployees are stipulation a forum like a website portal, to share knowledge gained from their experience at the organization. It is m eant to be a central repository of the knowledge that can be tapped by peers and as sometimes external clients as well. The collection of documents on this portal is reviewed and classified into different areasSoftware development life-cycle activities such as requirements specification, design, build and testing documentation.Software-related topics such as tools and quality documentation.Topics of general or operational interest such as travel or HR policies, etc.Process AssetsThis is a repository to facilitate sharing and giving out of engagement learning across the organization. The user has the facility to submit to the repository, retrieve from the repository and view as information on the status of the repository.A process asset can be any information ranging from an engagement, which can be re-used by future engagements. typically these include project plans, configuration management plans, requirements documents, standards, checklists, design documents, test plans, causal analysis reports and utilities used in the engagement, etc.Process DatabaseThe Process Database is a software engineering database to study the processes at the organization with respect to productivity and quality. More specifically, its purpose areas are as followsTo aid estimation of effort and project defectsTo get the productivity and quality data on different types of projectsTo aid in creating of a process capability baselineProcess Capability Baseline (PCB)Process Capability baseline is used to specify, what the performance of the process is, i.e. what a project can expect when following the process. This estimation is done based on the past data. The performance factors of the process are