IT ADVISORY ExploringGlobalFrontiers TheNewEmergingDestinations ADVISORY Foreword Alan Buckle GlobalPartner-in-Charge,Advisory The current global financial crisis has been peppering conversations not only at many business meetings, but sometimes even at the family dinner table. While everyone has their own opinions and theories, realistically it is nearly impossible to predict what will happen. If anything, the so called “global financial crisis” drives home the fact that economies no longer exist in isolation. Governments are actively collaborating with industries and providing bailout packages in an attempt to minimize the fallout. On the other hand, businesses are doing what they see fit to be competitive during the economic downturn. Cost reduction is the new buzzword, and as advisors we are increasingly being asked questions on how enterprises can reduce costs without impacting efficiency and longer term growth prospects. In the short term, the race for business survival takes top priority. However, over the longer run, companies are likely to pursue rationalization measures. In the Information Technology (IT) - Business Process Outsourcing (BPO) industry, these measures are likely to focus the search for lower cost business alternatives globally, that could also allow companies to provide diversity to their global operations. Access to global opportunities is generally getting easier. Enterprises moving offshore not only benefit from lower costs and access to a diversified talent pool, but also have the added “first-mover” advantage if they tap relatively unexplored cities. They can also acquire various incentives such as government grants due to a heavier hand at the negotiation table as "first-movers". This publication aims to provide an overview of the options that are available for enterprises who would like to set up a shared services center, or outsourcing companies setting up operations in locations beyond their existing locations. Though the "established locations" may still be considered as the epicenters of outsourcing, entities are beginning to look at other alternative locations due to a variety of drivers that we outline in this publication. We hope that this publication will prove valuable to your business decisions. ©2009KPMGInternationalisaSwisscooperative.MemberfirmsoftheKPMGnetworkofindependentfirmsareaffiliatedwithKPMGInternational.KPMGInternationalprovidesno clientservices.NomemberfirmhasanyauthoritytoobligateorbindKPMGInternationaloranyothermemberfirmvis-à-visthirdparties,nordoesKPMGInternationalhaveanysuch authoritytoobligateorbindanymemberfirm.Allrightsreserved.KPMGandtheKPMGlogoareregisteredtrademarksofKPMGInternational. Introduction Egidio Zarrella GlobalPartner-in-Charge,ITAdvisory Globe trotting is a familiar term today, not only to an avid traveler, but also to growing IT and BPO enterprises. Rapid Gross Domestic Product (GDP) growth in developing countries in the last few years has been a motivating force for globalization. Countries in the developing markets are offering lower cost destinations for outsourcing services, and also access to their markets which have high growth potential. A favorable business environment, access to a good supply of talent, good quality of life and lower costs are some of the factors that are being sought out by IT-BPO companies investing in emerging locations. As the existing favorite locations start to become saturated, newer cities are emerging, offering “new and improved” incentive packages and talent, that is better geared for the outsourcing industry. Our choice of 31, though dominated by cities in developing countries, also includes some onshore or near-shore developed city-country pairs, that we believe may also be valid competitive alternatives to the existing favorite locations such as Bangalore and Chennai. Some of these destinations are hot tourist spots, and therefore, are more visible on the world map. Then there are other locations which are relatively unheard of, but are seeing traction as they have historically had a good education system and are working on improving their infrastructure. Governments keen to get a piece of the outsourcing pie, are offering various incentive programs to bring IT-BPO business to their countries. Some cities are also becoming actively involved, independently promoting their capabilities and available programs. To create a “unique selling point”, specific services such as accounting, research and development, and animation are being promoted. The options available are immense, and “the world is my playground” is an appropriate expression in the outsourcing industry today. However, it is imperative for enterprises comparing the alternatives to consider the risks and rewards associated with the emerging locations versus the more established locations. A “one-size-fits-all” strategy may not be appropriate with location selection. Companies should consider their needs, and align their vision with what different locations offer when considering their location assessment strategy. ©2009KPMGInternationalisaSwisscooperative.MemberfirmsoftheKPMGnetworkofindependentfirmsareaffiliatedwithKPMGInternational.KPMGInternationalprovidesno clientservices.NomemberfirmhasanyauthoritytoobligateorbindKPMGInternationaloranyothermemberfirmvis-à-visthirdparties,nordoesKPMGInternationalhaveanysuch authoritytoobligateorbindanymemberfirm.Allrightsreserved.KPMGandtheKPMGlogoareregisteredtrademarksofKPMGInternational. ©2009KPMGInternationalisaSwisscooperative.MemberfirmsoftheKPMGnetworkofindependentfirmsareaffiliatedwithKPMGInternational.KPMGInternationalprovidesno clientservices.NomemberfirmhasanyauthoritytoobligateorbindKPMGInternationaloranyothermemberfirmvis-à-visthirdparties,nordoesKPMGInternationalhaveanysuch authoritytoobligateorbindanymemberfirm.Allrightsreserved.KPMGandtheKPMGlogoareregisteredtrademarksofKPMGInternational. Table of Contents 1. The Importance of Location Selection 1 2. Executive Summary 3 3. Emerging Destinations - AMERICAS 7 4. Emerging Destinations - ASPA C 43 5. Emerging Destinations - EMA 79 6. Glossary & Key Terms 128 The Importance of Selecting an optimum location for a new investment is a critical issue in all industries, regardless of the size of the company, or the type of operation that it is planning to establish. Being in the right location is as important for the automotive or electronics Original Equipment Manufacturer (OEM) that is considering where to establish a new billion-dollar manufacturing plant, as it is for the biotechnology start-up considering where to locate its clinical trials or development operations. Although the specific criteria may vary across companies and industries, the overall process for selecting a new location tends to be similar, and this process has been refined over the years. Within the IT-BPO industry, the approach to selecting locations has developed its own set of processes and practices. To start with, there seems to be a strong focus on workforce availability and costs, often at the expense of other factors. This is not surprising given the importance of skills and salaries to IT-BPO operations. The availability of skilled employees is critical to the success of a new software development center or BPO delivery facility. Similarly, a labor pool that is large enough to accommodate the anticipated levels of workforce turnover and future growth is essential for companies planning to establish operations of significant scale. However, even the best workforce cannot compensate for inadequate telecommunications infrastructure that require companies to invest millions of dollars in dedicated lines and redundancies. Similarly, some cities with a large and affordable skill pools, lack modern commercial real estate required to house sophisticated IT operations. Local political conditions and business practices in some locations may make setting up and running a business a costly and frustrating experience. A large number of graduates in itself does not imply the availability of adequate skills, as the quality of education systems and level of graduate preparedness among universities and colleges can vary tremendously, even within the same city or country. Although these and other factors are considered to varying degrees in most location analyses, their importance and potential impact on costs and ease of operations is often underestimated. A large number of location studies usually compare entire countries, brushing over the significant differences among cities within large and diverse countries such as India, Russia, Brazil or even the Ukraine. While the country level ranking may provide a convenient starting point for further analysis, using them as a basis for making strategically important location and investment decisions may be risky. Location decision making within the IT-BPO sector has also become characterized by a rapidly changing landscape, and a quest to discover new locations where competitors have not yet ventured, and the labor market remains unexploited. Examples abound of cities that have been moved from being virtually “untapped” to “saturated” in a few short years, as companies enter to benefit from the available and affordable workforce. As word spreads, “crowding-out” sets in, with tightening labor markets, rapidly rising costs and strained infrastructure leading some companies to set out in search of new opportunities. While similar phenomena exist in other sectors, this has been repeatedly demonstrated in the IT-BPO sector’s search for new offshore