There are 3 key considerations when thinking about a global location portfolio: 1. The portfolio needs to be heavily influenced by the organization's business requirements to support current and future needs for scale, scope of services, and the right mix of captive and service provider locations. 2. The portfolio should take an integrated approach to balancing cost, risk, and the need to continuously rebalance and optimize locations over time. 3. Mature buyers are increasingly viewing locations as a portfolio rather than individual footprints in order to maintain low costs, ensure growth capacity, mitigate concentration risk, and access niche talent pools through a portfolio of multi-directional location flows.

1. 5 Common Myths of Location
Selection
April 26, 2012

2. Introductions
Eric Simonson
Managing Partner, Research
Everest Group
eric.simonson@everestgrp.com
Amneet Singh
Vice President
Everest Group
amneet.singh@everestgrp.com
H. Karthik
Vice President
Everest Group
h.karthik@everestgrp.com
Proprietary & Confidential. © 2012, Everest Global, Inc. 2

3. Learning objectives
5 common myths  Become aware of common pitfalls
of location  Separate myths from reality
selection  Appreciate best practices
Perspectives on
 Understand relevance of portfolio approach
global location
 Obtain overview of key design considerations
portfolio
Proprietary & Confidential. © 2012, Everest Global, Inc. 3

4. Perspectives are drawn from trends tracked in
Market Vista and our location selection work
Market Vista
Global services tracking across functions, sourcing models, locations, and
service providers – industry tracking reports also available
Subscription Banking, financial Finance &
Healthcare
services – services, insurance accounting
reports, Information
inquiry, data Procurement Cloud Vista
technology
cuts, etc.
Recruitment
Human resources Global sourcing
process
Service provider Transaction
PricePoint
Intelligence Intelligence
Custom research capabilities
 Benchmarking | Pricing, delivery model, skill portfolio
 Peer analysis | Scope, sourcing models, locations
 Locations | Cost, skills, sustainability, portfolio
 Tracking services | Service providers, locations, risk
 Other | Market intelligence, service provider capabilities, technologies
Proprietary & Confidential. © 2012, Everest Global, Inc. 4

5. Presentation topics
5 common myths Perspectives on
of location global location Wrap up and Q&A
selection portfolio
 Become aware of
common pitfalls
 Separate myths from
reality
 Appreciate best
practices
Proprietary & Confidential. © 2012, Everest Global, Inc. 5

6. Poll Question: What are the most common challenges
that you have faced in location selection?
Establishing clear objectives 13%
Aligning stakeholders 18%
Finding convincing data 29%
Overcoming executive biases 18%
All of the above 21%
Source: Live polling conducted during the “5 Common Myths of Location Selection” webinar on April 26, 2012
Proprietary & Confidential. © 2012, Everest Global, Inc. 6

7. Commonly perceived myths on location selection
Myth Reality
1
Rankings often convey a partial view and can
Rankings are helpful to understand
mislead location decisions
relative attractiveness of locations
2
Scalability does not always correlate with
Size = Scalability size and is often driven by market, talent pool
and operating model considerations
3
Overall people costs typically increase at a
Wage increases directly correspond to
lower rate due to multiple efficiency levers
an increase in overall people cost
4
Alternative talent models can create
Locations experiencing tight labor
adequate room for growth even in tight labor
conditions are always unattractive
conditions
5
High-cost locations help optimize the overall
High-cost and low-cost locations are in
portfolio by fulfilling unique needs
competition with each other
Proprietary & Confidential. © 2012, Everest Global, Inc. 7

8. Myth #1: Rankings are helpful to understand 1
relative attractiveness of locations
Limitation of location rankings
 Wide variation between agencies and years
Which ranking to believe  Country vs. city rankings
 Do not often correlate with the end outcome of
Do not necessarily location decisions
reflect market reality
 Score differences between rankings sometimes not
Can often disguise meaningful enough to decide relative attractiveness
non-optimum results
Location decisions are  Do not adequately reflect trade-offs between risks
guided by company and costs as per company specific considerations
specific considerations
Reality: Rankings often convey a partial view and can mislead location decisions
Proprietary & Confidential. © 2012, Everest Global, Inc. 8

9. Myth #1: Rankings are helpful to understand 1
relative attractiveness of locations
Rankings do not necessarily reflect market activity Number of players2
>100
Location rankings1 Change in ranking Market reality2 51-100
31-50
Locations 2011 (2009-2011)1 2011
15-30
<15
India 1
China 2 Decreasing attractiveness
Malaysia 3
Indonesia 5
Thailand 7 3
Vietnam 8 2
Philippines 9 2
Brazil 12
Hungary 31 6
1 Annual country location rankings released by a leading professional services firm
2 Analysis based on number of Forbes 2000 captives and 20 leading service providers providing global services support
Proprietary & Confidential. © 2012, Everest Global, Inc. 9

10. Myth #1: Rankings are helpful to understand 1
relative attractiveness of locations
Location decisions are guided by company specific trade-offs between risks and costs
Assessment Business Risk-reward ILLUSTRATIVE
dimensions considerations analysis
1. Talent pool and Attractive choice for player(s)
W1%
Peer presence Low willing to put in place risk
mitigating measures
2. Real estate
W2%
trends
Cost of operation
Preferred options
Risk
3. Infrastructure Higher cost
W3%
(e.g., telecom) Higher risk
4. Safety and
W4%
security
Attractive choice for risk averse
5. Operating player(s) willing to trade-off cost
W5% savings for lower risk profile
environment1
High
Reward
6. Salaries and High Low
operating costs Relative risks
Rankings do not adequately reflect trade-offs as per company specific considerations
1 Operating environment includes legal and regulatory, labor laws, and government incentives and tax policies
Proprietary & Confidential. © 2012, Everest Global, Inc. 10

11. Myth #2: Size = Scalability 2
“Size” of overall talent pool is often assumed to
Size
indicate scalability
“Scalability” is driven by multiple factors like
Scale quality of talent, competition, and companies’
unique requirements
Reality: Scalability is driven by multiple factors besides size of talent pool
Proprietary & Confidential. © 2012, Everest Global, Inc. 11

12. Myth #2: Size = Scalability 2
Estimation for net annual supply of talent in a location ILLUSTRATIVE
Migration Net drop-off Companies apply further
pool filters on net available pool
based on their unique
talent models and skill
needs (e.g., language
skills)
Resident
Pool
Annual talent Drop-off due Employable Drop-off due Net available
pool to lack of pool to competition on sustained
quality and basis to build
propensity scale
Net employable pool available can be much lower than overall talent pool
Proprietary & Confidential. © 2012, Everest Global, Inc. 12

13. Myth #2: Size = Scalability 2
Employable pool2 Attractiveness OFFSHORE ITO EXAMPLE
Annual IT pool from city1 as percentage of based on size of the
2012; Indexed to Shanghai graduate pool employable pool2
Shanghai 1.00 10-12% 3
 Overall graduate pool
Bangalore 0.89 28-32% 1 statistics can be often
misleading
Kuala  Attractiveness based
0.36 28-32% 2
Lumpur
on employable pool
often varies from
Buenos graduate pool
0.35 20-25% 4
Aires
Krakow 0.19 30-35% 5
1 Annual graduates from engineering and information technology disciplines from educational institutions within the city only
2 Annual graduates from relevant educational background having requisite technical and appropriate English language skills for IT offshore services industry
Proprietary & Confidential. © 2012, Everest Global, Inc. 13

14. Myth #3: Wage increase directly corresponds to 3
an increase in overall people costs
ITO: INDIA EXAMPLE
Typical Typical Typical
delivery individual inflation in
pyramid raises (%) salary band (%)
Manager 3-5% 10-15%
and above
Team 15-20% 8-12%
leader
Senior 25-35% 10-12% 3-8%
programmer “Headline” Actual
inflation often increase in
reported / salary bands
Junior discussed over recent
50-55% 12-15% 3-8%
programmer times
Reality: Net impact on wage bills 4-6%
much lower than perceived
 Actual inflation in salary bands is lower than individual changes given promotions / individual growth
 Attrition in junior roles also provides companies an opportunity to manage costs, especially in a growth
environment
Proprietary & Confidential. © 2012, Everest Global, Inc. 14

15. Myth #4: Locations experiencing tight labor 4
conditions are always unattractive
Sources of talent Comments Often assumed as the
only talent pool
available in the city
 Employable tertiary graduates and
“Primary” talent
undergraduates from the city Main supply of talent
pool from city
 Experienced professionals employed in across locations
peer companies
 Employable high-school graduates and Often relevant in certain
“Additional” talent
part-time students locations (e.g., CEE, U.S.)
pool
 Experienced professionals with similar and functions (e.g., contact
skills in other industries center)
 Employable graduates and experienced
Talent pool from
professionals from adjoining areas
adjoining areas
Reality: Alternative pockets of availability can significantly augment primary talent pool
Proprietary & Confidential. © 2012, Everest Global, Inc. 15

16. Myth #4: Locations experiencing tight labor 4
conditions are always unattractive
Annual demand and supply at entry level KRAKOW – VOICE BPO
Number
~20 times
10,000-12,000
4,000-5,000
6-7 times
2,500-3,000
3,000-4,000
500-600
Industry demand at Supply of employable Supply of employable Employable pool from Total employable pool
entry-level tertiary graduates undergraduates adjoining areas
 Exploring alternative talent pools (e.g., undergraduates, part-time students, influx from other industries)
can create more room for growth
 This requires appropriate operating models (e.g., hiring, training) to implement and scale
Proprietary & Confidential. © 2012, Everest Global, Inc. 16

17. Myth #5: High-cost and low-cost locations are in 5
competition with each other
Companies optimize across multiple dimensions in location decisions ILLUSTRATIVE
Low-cost High-cost
Description locations locations Comments
 Labor arbitrage  Bangalore offers 60-70%
Reward 

Operating cost savings
(e.g., facilities etc.)
Taxes and incentives
 operating cost savings
compared to Toronto
 Skills availability  A leading bank reports
Delivery risks 

Stability & predictability
Business continuity   similar C-SAT scores
from the Philippines and
U.S. centers
 Access to niche skills  Canada offers significant
Other
considerations


Customer proximity
Time zone overlap  overlap with U.S.
business hours and
proximity to clients
Reality: High-cost locations help optimize the overall portfolio by fulfilling unique needs
Proprietary & Confidential. © 2012, Everest Global, Inc. 17

18. Myth #5: High-cost and low-cost locations are in 5
competition with each other
Location footprint of leading oil and gas majors OIL & GAS EXAMPLE
High-cost locations
 Research and development  Multilingual support in
 Technical services for European languages,
specific businesses F&A, HR
UK
U.S., Canada  Transactional F&A
Eastern  IT support (Infrastructure, ADM)
Europe  Customer care
 Customer care and HR
 Customer
 Knowledge management India &
acquisition
 Engineering and R&D Asia Pacific
 Customer care
 Analytics services
 R&D
 Financial forecasting, capital
 HR
budgeting and cost analysis
Australia
High-cost locations and low-cost locations complement each other in achieving global sourcing
objectives of companies
Source: Everest Group
Proprietary & Confidential. © 2012, Everest Global, Inc. 18

19. Presentation topics
5 common myths Perspectives on
of location global location Wrap up and Q&A
selection portfolio
 Understand relevance
of portfolio approach
 Obtain overview of key
design considerations
Proprietary & Confidential. © 2012, Everest Global, Inc. 19

20. Poll Question: How many total cities are currently in
your global delivery portfolio?
2 or less 2%
3-5 15%
6-10 28%
11-20 15%
>20 40%
Source: Live polling conducted during the “5 Common Myths of Location Selection” webinar on April 26, 2012
Proprietary & Confidential. © 2012, Everest Global, Inc. 20

21. Global locations portfolio: Relevance
Key advantages of locations Differences compared to footprint of
portfolio locations
 Maintain low cost of delivery to drive  Integrated approach to
continued savings – Support current and future
business requirements (scale,
 Ensure adequate headroom for scope of services, captive vs.
growth of global services portfolio service provider mix)
– Balance cost and risk
 Mitigate concentration risk concerns – Plan and manage investment
 Support regulatory and business unit  Continuous rebalancing and
preferences optimization of portfolio
 Access niche talent pools
Proprietary & Confidential. © 2012, Everest Global, Inc. 21

22. Mature buyers are increasingly beginning to view
locations as a portfolio to support global delivery
EXAMPLE: LEADING GLOBAL OFFSHORING ADOPTER
2008: Footprint of locations 2012: Global locations portfolio
North
North Europe CEE Europe CEE
America
America
Philippines
India India
Philippines
Latin Latin
America Africa America Africa
Uni-directional flows Multi-directional optimization
Proprietary & Confidential. © 2012, Everest Global, Inc. 22

23. Key considerations when thinking about a global
location portfolio
Location portfolio needs to be heavily influenced with the organization’s  How many cities?
sourcing strategy
Demand model  Which geographies?
1. What to source
 Functions
 Processes
 What scale in each
 Technologies
location?
 Objectives  What roles do different
 Skill availability locations play? (hub, spoke,
 Nature of work
4. Managing global  Sustainability CoE)
 Scale
sourcing
 Governance  How to balance sourcing
capabilities model mix (i.e., captive vs.
 Decision-rights/
service provider)?
responsibilities
2. How to source  Metrics 3. Where to source  How to balance cost and
 Offshore captive  Locations risk?
 Near-shore captive  Global network
 Third-party  Concentration  How to ensure adequate
 Flexibility flexibility for future
changes?
Supply model
Supply model
Proprietary & Confidential. © 2012, Everest Global, Inc. 23

24. Designing the location portfolio requires three
major inputs
1  Volumes, skills,
languages, geographies
Enterprise
receiving services, etc.
demand profile
 Current and projected
views
2  Languages, proximity,
Inputs to
Service DR/BCP, regulatory, etc.
designing
capability fit  Identifies major
location portfolio
constraints
3  Initial view of what roles
Roles locations a location could play for
can play different skills
 Hub, spoke, COE, etc.
Using these inputs, alternative designs can be evaluated using scenario analysis
Proprietary & Confidential. © 2012, Everest Global, Inc. 24

25. Presentation topics
5 common myths Perspectives on
of location global location Wrap up and Q&A
selection portfolio
 Submit any remaining
questions
Proprietary & Confidential. © 2012, Everest Global, Inc. 25

26. Best practices for helping your organization deal
with location questions
Be realistic about Although centers can operate at small scale, they tend to be less
scale and ramp-up resilient. Additionally, ramp-up rates differ dramatically by location
rates and need to be understood accordingly
Although you will have to make decisions without perfect data, do
Use the right data focus on using data which is applicable to the services industry and
relevant skill sets (e.g., languages, technologies, domain knowledge)
Location selection considerations need to be resilient to macro-
Design for the long
environment changes and talent/cost sustainability challenges – new
term
locations are an investment
Precisely define Location concentration concerns can’t be meaningfully addressed
concentration without specifics – The city, the country, the region? Concern for
concerns catastrophic or temporarily disruptive events?
Solve for “portfolio” View the location portfolio as a strategic lever to balance savings
instead of “footprint” and mitigate risks in global sourcing programs
Proprietary & Confidential. © 2012, Everest Global, Inc. 26

27. Q&A
To ask a question during the Q&A session
 Click the question mark (Q&A) button located on right side of your screen – this opens Q&A
 Be sure to keep the default set to “send to All Panelists”
 Type your question in the box at the bottom of the Q&A box and click the send button
 Attendees will receive an email with instructions for downloading today’s presentation
 For more information on global sourcing, please contact:
– Eric Simonson, eric.simonson@everestgrp.com
– Amneet Singh, amneet.singh@everestgrp.com
– H. Karthik, h.karthik@everestgrp.com
Stay connected
Websites Twitter Blogs
www.everestgrp.com @EverestGroup www.sherpasinblueshirts.com
research.everestgrp.com @Everest_Cloud www.gainingaltitudeinthecloud.com
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28. Related content
Related Research
 Market Vista: Q4 2011
 Market Vista: 2011 in Review
 Perspectives on Tier II/III Cities of the United States as Locations for IT Services Delivery
 Cost Competitiveness of Global In-house Centers (GICs) Complimentary
 Achieving Next Generation Excellence in the Captive Model
 Global Locations Compass – Philippines
 Global Offshore Captive Landscape and Trends: Focus Geography – Philippines
 Global Locations Compass – China
 Global Offshore Captive Landscape and Trends: Focus Geography – China
Upcoming Webinar
 Market Vista Q1 2012 | Register
– Tuesday, May 16, 2012 | 9 a.m. CDT
Proprietary & Confidential. © 2012, Everest Global, Inc. 28

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