OFFSHORE SERVICES GLOBAL VALUE CHAIN Karina Fernandez-Stark Center on Globalization, Governance & Competitiveness (CGGC) Duke University Conferencia Deslocalización de servicios y cadenas globales de valor: ¿Nuevos factores de cambios estructurales en América Latina y el Caribe? Santiago, Chile 18-19 de Octubre de 2012 © 2012 Duke CGGC 1 Offshore Services Global Value Chain Vertical Activities a Industry specific b Horizontal Activities HIGH ITO Information Technology Outsourcing Software R&D Knowledge Process Outsourcing Business Consulting Business Analytics Market Intelligence IT Consulting Value Added Software ERP (Enterprise Resource Planning): manufacturing/operations, supply chain management, financials & project management Legal Services Desktop management Infrastructure Applications Management Network Management Infrastructure Management Ex. Industrial Engineering and sourcing and vendor management BPO Telecommunications Business Process Outsourcing ERM (Enterprise Resource Management) HRM CRM (Human Resource Management) (Customer Relationship Management) Finance & Accounting Training Marketing & Sales Procurement, Logistics and Supply Chain Management Ex. IP transformation, Interoperability testing and DSP and multimedia Energy Ex. Energy Trading and Risk Management , and Digital oil field solutions Travel & Transportation Revenue management systems, customer loyalty solutions Talent Management Health/Pharma Payroll Content/ Document Management Ex. Investment research, private equity research, and risk management analysis Manufacturing Applications Development Applications Integration Banking, Financial Services and Insurance (BFSI) KPO Recruiting Ex. R&D, clinical trials, medical transcript Contact Centers/Call Centers Retail eComerce and Planning, merchandising and demand intelligence Others © 2012LOW Duke CGGC 2 Offshore Services: Global Supply and Demand 45% of the industry market 2.1% Rest of the World 51.1% US & Canada 30.6% EU-15 16.2 % AsiaPacific Same number of call centers employees than India Demand for Offshore Services (%) 50 30 15 2 3 © 2012 Duke CGGC Source: CGGC based on Everest & Datamonitor The Size of the Offshore Services Industry (estimates) Estimates of the Offshore Services Market Size BCG US$ 281,3 bill 300 Billion (US$) US$ billions 250 OECD US$ 252.4 bill 200 150 NASSCOM US$ 117.5 bill 100 50 0 2005 2006 2007 2008 2009 2010 Year Source: CGGC based on OECD 2008, NASSCOM 2009, Boston Consulting Group 2007. • Difficult to quantify the industry no accurate data & limited country level tracking • Industry growing & evolving rapidly • New activities -most dynamic not included, such us innovation © 2012 Duke CGGC OECD NASSCOM BCG Offshore Services Potential • Activities previously reserved for rich nations or in-house • Creating more jobs, specifically in developing countries • One of the world’s fastest growing industries Reduce company costs and find new talent • Almost unlimited potential Services from any industry © 2012 Duke CGGC Examples of Upgrading Trajectories Entry into the value chain Upgrading within the BPO segment Upgrading to KPO Activities Broad Spectrum Services Industry Specialization 6 © 2012 Duke CGGC Offshore Services Upgrading: India, Philippines and Chile India 1990s – 2010 Early 2000s Mid to late 2000s Philippines Early 2000 Mid 2000s Late 2000 Chile 2000-2008 2007-2010 2010 7 © 2012 Duke CGGC Human Capital: Essential Element for Upgrading in Offshore Services • Human capital has been found to be a key determinant of value creation, competitiveness, and success in service exports from developing countries • One of the most important factors MNCs take into consideration when relocating services operations is to ensure the labor market has cost competitive, qualified workers • Developing countries must work hard to supply the necessary human capital to sustain industry growth today while also preparing the future labor force to upgrade the industry. 8 © 2012 Duke CGGC Upgrading and Workforce Development Job Profiles and Upgrading Value Chain Segments Skill Level ITO BPO KPO Job Profiles 9 © 2012 Duke CGGC Entry into the Value Chain Upgrading Trajectory: Entry into the Value Chain Call centers hire people with high school diplomas or Bachelor’s degrees. Further skills training is provided by the company or private training institutions. Skills Institutions Preparation Private sector Short technical Government training 10 © 2012 Duke CGGC GVC Upgrading & Workforce Development: Select Findings • Interpersonal and language skills are highly valued in this sector • High competition for talent has resulted in shift from individual spending on education and training to firm-based training • Tax incentives and public subsidies for education are increasingly used to attract offshore operation centers 11 © 2012 Duke CGGC THANK YOU FOR YOUR ATTENTION! Karina Fernandez-Stark Senior Research Analyst karina.stark@duke.edu Center on Globalization, Governance & Competitiveness- Duke University http://www.cggc.duke.edu © 2012 Duke CGGC