Lse 4th December 2009

Wipro confidential © Copyright 2007 Wipro Ltd

The Evolution of the Indian Software Services Industry and their impact on

the Global Competitive Landscape

Kees ten NijenhuisSenior Vice President Europe

2Confidential © Copyright 2007 Wipro Ltd

Global Demand at $1.7 Trillion

444385

764

1,593

470 423

783

1,676

IT Services BPO R&D/ Engineering Total

2005 2006 Source: IDC- Nasscom

Geography IT Services BPOCombined IT +

BPO Engineering

Spend

Share YOY% Share YOY% Share YOY% ShareYOY

%

Americas 50% 7.0% 68% 10% 59% 8.7% 41% n.a

Europe & ME 35% 6.5% 20% 9% 28% 7.3% 33% n.a

Asia-Pacific 15% 7.5% 12% 20% 14% 12.7% 21% n.a

Total ($Bn) 470 6.9% 423 11% 893 8.8% 783 3%

Geographical Distribution of 2006 Global Technology Related Spend

Global Technology Related Spend ($ Bn)

1. Global Technology

related spend

estimated at $1.7

Trillion, growing at

4-5%

2. Americas

contribute the

largest share –

59% of IT+BPO

and 41% of

Engineering spend

Source: Nasscom


But Offshore Still Small Part of Overall Spend

1. Despite the growth

India has seen in

Global IT Services

Market, it still a

very small

proportion (~2%)

of global spend

470 423

783

1,676

18 4.9 8.3 31

IT Services BPO R&D/ Engineering Total

Global Spend (2006) Exports from India (FY07)

Global Technology Related Spend & India’s Current Exports ($ Bn)

~4% ~1% ~1% ~2%

Indian Exports As % of Global

Spend

Source:Nasscom Review, 2007


Robust Momentum & Industry Outlook

1. Industry continues

strong momentum

– grew 33% in

FY07

2. Well on its way to

meet and exceed

its $60 Bn target of

2010

India’s offshore IT and BPO exports, US $ Bn.

Source: NASSCOM McKinsey report 2005

5.313.1

17.323.0

35.0

20.0

45.06.3

8.3

25.0

35.0

4.6

0.9

FY00-01 FY04-05 FY05-06 FY06-07E 2010"SustainingLeadership"

AdditionalPotential

"ExtendingLeadership"

CAGR 28%

6.2

17.7

CAGR 29%

~60

~80

23.6

31.3

CAGR 24%

33%

33%

Projected CAGR FY05-10

Offshore IT

BPO

> 24%

> 37%


India’s Competitive Edge

1. India still one of

the most cost-

competitive

destination for

Offshore

2. India will add 71

Mn people to

working age

population

between 2005 &

2010, the largest

across the globe.

China will add ~33

Mn

3. Even as current

levels, India has

the largest pool of

suitable offshore

talent - 28% of the

worldwide total

141

10089 85 84

16 17

35 37 37

Japan US Germany France UK India China Poland Mexico Czech

Republic

IT Services – ADM Example

Indexed Salary Costs (Base 100 = US, Year 2006)

1773

727 654 514 427 293 285 242 232 210

1029

6386

India* China Russia Phillipines Turkey** Thailand** Poland Brazil Mexico Indonesia 18 Otherlow- wagecountries

Totalsupply ofsuitable

low- wagetalent (28countries)

Source: Mckinsey Global Institute, Everest Research 2006

*As of 2003, ** Numbers arrived by extrapolation,

Source: Mckinsey Global Institute

Aggregate Suitable Graduate Talent for Offshore IT & BPO (‘000)

28%

11% 10% 8% 7%5% 4% 4% 4% 3%

16%

100%


The evolution of the Offshore Market


The Emergence.. IBM’s departure Labour Arbitrage

Y2K Human Resource Pool English Language Internet Education System SEZ’s

Global Delivery Model Onsite-Offshore Local Delivery Centres


Demonstrate the value of the O-O ModelOffshore Risk & Mitigation


Attract Develop/Nurture

Engage/Motivate

Retain

- Preferred employer in IT Services

- Over 300,000 applicants

- Recruit from over 160 leading engineering and management colleges

- Less than 1 in 100 applicants offered employment

- Technical Skills

- Business Skills

- Leadership skills

- Behavioural skills

- Language skills

- Education programs with leading technical and management schools

- Strong performance management processes

- Business aligned compensation & benefits programs

- Multipath, competency aligned career framework

- Effective & ongoing two-way communication

- Cultural induction

- Meet Your People Program – for Supervisory effectiveness

- Wipro Listens & Responds – for improving health of workplace

- Talent tracking & bonding

- Rewards & recognition programs

A Resources Supply Chain

• Rigorous selection process – offer rate of 0.8% of number of applicants World class education and training programs – Avg 12 days/employee/year of mandatory training

• Supply chain initiatives –mass vs target hiring

• Diversity management-Integrating with client culture-Value reinforcement and cultural continuity-Culture and language specific training-local talent assimilation


Phase 2: Rapid Growth


Diversified Service Portfolio

Application Developme

nt and Maintenan

ce

20%

R&D Servic

es 17%

Products21%

Consulting

2%

BPO 6%

Package Implementation

11%

Testing Services

8%

Infrastructure

Outsourcing

15%


Offshore Business Models


Savings disparity due to complexity in calculations and many contingencies


CMMLevel - 3

CMMLevel - 5

6 SigmaMethodologies for software

TL- 9000 PCMMLevel 5

CMMI

BS 7799

ISO 9000

1997Enterprise-wideprocess defined

1998On the path tocontinuous improvement

2000Defects prevention practices initiated at project level

2001Industry-specific quality standards

2001Six sigma methodology broad-based

2001The best in people processes

2002Gearing up for System Integration

Six Sigma

1995Re-certified twice Mature processes Metrics collection begun

Software process achievement Award 2003 from IEEE USA

2003 COPC, BS 15000 and British data protection act compliance

A Strong Enterprise-wide quality culture

2002Information and Network Security Processes


Phase 2 Rapid Growth

Investing in aligning our services to customer’s business Centers of Excellence, Vertical point solutions, integrated solutions combining IT, BPO and Infra mgt

Investing in perfecting the global delivery model

Wipro Way ™, Factory Model

Investing in new service linesTesting; Consulting; Infrastructure; BPO;

Package Implementation

Creating a truly global foot print

1 2

3 4

Global development centers, Near-shore development centers, strategic acquisitions


Phase 3: Reaching Maturity


Framework for Growthfor Growth

ENABLERSENABLERS ENABLERSENABLERS

GROWTGROWTH H

ENGINEENGINESS

GROWTGROWTH H

ENGINEENGINESS

1.1. Organic Organic Growth Growth in Global in Global IT, PES IT, PES and ITESand ITES

1.1. Organic Organic Growth Growth in Global in Global IT, PES IT, PES and ITESand ITES

2.2. LeadershiLeadership in India p in India & Middle & Middle EastEast

2.2. LeadershiLeadership in India p in India & Middle & Middle EastEast

3.3. Game Game ChanginChanging g InitiativeInitiativess

3.3. Game Game ChanginChanging g InitiativeInitiativess

4.4. AcquisitioAcquisition Led n Led GrowthGrowth

4.4. AcquisitioAcquisition Led n Led GrowthGrowth

The Spirit of WiproThe Spirit of Wipro

1. Building Right Capability and Leadership

2. New Delivery Paradigms

3. Performance Management

6. Brand

4. Innovation

5. Consulting

WIPRO WIPRO WAYWAY

WIPRO WIPRO WAYWAY

7. Information Systems


Global Sourcing Destinations

Active Participants

Active Participants

Leader andChallengersLeader andChallengers

Potential Players

Potential Players

Argentina Belarus Bulgaria Costa Rica Dominican Rep *New* Dubai (UAE) Egypt Ghana Morocco New Zealand Nicaragua Northern Ireland Senegal Singapore Slovenia Sri Lanka Turkey Uruguay *New* Ukraine Vietnam

Armenia *New* Bangladesh *New* Chile *New* Columbia *New* Cuba El Salvador *New* Estonia Fiji Guatemala *New* Jamaica Korea (S) Lithuania Pakistan Panama *New* Peru *New* Puerto Rica *New* Taiwan Thailand Tunisia Venezuela

India Australia Brazil Canada China Czech Republic Hungary Ireland Israel Latvia Malaysia Mauritius Mexico Philippines Poland Romania Russia Slovakia South Africa Spain

= Change in category from 2005


GlobalDevelopment

Centers

Clients

Employees(in thousands)

Revenues(in $ Mn)

2006-072005-062004-052003-04

Sustained Growth CAGR of 36% in last 5 years Part of NYSE’s TMT (Technology-Media-

Telecom) Index, NSE Nifty Index and BSE Sensex

Partner to Industry Leaders 180 Fortune 1000/ global 500 clients 170 clients among Forbes 2000 681 active clients as on September 30

‘07

Global Footprint - 53 countries Listed on NYSE Presence in 53 countries Over 13,500 employees onsite

across geos 24 near-shore development centers

Diverse Talent Pool 49 nationalities 2600 domain consultants High gender and cultural diversity More than 84,000 employees as of

September 30 ’07.

31282185

16991218

399 421494

620

3440 44 46

3044

5773

2007-08*

4150

681*

48

* global IT business is equal to H1 actuals + Q3 guidance into 2 and Indian IT H1 numbers annualized

* Clients of only Wipro Technologies

85**

Wipro, at a glance


Headwinds


Business Transformation


The Preferred Destination of Choice!


Global Competitive Landscape


Income Statement Summary of Global IT Firms

25

Client perception Indian vendors

Clients have experienced strong offshore/onshore coordination from Indian vendors;

Str

on

gW

eak

Onsite/offshore account

management

Cost transparency Indian vendors are perceived to be more open

about their pricing structure, and they generally price lower

Language, cultural alignment

• Indian vendors score lower in terms of client perception

Management attention

Top management at Indian vendors is perceived to be very approachable

Operating models The Indian Delivery model is well understood

Sporadic instances of junior talent

At times, clients have perceived a lack of senior talent on projects delivered by offshore vendors

26

Client perception about Global vendors

Clients have strong relationships with vendors, as they have been working together for years.

Str

on

gW

eak

Relationships

Cultural alignment As the vendors have local presence for years,

they are more aligned with the specific cultural needs of clients

Offshore coordination

This is one area where clients perceive global vendors to be weaker

Cost competitiveness

Language skills Clients are more comfortable with global vendors

in specific cases where language skills play a major part

Transparency and access

Vis-à-vis Indian vendors, global vendors are perceived not to be transparent about their costs and delivery, offering very little direct access to resources

27

valu

e a

dd

clien

t in

tim

acy

Players trying to define the best mix

value add industrialized operations

One Combination

– One Team

Large global

Pure Player

IBM – Daksh (05)

EDS – MphasiS (06)

Capgemini – Kanbay (07)

CSC – Covansys (07) TCS –Technosoft (06)

Infosys – Philips Shared Services (07)

Wipro – Infoscrossing (07)

TCS – T-Systems (08?)

28

Western players are facing challenges developing their offshore capabilities

Integration issues

“One team”

Offshore factory, not enough business driven

Clients don’t see seamless delivery

Financial impacts

Onshore restructuring costs

Staff levels onshore dilute profit

Project owner not able to manage offshore cost

Size and growth in India

Tier I Indians: > 80,000 people

Tata: FY2009-10: + 25K staff

Home market growing

Motivation

Few incentives to put work offshore

Difficult to attract top-talent

29

Indian Pure Players also have some blind spots

Margin obsession

Margins drive valuation

Reluctance to invest :

Onsite

in IP and solutions

“Anglo American ” focus

Gaps in coverage, especially in Continental Europe

Difficulties in setting up non-Indian operations

Risk adverse: Slow to acquire and integrate

Lack of client intimacy

$1m-$10m (TCV) still largest part of portfolio

Big deals exception not rule

Limited CXO level relationships

Risk exposure

Exposed to US (60% of revenues)

Exposed to FS (>25%)

Tax break disappears in 2010

30

The Challenge is to move to the Leaders playing field Growth

Margin (TTM)

Cognizant

TCS Infosys

Indian Pure Players

Atos CSC

EDS

5%0% 10% 20% 30%25%15%

28%

36%

44%

52%

12%

8%

0%

4%

-4%

(since 2006

T-Systems

<20%

>25%

~75%

IBM

Leaders

Accenture

Wipro

Laggards

SIS

Cap

31

The Challenge of Global Sourcing

“A strong Global Delivery Model capability is no longer an option, but, a strategic imperative if Western IT services firms want to survive. The globally integrated operating model is based on a new way of managing organizations and processes, leveraging global talent, skills and capabilities which will deliver innovations”.

32

Innovative operating models to encourage Distributed Delivery

Increase offshore leverage

Taking advantage of labor cost advantage

Increasing blended mark-up

Increased value added

from offshore

Moving from a capacity model (number of seats) to a capability model (based on sector and technical expertise)

Developing offshore capabilities to deliver higher value added tasks

One Team

no prime/sub

Seamlessly integrating distributed teams (sales & delivery cycles)

Targeting and aligning investments in training

“Sharing Pain and Champagne” – avoiding finger pointing

Ability to manage

combined capacity

Changing behaviors to manage combined onshore and offshore capabilities in terms of training, recruiting, staffing, development, bench, pyramids etc…

33

The O-O effect of new operating models

Sales

Transition and

delivery

People

Support

Expected onshore changes

Involvement of offshore in sales process “from the start”

Reliance on offshore driven proposals and offer development

New sales mix (project, service staff)

Joint involvement in transition and delivery

Demand forecasting accuracy

Stronger focus on combined productivity

Reconfiguration of the onshore pyramid

Optimization of combined bench

F&A, HR transaction optimization

Expected offshore changes

Developing the ability “to go hunting”

Sharing “the pain and champagne” of winning or losing deals

Stronger responsibilities in service delivery and account expansion

Stronger drive on productivity (as opposed to selling seats to onshore BUs)

Engagement / client management capability building

Tools and methods harmonization

Support cost optimization

34

The value chain and the combined management of pyramids

On

-sh

ore

Cap

ab

ilit

ies

On

-sh

ore

Cap

ab

ilit

ies

Off

-sh

ore

Cap

ab

ilit

ies

Off

-sh

ore

Cap

ab

ilit

ies

SalesSales DeliveryDelivery

Offshore Res

Service Del. Mgr

KT Lead

KT People

Bus. Analysts

[KT Processes]

DeliveryAssurance

Offshore Res

Service Del. Mgr

KT Lead

KT People

Bus. Analysts

[KT Processes]

DeliveryAssurance

Sales+A/c Mgt

Offer

Development

Sales+A/c Mgt

Offer

Development

Sales+A/c Mgt

Bid

Management

Bus. Analysts

Sales Support

Due Diligence

Sales+A/c Mgt

Bid

Management

Bus. Analysts

Sales Support

Due Diligence

Service Del Mgr.

Delivery

Assurance

Release Mgr

Sys. Analyst

Bus. Analyst

Service Del Mgr.

Delivery

Assurance

Release Mgr

Sys. Analyst

Bus. Analyst

Service Del. Mgr

KT Lead

KT People

Bus. Analysts

[KT Processes]

Delivery

Assurance

Service Del. Mgr

KT Lead

KT People

Bus. Analysts

[KT Processes]

Delivery

Assurance

Service Del. Mgr

PMO

Bus. Analyst

Solution

Manager

Configuration

Manager

Service Del. Mgr

PMO

Bus. Analyst

Solution

Manager

Configuration

ManagerOff-shore Resourcing Mgr

Sales Support (Technical)

Bid Mgmt

Bus. Analysts

Off-shore Resourcing Mgr

Sales Support (Technical)

Bid Mgmt

Bus. Analysts

Service Del. Mgr

Delivery

Assurance

PMO

Bus Analyst

Sys Analyst

Service Del. Mgr

Delivery

Assurance

PMO

Bus Analyst

Sys Analyst

Service Del Mgr.

Bus. Analysts

Delivery

Assurance

PMO

Solution Manager

Configuration

Manager

Service Del Mgr.

Bus. Analysts

Delivery

Assurance

PMO

Solution Manager

Configuration

Manager

Sales+A/c Mgt

Sales Support

Offer

Development

Sales+A/c Mgt

Sales Support

Offer

Development

Demand

Creation

Demand

CreationProposalProposal Transformation TransformationTransitionTransition Service

DeliveryService Delivery

Typical Pyramid

Off-shore

Grade

F

E

D

C

B

A

Key:

Increasing % of staff

Dedicated Off-shore interface staff identified

in red text

35

Operating Models with aligned KPIs and P&LOffshore P&LMgmt KPIsPeople

Model 1

5-10%

Transaction based rate card

Offshore P&L

SPOC in region No KPIs

India manages pool of staff

Pure staff aug.

Model 1.5

18m

• 10 -30% Offshore P&L

Rate card

Dedicated team

Joint sales and delivery KPIs

BU commits for up to 50%, discounted

Other staff bought on rate card

Model 2

24m

30 -60%

Offshore P&L (of dedicated team) is consolidated onshore

Dedicated team

Joint sales and delivery KPIs

BU commits up to 80% , real cost

Other staff paid on rate card

36

Key Success Factors

What sets IT Services suppliers apart and determines success is the degree to which technical, commercial and customer

related collaborative activities are embedded in the DNA of the business.

37

The new Outsourcing Heroes

TCS Technologies Key figures:

− 141.642 employees (July.2009)

− Revenue FY2008-09 6B US$

− YoY growth US$ 23%

− Nett income 1134M US$ 18.9%:

− Clients >900

− Onsite Offshore :44.4%/ 55.6 %

Infosys Key figures:

− 104,850 employees ( April 2009)

− Revenue FY2008-09 4,663B US$

− YoY growth US$ 11.7%

− Nett Income 1,281M US$ 27.4%

− Clients 569

− Onsite Offshore 46.2%:53.8%

Wipro Technologies

Key figures:

− 98,521 employees (July 2009)

− Revenue FY2008-09 4,323B US$

− YoY growth US$ 12%

− Nett Income 676M US$ 15,6%

− Clients 830

− Onsite :Offshore49.6%:50.4%

Key figures:

− 386,558 employees (2009)

− Revenue FY2008 103.6B US$

− India: 100,000 employees

Key figures:

− 180,000 employees (31Aug 2009)

− Revenue FY2008 23,4B US$


Key figures:

− 88,000 employees (2009)

− Revenue FY2008 8.710B Euro’s



Thank You: [email protected]

Lse 4th December 2009

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