IT Consulting | IT Contracting

Outsourcing your IT requirements

to the Philippines

3W IT Consulting and IT Contracting

Industr y White Paper
Outsourcing IT Contracting to the Philippines, a White Paper by 3W IT Consulting and Contracting

Offshore Outsourcing
and the Nearshore Revolution
Produced by Bruce Mills, CEO of IT company 3W IT Consulting and IT Contracting Pty Ltd

1.1 INTRODUCTION

Bridge-building must surely be one of the most versatile metaphors in the English language. It applies equally well
to the IT resourcing and contracting industry, where Offshore Outsourcing enables companies to link and build a
bridge between a highly skilled, readily available IT workforce in one country, to meet their own IT requirements in
a local market that is experiencing high demand and short supply for IT skills (and all the problems associated with
such market dynamics).

Be it outsourcing, best-shoring or Nearshoring (essentially variations on a theme), this popular practice infinitely
widens the talent pool that companies can tap into. And the practice of Nearshoring, where the workforce in a
neighbouring country is utilized (more on this later), can deliver benefits above and beyond the broader outsourcing
models. A skilled IT workforce can be engaged by local companies on everything from short term project based
work, to ongoing IT maintenance and support. This requires little change to the management and infrastructure of
most companies. The rewards can be significant, notwithstanding the substantial cost savings in manpower and
real estate provided by tapping into a market where the prices of both can be up to 70% less than in Australia.

In a truly global economy, where competitors can be next door, or half way around the world, outsourcing and
more specifically Nearshoring allows companies to gain a greater ROI from their workforce by realizing economies
of scale not normally achieved with their own internal people. The flow on effects include; access to a labour market
that has skills not available locally, better control and management of a lower cost resource base, infinite scaleability
of the business, ability to turn the Nearshore workforce on and off as dictated by the local business climate or if
there is no longer a need for the workforce (such is the case in many IT projects).

In today’s global economy, companies cannot afford for outsourcing not to be included in their strategic plans,
and Nearshoring as demonstrated in this White Paper is an effective strategy that requires minimal investment for
companies in people, company culture and technology.

“THE CLIENT IS WELCOME TO TRAVEL ACROSS THE BRIDGE AND

EXPLORE OPPORTUNITIES THAT OFFSHORING PROVIDES…”
In considering the bridge building analogy further, outsourcers such as 3W are able to efficiently join together
local clients with international resources. Engaging in this solution allows the client to cross the bridge and reap
the benefits outsourcing and Nearshoring delivers. And returning to their existing local labour model is as simple
as returning back across that bridge. As a Nearshore partner, 3W builds efficient bridges between the needs of
the clients and its nearshore expertise. This carries a simple guarantee. If the outcome does not meet the clients’
expectations, the bridge is dismantled and 3W will help restore the clients previous status quo, including providing
any required locally sourced resources.

Nearshoring has the potential to help transform any entity into a globally competitive powerhouse, returning
shareholders improved profits and more importantly, better outcomes for their clients and customers.

3W White Paper / January 2010

IT Consulting | IT Contracting
1.2 NEARSHORING YOUR COMPANY’S IT

Determining what IT functions or projects can be delivered in conjunction with a Nearshore partner is a decision
that depends entirely on each individual company. There is no blanket solution for all companies across all
industry sectors. And the decision and model engaged depends on the major benefit each client is looking to
achieve by Nearshoring.

Some factors that need to be considered in the decision process include:

• What is the main objective and benefit sought by the company in nearshoring? Is it cost savings? Scaleability?
Reducing time to market? Overcoming physical real estate constraints? To name a few.
• Are the IT functions/projects open to nearshoring considered to be critical or non-critical to the business, its
operation, competitiveness and ultimate ability to satisfy its own clients and customers?
• Are there any management, cultural, structural or technological issues to be considered in the decision? How
ready is the Company to make this step?
• How much control does the Company want to retain? Maximum control is delivered when the company
directly manages the nearshore workforce. This is like engaging local contractors, except the supplemental
workforce is not across the workstation, but a couple of thousand kilometers away. The opposite end of the
model is to hand all responsibility over the the Nearshore partner, sit back and wait for them to deliver.

These issues and objectives should be addressed at Executive Management levels in the company, ensuring
they are reflected in the company’s strategic vision. They should also be addressed at an operational
management level. After all, this management level will ultimately decide the success of any nearshoring
functions of the company.

3W White Paper / January 2010

IT Consulting | IT Contracting
1.3 DELIVERY MODELS FOR NEARSHORING

Nearshoring can be applied to both IT applications and IT infrastructure, whether it be from a development or
deployment perspective, or support and maintenance.

Generally speaking, application development and infrastructure support utilising a Nearshore team has a
number of models that the company and partner can adopt.

For example, for applications development, the following table outlines some suggested engagement models
and their most suited application.

Engagement Models: Well suited to cases where:

1. FULLY ON-SITE TEAM • Staff augmentation is required at

client locations.
• Consulting forms an integral role.
• On-site studies are necessary.

2. NEARSHORE AND ON-SITE LEAD TEAM • Reduced customer interaction

Nearshore resources in design, coding and testing. is appropriate.
The lead team remains on-site and can include: • IP or Knowledge Transfer from the
customer is limited.
• Project Management Lead
• A well defined scope of tasks is outlined.
• Knowledge Transfer Lead
• Quality Assurance Lead

3. FULLY NEARSHORE TEAM • Procedures and policies are well defined.

Nearshore Lead Teams are trained on-site before • Communication requirements between
returning overseas to provide skills pertaining to: departments are less intensive.
• Project Management • The nature of the work is repetitive.
• Knowledge Transfer
• Quality Assurance

3W White Paper / January 2010

IT Consulting | IT Contracting
1.4 THE CURRENT OFFSHORE LANDSCAPE

Regardless of the various permutations of outsourcing, there any many countries around the world that
have well established industries for managing the IT requirements of companies across the globe. And like
all markets, there are dominant players, market innovators and new participants entering the market as
globalization drives ongoing evolution in this sector. The table below shows the major players in this industry
and their respective market share.

As outlined in Fig 1 below, India is the absolute market leader in the IT outsourcing market with a 38% share
of the global market. The sector is highly matured and has built its success on the back of supporting the IT
needs of corporations and governments across the USA. It has a national industry body, the Indian National
Association of Software Service Companies (NASCOM) and a focus from its tertiary education sector on
producing an ever increasing number of IT graduates to feed a seemingly insatiable local and international
IT market. But as with all maturing participants, the Indian IT outsourcing sector faces its own challenges;
supply and demand issues for skilled and battle hardened IT workers, rising standards of living that are
pushing IT salaries to approach equivalent levels to that in western countries, huge demands on infrastructure,
mismatched cultures to client countries and practices (both social and business), and communication skills in
a multilingual society. All these factors have impacted on India’s ability to maintain its operational and cost
competitiveness in a truly global market.

The rest of the market players including Russia, Mexico, Malaysia, Brazil hold single figure shares of the global
market and have their own challenges to overcome in meeting client expectations and standards. These
include (but are not limited to), infrastructure bottlenecks at a country level, cultural and business ethics
issues, human and workforce rights, communication skills with English often being a second language, alleged
corruption, lower standards of education, distance and time difference to clients etc.

For Australian companies there is a better alternative.

COUNTRY MARKET SHARE

INDIA 38%

CHINA 6%

MEXICO 5%

IRELAND 5%

CANADA 5%

RUSSIA 4%

PHILIPPINES 4%

MALAYSIA 4%

SINGAPORE 4%

Fig. 1 - Table showing market share in the Global Offshore IT Landscape

3W White Paper / January 2010

IT Consulting | IT Contracting
1.5 NEARSHORING WITH THE PHILIPPINES AS AN OPERATIONAL BASE

An outstanding alternative in the global outsourcing market, and a neighbour to Australia is the Philippines.
This country has a mature IT outsourcing industry with globally competitive service providers (also in Call Centre
and BPO outsourcing), a western tertiary education system based on the USA model producing high quality
IT graduates, infrastructure in its main outsourcing centres of Manila and Cebu that effectively supports the
industry, a population where English is a first language, a cultural outlook that is similar to that of major western
countries such as Australia, and a geographic and time proximity that sits well with Australia’s working week.
Also, 90% of the population has a family member working and living in a developed country such as Australia,
so there is great affinity between the Philippines and more economically developed states.

All this adds up to a destination that is highly conducive to and effectively supports an IT Nearshoring industry
for the Australian market.

For more than a decade, the principals of 3W have recognized this potential and have arguably more experience
and success than any other service provider in Australia in supporting clients with their IT needs, by utilising
the skilled labour market in the Philippines.

1.6 GOVERNMENT SUPPORT

The Philippine Government has formed the Information Technology and E-Commerce Council [ITECC] in order
to promote itself as an attractive offshore outsourcing hub. In observing the success of the Indian software
services sector, the ITECC has proactively positioned their workforce to better provide the skills and services
which are in high demand. As a result of consultation between private enterprise and government, the ITECC
was pivotal in establishing the Information and Communications Technology [ICT] policy, which focusses on
the following four key initiatives:

• Developing IT development zones within city planning;

• Enhancing the Philippines information infrastructure;
• Promoting services to potential clients; and
• Providing a regulatory environment which is conducive to growth.
• Legislating to ensure wages remain contained.

This final point is most interesting in that it highlights the Philippine government attitude to the needs of their
offshore partners, both in terms of tax policy and the returns on foreign investment.

3W White Paper / January 2010

IT Consulting | IT Contracting
1.7 INDUSTRY SUPPORT

Outsource Philippines (OP) assists companies such as 3W IT Consulting and Contracting in ensuring the
smooth transition to offshore services for their clients. It provides information to business as well as certification
within the ICT industry. The organisation also proactively monitors the quality of service delivered to members
of the association.

Virtually all Philippine software sector firms are located in Metro Manila. As the nation’s capital the proximity to
human resources is favourable and the telecommunications infrastructure is centralised in this area. Outsource
Philippines has its base in Manila. It acts as an information gateway to the predominant ICT activities of BPO,
call centering, transcription services, software development and maintenance.

1.8 RESOURCE AVAILABILITY

In the world market readily available resources are priced accordingly. The same can be said of the enormous
pool of IT talent available in the Philippines. Their universities continue to produce a vast number of highly
skilled graduates. Availability ensures overseas clients get precisely the resource that they need, regardless of
their IT requirement. And where such a requirement is highly customised, this workforce can be quickly trained
to perform a very specific task, adapted to suit the needs of the client.

There is great pride in the Philippines in their ability to cater to the diverse needs of overseas IT partners. Their
workforce remains one of the most skilled in the world. This reputation continues to attract quality graduates,
encouraging high achievers to strive toward the goal of working for members of the globalised economy.

3W White Paper / January 2010

IT Consulting | IT Contracting
1.9 COMMUNICATION SERVICES

The Philippines has good international radiotelephone and submarine cable services as well as a domestic satellite
system with 11 earth stations. Cellular communications now dominate the industry. These include combined fixed-
line and mobile-cellular telephone density of about 80 telephones per 100 persons. A series of submarine cables
together provide connectivity to Asia, US, the Middle East, and Europe, with multiple international gateways. There
were a total of 283,607 internet hosts in 2009 as well as 5.618 million internet users.

3W White Paper / January 2010

IT Consulting | IT Contracting
 “THE PHILLIPINES REMAINS
ONE OF THE WORLD’S BEST
UNTAPPED RESOURCES OF
SKILLED IT TALENT”

1.10 PROVEN GLOBAL INDUSTRY

The outsourcing market in the Philippines, while holding a relatively small market share of the total global industry
(4%), is a well proven participant. IT Outsourcing, BPO Outsourcing and Call Centre Outsourcing are the major
sectors, with many Fortune 500 companies taking advantage of the unique benefits available from outsourcing
in this country.

They include:

IT Outsourcing BPO Outsourcing Call Centre Outsourcing

Deutsche Bank HSBC Optus
Macquarie Bank Lufthansa Singtel
Morgan Stanley IBM Verizon
American Express Shell Teletech
QBE Siemens Convergys
ANZ Nestle
Accenture
Fujitsu
Ford Motor Corp
Intel

3W White Paper / January 2010

IT Consulting | IT Contracting
2.0 YOUR REQUIREMENTS

The benefits of Nearshoring have been well canvassed in this document. Adequately meeting the needs of
your company also requires a clear objective on your behalf. In identifying your business objective there are
key questions you will need to answer. These include:

• What components of workflow could most easily be outsourced?

• Where do inefficiencies currently exist within our organisation?
• Which department/s would most benefit from an outsourced work process?
• How would BPO savings be best utilised within your organisation?
• How much time can be allocated to the effective implementation of BPO?
• Who will provide the information interchange between the Nearshore partner and your organisation?
• Who will be responsible for meeting targets and achieving objectives?

Once you have more or less identified answers to these issues, you will find the process of outsourcing more
rewarding, and simpler to implement.

3W White Paper / January 2010

IT Consulting | IT Contracting
3.0 CROSSING THE BRIDGE WITH YOUR NEARSHORE PARTNER

3W IT Consulting and Contracting has established itself as a reliable partner for organisations looking to
reduce overheads while maintaining their IT service levels. Extensive research has demonstrated the benefits
of the Philippines as a Nearshore destination for IT outsourcing. Cost-savings of up to 50% can be readily
achieved from the budgets of most companies, whether they be SMEs or large multinationals.

3.1 PROFESSIONAL AND DEPENDABLE OUTSOURCING SOLUTIONS

3W is well positioned to help companies explore the benefits of taking advantage of the Nearshore revolution.
This could range from advice and input around feasibility and strategic fit with a company, through to holding
their hand through their first Nearshore engagement.

3W White Paper / January 2010

IT Consulting | IT Contracting
 IT Consulting | IT Contracting

Contact Us
Toll Free No: 1300 857 773
International Phone No: +61 7 3897 3009
Email: info@3w.com.au

Brisbane
Level 1, 21 Redcliffe Pde
Redcliffe QLD 4020

Sydney
Level 12, 1 Pacific Highway
North Sydney NSW 2060

Melbourne
Rialto South Tower
Level 27, 525 Collins Street
Melbourne VIC 3000

Philippines - Nearshore Centre

Level 8, Pryce Centre Building
1179 Don Chinos Roces Ave
Makati City, Philippines 1200

3W White Paper / January 2010

IT Consulting | IT Contracting