KPMG IssuesMonitorApril2011

Issues Monitor
Sharing knowledge on topical issues in the

Electronics, Software & Services industry
April 2011, Volume Seven kpmg.ie
Gary Matuszak
Global Chair, Electronics, Software & Services
Keeping up to date with the very latest and most pressing issues facing your organization can be a challenge, and while there is no shortage of information in the public domain, filtering and prioritizing the knowledge you need can be time consuming and unrewarding. Issues Monitor Electronics, Software & Services is published to help you navigate the multitude of information out in the market. I hope that you find it useful and I welcome the opportunity to further discuss the issues presented and their impact on your business.
Welcome to the April edition of Issues Monitor Electronics, Software & Services. Each edition pulls together and shares industry knowledge to help you quickly and easily get briefed on the issues that affect your sector.
ISSUE 1: Labor issues in China forcing electronics manufacturers to review strategy With the recent labor unrest in China, the era of cheap labor available for technology companies operating there seems to have reached an end. Moreover, the growing labor shortage and the tightened labor regulations have aggravated the situation for electronics manufacturers. These companies had previously been able to accumulate capital at the expense of labor. However, the changing attitudes of workers have compelled companies to re-evaluate their manufacturing strategies and focus on their workforce management.
ISSUE 2: IT outsourcing industry growing amid challenging environment The IT outsourcing and offshoring industry is still struggling through difficult economic conditions and a stringent anti-outsourcing regulatory environment in the US and Europe. However, despite the uncertainty regarding economic recovery, the industry is experiencing some modest growth. This is being driven by increased IT spending by companies around the world. Apart from cutting costs, companies are now looking for outsourcing service providers who can also add value and provide them with any sort of competitive advantage.
ISSUE 3: Patent wars in technology industry In the rapidly evolving technology industry, innovation is the key to maintain market position and profitability. In addition, companies need to protect their innovations through patent acquisition. With the rising competition in the technology industry, companies have started enforcing patents more aggressively to gain strategic and financial advantages. Further, a number of patent holders that do not sell any product or service have also been filing lawsuits.
2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
Issues Monitor: April 2011, Volume Seven | 1
Labor issues in China forcing electronics manufacturers to review strategy

With the recent labor unrest in China, the era of cheap labor available for technology companies operating there seems to have reached an end. Moreover, the growing labor shortage and the tightened labor regulations have aggravated the situation for electronics manufacturers. These companies had previously been able to accumulate capital at the expense of labor. However, the changing attitudes of workers have compelled companies to re-evaluate their manufacturing strategies and focus on their workforce management.
2 | Issues Monitor: April 2011, Volume Seven
Introduction
Chinas economy has been gradually liberalized after emerging as a global manufacturing hub, helping it to attract large amounts of foreign direct investment (FDI). The share of global manufacturing of North America, Western Europe and Japan fell from 85 percent in 1990 to about 73 percent in 2009, with much of their shares going to China. The key to Chinas success was its low wages.1, 2, 3, 4 Over the past few years, Chinas image as a source of low-wage labor, and consequently as a manufacturing hub, seems to be changing. The long working hours in sub-standard conditions for lower wages have led to a labor outrage. Consequently, Chinese industries particularly the automotive and electronics industries have had to deal with labor disputes in the form of strikes and suicides. In 2009, 318,000 labor disputes were brought to the courts in China, up from 295,000 in 2008. In the first eight months of 2010, the number had already reached 207,400.5, 6, 7, 8 In 2010, many electronic contract manufacturers (ECMs) were affected by labor-related issues. In June, Taiwans Foxconn a key supplier to Apple, Sony and Motorola experienced strikes and labor suicides as employees protested against the rising cost of living, large income gaps, long working hours and deteriorating working conditions at its Shenzhen factory.9 Other Chinese electronic manufacturers, such as Flextronics and Merry Electronics, also had to deal with labor disputes and demands for higher wages.10, 11 These instances highlighted the failure of companies and the Chinese government to protect the rights and interests of workers. Further, they showed how Chinas flawed collective bargaining system (i.e. negotiations between management and unions) had failed to give workers sufficient rights to negotiate their wage scales, working hours and overtime agreements. At the same time, they uncovered a rising awareness among the new generation of Chinese factory workers.12, 13
Labor issues compelling companies to review strategy

The following are the key reasons leading companies to review their manufacturing strategies: Increase in labor costs The recent instances of labor outrage have compelled electronic manufacturers to raise wages. In July 2010, Merry Electronics raised wages by 10 percent to end a strike by its workers.14 Further, in October 2010, Foxconn also raised its wages from CNY900 (US$135.10) to CNY2,000 (US$300.30), in response to a spate of labor strikes and suicides.15, 16 These hikes have put pressure on companies, as such wage increases may lead to lower operating margins for ECMs and other technology companies.17 For example, the high
Increased labor wages, changing regulations and labor shortage lead to supply chain disruption.
labor costs affected Flextronics operating margin, as it failed to meet its target of 3.5 percent in the second quarter of 2010.18, 19 Electronics companies are trying to figure out how to deal with the higher costs. Theyre already squeezed, so squeezing more costs out of the system wont be easy, said Jenny Lai, Technology Analyst at Hong Kong-based investment bank CLSA.20
Change in policies and regulations to encourage wage hikes The increased incidence of labor disputes in China has resulted in a change in the landscape of labor laws and practices in the country, as shown in table 1. As the government looks to reduce the income disparity and promote greater consumption by middleand low-income households, it has started to introduce new labor laws
related to unionization, collective bargaining, downsizing and more. These laws are likely to ultimately result in wage increases.21, 22 These changes in Chinas labor laws indicate that wages will inevitably rise and workers will attain more power. Technology companies are feeling the heat, and consequently, re-evaluating their manufacturing strategies.
Table 1: New regulations in China aimed at labor reforms
Purpose Encourage collective bargaining
Date January 2011
Details Chinas National Trade Union Federation announced its plans to introduce collective wage negotiation in all companies by 2012. Nationwide experience has suggested that collective wage negotiation not only reduces labor disputes, but also helps workers wages rise. It is also conducive to sustainable development of enterprises, said Zhang Jianguo, Head of the Collective Contract department of All China Federation of Trade Unions (ACFTU).23 The Social Security Law of the Peoples Republic of China was passed during the 11th session of the Standing Committee of the National Peoples Congress of China. The law, which comes into effect on July 1, 2011, is the first of its kind to explicitly address social security issues such as pensions, basic medical insurance and joint payment of unemployment insurance by employer and employee. The law also stipulates that employers must compensate for work-related injuries and provide maternity insurance.24 About 30 provinces in the country had raised their minimum wage, with an average increase of 22.8 percent year-on-year (y-o-y). Some of the regions that announced wage hikes were Beijing, Chongqing, Guangdong, Jiangsu and Shanghai.25
Address social security issues of workers
October 2010
Grant more power to demand wage hikes
By end 2010
Labor shortage Apart from Chinas higher wages and changing labor laws, labor shortage is another growing issue. The number of 1524-year-old Chinese nationals ready to work is likely to decrease 30 percent over the next 10 years, according to the US Census Bureau.26 The labor shortage was most pronounced in Chinas coastal regions, which experienced a
shortage of 10 million workers in 2010, with the Pearl River Delta region alone needing 23 million workers. One of the main factors contributing to this labor shortage is Chinas 30-year-old one-child policy.27 This is exacerbated by the fact that many Chinese workers from the hinterlands now prefer to stay in those regions, where the cost of living remains low.28
Another startling statistic shows that applications for government jobs have jumped from 87,000 in 2003 to 1.4 million in 2009.29 This indicates that the number of people willing to work in factories and farms has dropped considerably.30 Therefore, the challenges for technology companies increase, as they are required to pay even more to attract available skilled labor.31, 32
Figure 1 shows the impact of various labor-related issues faced by ECMs and the subsequent impact on technology companies.33, 34, 35, 36, 37, 38, 39
Figure 1: Revenue growth of IT outsourcing service providers, Q4 2009 and Q4 2010 (%)
Increased labor wages, changing regulations and labor shortage lead to the following: Supply chain disruption Inability of factories to take full orders Lower operating margins for ECMs, which already have slim margins
Issues
Foxconn Internationals share price at the Hong Kong Stock Exchange fell 40 percent in 2010. It was the biggest drop among Hang Seng Indexs constituents. The company suffered losses due to increase in wages. Compal Electronics, Flextronics and Quanta Computer are also facing issues pertaining to increased operating expenses, mainly due to increased labor wages.
ECMs
The increased labor costs are affecting technology players, such as Dell, LG, Acer, HP and other technology players that rely on ECMs. Increased labor costs may be transferred to the technology companies. Amid intense competition where technology companies are compelled to lower their ASPs; increased labor wages will aggravate conditions.
Technology Companies
Electronics manufacturers consider relocation

In order to deal with labor issues and cost-cutting, some technology companies are moving from the coastal province of Shenzhen to the inland provinces of Henan and Hebei. This shift is also being driven by improved transportation facilities to those regions and the availability of labor there.40 Further, inland regions such as Chenzhou in Hunan are ramping up infrastructure projects, providing attractive destinations for electronics manufacturers looking to escape the restrictive labor laws, rising labor costs and undesirable changes in reform legislation in Shenzhen.41 Manufacturing companies operating in China are also looking to other countries that offer lucrative options. Mexico, with its proximity to the US and lower wages, is now more cost competitive than China.42 Also, India and other Asian countries are luring technology companies to establish their manufacturing plants there. Russia, Vietnam and several nations in North Africa and other low-cost countries with decent technological infrastructure offer attractive options.43, 44 According to a report released at the World Economic Forum (WEF) in January 2011, Vietnam and India already
The cost savings advantage and the availability of labor in other regions have pushed electronics manufacturers to consider relocation.
compete with China as major global manufacturing hubs, both having lower labor costs. They also represent important consumer bases in the future.45
Table 2 presents a comparison of labor wages in three cities Dongguan (China), Chennai (India) and Ho Chi Minh City (Vietnam).
Table 2: Labor wages in Dongguan (China), Chennai (India) and Ho Chi Minh (Vietnam)
City Dongguan Chennai Ho Chi Minh
Average wage per month per worker (domestic currency) CNY3,549 INR3,600 US$116
Average wage per month per worker (US$) 521.9 78 116
Source: Relocation Costs from China to India and Vietnam, China Briefing, September 3, 2010
Table 3 shows the labor force availability in China, India, Mexico, Vietnam and Brazil through 2014. As shown, the surge in Chinas working population is coming to an end, with the result that firms are looking to establish facilities in other countries with large labor pools, such as India and Mexico.46
Table 3: Labor force in China, India, Mexico, Vietnam and Brazil, 201014 (million)
Country China India Mexico Vietnam Brazil

Source: EIU
2010 815.3 478.3 46.9 47.3 103.6
2011 816.2 487.5 47.7 48.2 105.5
2012 816.3 498.4 48.5 49.1 108.1
2013 815.2 508.4 49.4 49.9 110.4
2014 812.4 517.6 50.2 50.7 113.1
The cost savings that can be achieved by relocating to other geographies and the availability of labor in other regions have pushed electronics manufacturers to expand their manufacturing bases to other areas. Foxconn announced a 40 percent increase in its workforce in 2011 in inland China, where wages are lower.47 On December 8, 2010, Foxconn entered into an agreement with the Hunan provincial government to build production and R&D bases in Changsha and
Hengyang. Moreover, officials in the two provinces have plans to initiate preferential policies in terms of land use and taxation for the benefit of Foxconn.48 In September 2010, Michael McNamara, Chief Executive Officer of Singapore-based Flextronics International, which manufactures mobile phones, auto parts and medical products for other companies, said that the company is focusing more on Mexico, primarily due to the rising wages in China.49
Dell announced that it would supply PCs from India instead of China, due to rising manufacturing costs in China, particularly to countries in the Middle East, Africa and the Commonwealth of Independent States (CIS). Having started exporting PCs from its Sriperumbudur, India, plant in 2010, Dell has become the first major PC brand to export from India. It now exports several thousand units every month to West Asia.50
Outlook
Such moves by electronics manufacturers to other manufacturing bases are likely to continue. With the reports of labor suicides at Foxconn in January 2011 and the increasing criticism of Apple for the wretched working and environmental conditions at its factories in China, it has become imperative for manufacturers to shift their facilities.51, 52 The shift into other geographies is supported by the WEF (held in January 2011) statement that Western China, India and Southeast Asia will become the major low-cost global production bases over the next 1520 years.53 Further, other low-cost offshore locations, such as Latin America and East Europe, are also gaining traction.54 Moreover, increasing government support and the drive to liberalize and develop the electronics industry in countries such as India and Vietnam are attracting electronics manufacturers.55 Also, the increased investment in infrastructure by Chinas inland provinces and other low-cost economies indicate that the business conditions in these geographies are improving.56, 57, 58 In India, for instance, tax exemptions, improved power supply, abundant water supply and qualified local talent have attracted electronics companies to the states of Uttarakhand and Uttar Pradesh, where they are manufacturing computers, printers, servers and high-end electronic products.59 These shifts depict a change not only in the manufacturing strategy of other geographies to attract ECMs, but also a change in Chinas growth model from export-driven to domestic demand-driven. Chinas growth is expected to be rebalanced by the governments overall strategy of raising wages, which is part of its macroeconomic policy to improve Chinas living standards and boost its local consumption.60 However, these developments also present some challenges, both for the ECMs and the Chinese economy. The high cost of setting up new factories is expected to increase both the management risk and financial burden on companies.61 Moreover, even though companies are shifting to low-cost regions, workers across the world are demanding higher wages. In
Although electronic manufacturers are moving to other regions, they need to conduct due diligence and closely consider the long-term operational and financial benefits.
2011, wages in Vietnam are expected to rise 12.2 percent, and those in Indonesia 9.2 percent, according to a survey by Mercer Consulting.62 With Chinas wages expected to rise 19 percent annually through 2015, technology companies are facing a tough call.63, 64, 65 Therefore, technology companies need to closely consider their next moves. They need to conduct due diligence and closely consider the long-term operational and financial benefits.66 Moreover, they will need to focus more on workforce management and avoid any incidents that could malign their image in the public eye.
Will the high cost of setting up new factories deter companies from relocating manufacturing facilities?
Further Information
How KPMG firms can help Supply Chain Optimization Our professionals apply their deep functional and operations knowledge and experience to assist clients in identifying and addressing cost optimization and revenue enhancement improvement opportunities while minimizing the impact on working capital and investment requirements. We focus on optimizing supply chain and operations performance impacting a number of drivers, including cost, working capital, tax, technology, risk, as well as people and change challenges. How KPMG firms can help Global Location & Expansion Services KPMGs Global Location & Expansion Services Practice (GLES) is a global practice that offers expansion based business services including Site Selection/Location Analysis, Business Incentive Negotiation, Credit Review and Economic Development Services. Each of these services is implemented and delivered nationally/internationally by a diverse group of professionals with extensive government and local relationships, industry knowledge, and market experience. Key contacts Gary Matuszak Global Chair, Electronics, Software & Services KPMG in the US Tel.+1 650 404 4858 gmatuszak@kpmg.com Maureen Migliazzo Global Executive Electronics, Software & Services KPMG in the US Tel.+1 650 404 4425 mmigliazzo@kpmg.com
IT outsourcing industry growing amid challenging environment

The IT outsourcing and offshoring industry is still struggling through difficult economic conditions and a stringent anti-outsourcing regulatory environment in the US and Europe. However, despite the uncertainty regarding economic recovery, the industry is experiencing some modest growth. This is being driven by increased IT spending by companies around the world. Apart from cutting costs, companies are now looking for outsourcing service providers who can also add value and provide them with any sort of competitive advantage.
Introduction
The recession changed the way major companies across industries conduct business, significantly affecting the IT outsourcing and offshoring industry. As companies focused more on critical management decisions and stability, many large projects were cancelled and long-term IT outsourcing decisions were delayed. In the third quarter of 2008, there were few new IT outsourcing contracts and the total number of contracts fell sharply. Contract prices also fell, resulting in diminishing profit margins and lower revenues for IT outsourcing providers.67, 68 However, the slowdown was not all bad news for the IT outsourcing and offshoring industry. As companies in the US and Europe faced operational and financial challenges, many looked to outsourcing as a possible means of improving operational efficiencies and saving costs.69,70 This resulted in smaller-scope contracts that enabled companies to cut costs with minimal up-front investments.71
IT outsourcing and offshoring industry picking up

With the global economy starting to recover, the IT outsourcing and offshoring industry is also showing signs of revival. Increased IT spending by businesses in the US and Europe is driving contract renewals and leading to some megadeals (deals above US$1 billion).72 In the third quarter of 2010, transactions worth US$3.4 billion in annual contract value (ACV) were signed, up from US$3 billion in the previous quarter, according to the Everest Group, a leading global services advisory firm. The increase in ACV was due to five mega IT outsourcing (ITO) deals signed during the quarter. Apart from those, 60 ITO deals, with contract values exceeding US$50 million, were also signed during the same period. The global outsourcing market is holding steady and is being upheld by an increase in contract renewals and traction in the ITO segment, said Eric Simonson, Managing Partner at Everest Research.73 Demand that built up during the recession and a return of discretionary spending led to this growth, which
was reflected in the earnings of IT outsourcing and offshoring providers.74 Figure 2 shows the growth in revenues of the major players.
10% TCS
The global outsourcing market is holding steady and is being upheld by an increase in contract renewals and traction in the ITO segment.
Figure 2: Revenue growth of IT outsourcing service providers, Q4 2009 and Q4 2010 (%)
Y-o-y revenue growth (%)
50% 40% 30% 20% 10% 0% -10% 5.1% Infosys 20.0% 28.5%
44.4% 28% 19% 5% Cognizant Wipro Q4 2009 HCL Q4 2010 9.30% -4% Accenture 32.70% 31.30%
Source: Company Quarterly Reports *Only outsourcing revenues taken for Accenture
The revenue growth shown in Figure 2 indicates that the industry is gaining momentum. Also, there have been several mega deals in the industry. In December 2010, electricity and gas utility company E.ON announced an IT outsourcing deal with HP for US$1.4 billion to manage its data centers and PCs.75 And, in October 2010, IBM inked a US$1.8 billion IT outsourcing deal with ABN Amro to help speed its merger with Fortis Bank Nederland.76 However, mega deals are still not at pre-recession levels. With the sovereign debt crises in Europe and the low inflation and unemployment in the US, the industry is still facing a tough economic environment.77, 78 The difficult economic conditions have deterred clients from making long-term investments in projects and compelled them to renegotiate contracts, putting
pricing pressure on service providers. Moreover, clients are reconsidering their outsourcing strategies, and looking for small, flexible and specialized providers that can help them turn around their business requirements quickly.79, 80, 81 Further, they are now looking beyond any particular country, and are instead opting to contract with service providers across various low-cost regions.82 Clients seek balanced portfolio of offshore locations India has long been the most preferred offshoring location for clients. Currently, India remains the number one offshoring location, owing to its vast labor pool and low costs. However, it is facing intense competition from other geographies primarily from China, with its immense talent pool, but
also from Malaysia, the Philippines, Indonesia, Vietnam, Sri Lanka and other Asian countries.83, 84 Apart from these offshore locations, companies across industries are also exploring nearshore locations, which offer low-risk outsourcing solutions due to their geographical proximity to clients. Locations such as Mexico, Chile, Brazil and other Latin American countries are gaining importance due to their proximity to the US. Similarly, Eastern Europe nations such as Bulgaria, the Czech Republic, Hungary, Poland, Romania, Russia, Slovakia and Ukraine are attractive nearshore destinations for Western Europe-based clients.85, 86, 87 All of these offshore locations have advantages and disadvantages as described in Figures 3 and 4.88, 89, 90
Figure 3: Offshore locations and regional features
Asia Pacific
Russia Slovakia Ukraine Hungary Romania China
Americas Mexico, Chile, Brazil
Mexico Costa Rica Brazil
Egypt
India Sri Lanka
and Costa Rica score well on government support, availability of labor pool, infrastructure and educational system.
Vietnam Philippines Malaysia Indonesia
Chile Argentina
EMEA
South Africa
India maintains its position as the Number One offshore location. China scores well on political and economic environment, while improving on its cultural compatibility. Indonesia scores well on cost advantage and availability of labor pool, while Malaysia scores well on improved government support and infrastructure.
Egypt and South Africa score well on government support. However, the region lacks in terms of cost attractiveness, quality, scale of appropriate resources and educational system.
Source: Gartners 30 Leading Locations for Offshore Services, 2010-2011 Note: Gartner rated countries on ten criteria and then arrived on a composite score to determine the top 30 locations for offshore services. The criteria on which scores were given are: language, government support, labor pool, infrastructure, educational system, cost, political and economic environment, cultural compatibility, global and legal maturity, and data and intellectual property security and privacy.
Overall, with the exception of India, the Asia Pacific (APAC) region is in a need of improving its policies around data and IP security and privacy. However, its cost advantages give it an edge over Americas and Europe, the Middle East and Africa (EMEA).
While clients are evaluating the different factors that will determine their offshore locations, IT outsourcing and offshoring providers are facing issues pertaining to protectionist measures by some developed countries. The ongoing problems related to government
support, infrastructure development, and IP security and privacy coupled with increased regulation in the developed world are impeding the growth of the industry.
Figure 3: Headwinds faced by clients in offshore regions
Hungary and Romania need to focus on their deteriorating educational systems. The recent political crisis in Egypt is expected to adversely affect the countrys reputation as a preferred outsourcing location. The region needs to focus increasingly on government support.
In India, increased labor costs and attrition are the main issues. Also, the rising value of the rupee is making it less cost competitive. Indonesia is rated poor in terms of government support, while Bangladesh scores poorly in infrastructure. Both the Philippines and Thailand need to focus more on intellectual property (IP) protection, data security and privacy.
EMEA
Asia/Pacific
Americas
Data security, privacy and IP protection continue to be areas of concern in Brazil for particular and the region as a whole. Argentina needs to focus on its infrastructure.
Regulatory measures impeding growth

As the US and European governments are dealing with difficult economic conditions and high unemployment, they are looking to restrict offshoring in an effort to create more onshore jobs. This has spurred worries among IT outsourcing and offshoring providers, as they fear a decline in the work from clients in developed markets. If you look at whats been happening in the US...there has been a trend, the role of the government and regulatory controls that have come on business have been higher, said Som Mittal, Chairman of the National Association of Software and Services Companies (NASSCOM), India.91, 92, 93
The US and European governments are looking to restrict offshoring in an effort to create more onshore jobs.
Following are some of the regulations enacted by the US that pose a challenge to the outsourcing industry: Regulatory measures by the US to restrict offshoring94 In August 2010, the US Senate passed a bill that requires all companies with more than half of their US-based employees on H1-B or L-1 visas to pay an additional fee of US$2,0002,500 per visa. The measure, which aims to raise US$600 million to help secure the USMexico border, is expected to have an adverse impact on IT outsourcing and offshoring industries in India, China and the Philippines, as it will make on-site resources much costlier.95, 96, 97 In September 2010, the US state of Ohio banned outsourcing of government IT and back-office projects to offshore locations such as India. Indian IT companies have raised concerns over the regulation, as they perceive it as a protectionist barrier which will affect their margins.98, 99 In December 2010, the US Congress passed a bill creating a US$4.3 billion fund to provide free medical treatment to those suffering from illnesses contracted while clearing the debris resulting from the 9/11 terror attack. The bill will be funded in part by extending the increase in fees on certain categories of H-1B and L1 visas for US-based employees of non-US companies. The increased fees, which were passed in August 2010 and were to remain in force until 2014, have been extended to 2015. This measure is expected to
have a negative impact on Indian IT outsourcing companies.100, 101 The uncertain climate regarding the anti-outsourcing regulations in the US is expected to have implications for the industry, particularly in India. According to N. Chandrasekaran, Chief Executive of TCS, Unemployment (in the US) remains high, so the protectionist measures they introduced last year are still there and this causes concern to us.102 Impact on Indian IT companies Offshoring work to India is a US$50-billion industry, and the Indian tech industry has benefitted immensely from American firms seeking to take advantage of its low wages and educated workforce. The industry employs about three million people across India and has largely been responsible for the sea change in the Wests perception about the country. The increased fees for the H1-B and L-1 visas will increase the annual US visa costs for the Indian IT outsourcing industry by US$200250 million. The increased financial burden has compelled IT outsourcing providers to look for alternatives. Indian IT companies, such as Infosys, Wipro and TCS, are planning to increase the hiring of foreign nationals in their respective markets.103, 104, 105 Infosys is expected to hire more US nationals to overcome the risks from changes in the US visa policy.106 In October 2010, the company announced that it would create 1,000 new jobs in the US for outsourcing and other service jobs.107 In February 2011, Wipro announced its plans to develop
IT service centers around Atlanta, thereby creating thousands of jobs in the region.108 While on one hand, the increased hiring of US nationals looks like a viable solution, on the other hand, it raises concerns regarding cost challenges and a shortage of skilled workforce in the US. The planned hiring of 2,300 employees by TCS, Wipro and Infosys, as announced in September 2010, would increase their payroll expenses by 13 percent. According to Ken Chan, Vice President of Moodys Investment Services, TCSs hiring a worker in the US can cost seven to eight times as much as one hired to do similar work in India.109 Another challenge faced by IT outsourcing providers in foreign markets is the shortage of skilled IT engineers. IT outsourcing providers say they are forced to look for skilled foreign workers to fill job positions in the US, as US universities are not producing enough engineers to meet the industry demand. If you look at the core of what we do, the technology work, the US simply doesnt have the talent base today, said Francisco dSouza, President and CEO of Cognizant, a US-listed Indian outsourcing group.110 The challenging situation in the US is forcing several Indian outsourcing service providers to reduce their dependency on the US market. They are now looking to increase their revenues from Europe and other emerging markets. Europe spends as much as the US on IT and we want to make sure that our revenues mirror that IT spend, said Kris Gopalakrishnan, CEO of Infosys.111
Outlook
Despite the fluctuations experienced by the IT outsourcing and offshoring industry, it is expected to demonstrate growth. Besides cost cutting, clients are looking to achieve greater operational efficiencies, especially as they expand their geographical footprint. The following are some of the trends the industry witnessed in the beginning of 2011: Even as they are against offshoring, governments see outsourcing as an opportunity to cut costs. The governments outsourcing contracts in both the US and Europe present a huge opportunity to outsourcing service providers in these countries.112, 113, 114, 115 For example, in January 2011, US space agency NASA signed a US$2.5 billion outsourcing deal with HPs Enterprise Services unit in Virginia, US to manage its desktop, mobile and computing needs. The contract has a four-year base period and two three-year renewal options.116 Banking, Financial Services and Insurance (BFSI) sector is seeing an increase in outsourcing to low-cost locations, as companies seek to lower the costs of complying with new regulations and integrate banking systems of acquired assets. In February 2011, Americas top banks Citigroup, JP Morgan and Bank of America announced plans to outsource projects worth US$5 billion in 2011 to India.117 Besides large corporations, SMEs are also looking at outsourcing. The need to innovate and remain competitive while focusing on their competencies and quality is driving them to turn to outsourcing, which is expected to increase their revenues.118 Consolidation in the industry is also expected to pick up globally, as the larger service providers look to provide a broader range of services.119 The need to expand in terms of both product range and geography is pushing mergers and acquisitions (M&A) activity in the industry, and the availability of small players is providing the required impetus.120 Competition in the industry is expected to intensify, as new service providers from Latin America and Eastern Europe enter the market.121 The fierce competition is resulting in a major change in the industry the
The Banking, Financial Services and Insurance (BFSI) sector is seeing an increase in outsourcing to low-cost locations as it seeks to lower the costs.
addition of a knowledge component. Many clients are seeking work from players that offer expertise in their respective areas. Further, the increasing need to meet a clients business objectives is pushing outsourcing and offshoring providers to innovate and offer value-added services.122, 123 The IT outsourcing industry is facing challenges due to the ongoing economic uncertainty and various anti-outsourcing regulations. However, these difficult conditions are also creating compelling circumstances for governments, clients and outsourcing service providers to develop a balanced approach to attain cost savings, achieve operational efficiency, and ensure industry growth.
Further Information
Visit kpmg.com for the following related publications KPMGs Global Transfer Pricing Review How KPMG firms can help Sourcing Advisory Services KPMG has extensive experience assisting companies with their large and small scale sourcing activities. We offer a structured approach to assist clients with outsourcing or the implementation and operation of shared services, using a methodology was developed based upon the collective experience of KPMG practitioners from member firms around the world. The methodology draws heavily upon real world examples to illustrate what needs to be done and provides general guidance on how to complete the necessary steps. Key contacts Gary Matuszak Global Chair, Electronics, Software & Services KPMG in the US Tel.+1 650 404 4858 gmatuszak@kpmg.com Maureen Migliazzo Global Executive Electronics, Software & Services KPMG in the US Tel.+1 650 404 4425 mmigliazzo@kpmg.com
Patent wars in technology industry

In the rapidly evolving technology industry, innovation is the key to maintain market position and profitability. In addition, companies need to protect their innovations through patent acquisition. With the rising competition in the technology industry, companies have started enforcing patents more aggressively to gain strategic and financial advantages. Further, a number of patent holders that do not sell any product or service have also been filing lawsuits.
Rise of IP litigation in technology industry

With the rapid evolution of the technology industry globally, innovation has become imperative for companies to maintain their market position and profitability. To survive in this environment, technology companies must also focus on protection of intellectual property (IP) and patent acquisition.124 Further, an analysis of US patent grants shows that companies from technology-related sectors such as semiconductors and communication devices were granted the most patents in 2010. IBM led the list of patent assignees with 5,896 patents in 2010, up 20 percent year-on-year (y-o-y). This was followed by Samsungs 4,551 patents (up 26 percent), and Microsofts 3,094 patents (up 6.5 percent). The top 10 patent assignees globally are all technology-related companies, and their dominance highlights the ongoing innovation across the technology industry.125 However, this increased focus on innovation and patents is resulting in more patent litigations, as technology companies are increasingly enforcing their patents to gain strategic advantage and profit from their investments.126 During 2010, the technology industry encountered numerous IP lawsuits, with relief sought ranging from monetary compensation and licensing agreements to permanent injunctions (prohibiting the sale of products that infringe on the patent).127 Also, similar suits were filed by some non-practicing entities (NPEs hold patents but do not develop or sell any products based on those patents). In 2010, a number of these NPEs initiated patent infringement suits, which led to a number of settlements.128, 129, 130, 131
Major IP lawsuits and their drivers

Lawsuits by technology companies Many of the IP lawsuits in 2010 were focused on the mobile phone market, where incumbent players such as Nokia and Motorola face tough competition from relative newcomers such as Apple. In the computing hardware and software sectors, there were fewer lawsuits, as the competitive positions are well defined.132 Most of these patent lawsuits were filed either with the United States International Trade Commission (USITC), in attempts to ban the infringing products from being imported to the US, or with district courts, in attempts to gain monetary compensation.133 The rising demand for consumer electronics in China and the rest of Asia, signifying changing demand demographics, has led to an increase in patent litigation cases around the world. In 2009, Chinas State Intellectual Property Office handled over 24,400 litigation cases, much more than the few thousand cases at the start of the decade.134, 135 The major drivers of patent lawsuits in the technology industry include the following: Increasing licensing complexity due to technology convergence Smartphones, tablets and similar
devices are manufactured by combining technologies, mostly patented, from different industries. As the number of players involved in the development and commercialization of any
Increase in R&D activity by technology companies will lead to a greater need for patent protection.
single product is increasing, the licensing for the related technologies has become increasingly complex. It is becoming difficult not only to confirm whether or not companies are engaging in patent infringement, but also to determine who is to be held responsible for such activities. All these factors are driving companies to file lawsuits to protect their IP from competitors and profit from it through licensing agreements.136, 137 Smart phones combine lots of amazing innovation from both
computing and mobile telephony, and technology companies are seeing their patents as a potential source of leverage, as something that can help them improve their competitive position against other firms seeking to take advantage of this great confluence of technologies, said Deepak Somaya, a patent strategy expert at the University of Illinois.138 Increasing R&D activity driving need for greater patent protection With the increasing chip complexity and the shorter product life cycles, research and development (R&D) activity has
increased across all semiconductor companies.139 In 2010, TSMCs spending on R&D grew 44 percent y-o-y, to US$945 million. Intel and Samsung Electronics also increased their R&D spend during 2010.140 And according to a survey report by KPMG published in December 2010, semiconductor R&D spending is expected to grow in 2011, as 47 percent of those surveyed stated that they expect it to grow six percent or more.141 This increase in R&D activity will lead to a greater need for patent protection. Table 4 lists some of the recent IP lawsuits by technology companies.
Table 4: Recent IP lawsuits by technology companies
Companies Apple and HTC
Cases filed In March 2010, Apple filed a patent infringement complaint against HTC, alleging that its mobile phones infringed on 20 Apple patents related to its device user interface, underlying architecture and hardware. The complaints were filed at the USITC and the District Court in Delaware, US.142 In May 2010, HTC countersued, saying that Apples iPhone, iPad and iPod infringed on five of its patents. The dispute between the companies is still to be resolved. 143
Motorola and Apple
In October 2010, Motorola filed a complaint with the USITC against Apple, alleging that its products infringe on 18 of Motorolas patents. The company sought an injunction banning the import of the infringing products into the US, and demanded compensation from Apple.144 That same month, Apple countersued Motorola, alleging that Motorolas smartphone line-up violates six Apple patents.145 Further, in December 2010, Apple filed 12 more countersuits against Motorola. This move was in response to a declaratory judgement by Motorola in Delaware, US, that would have ruled the patents invalid and prevent Apple from using them in court.146
Microsoft and Motorola
In October 2010, Microsoft filed a patent infringement complaint against Motorola with the USITC for infringement of nine Microsoft patents by Motorolas Android-based smartphones. The suits are viewed as attempts by Microsoft to slow the growth of Android, which Motorola uses in all its smartphones and which competes with Microsofts mobile operating system.147,148 In November 2010, Motorola countersued, accusing Microsoft of infringing on 16 patents in its Xbox gaming console and in Windows for servers, personal computer (PCs) and mobile devices. Motorola has demanded that Microsoft stop using its patented technology and pay compensation.149
RIM and KiK Interactive
In November 2010, Research In Motion (RIM) sued Kik Interactive, a start-up whose instant messaging service was downloaded by BlackBerry users, for infringement and misuse of trademarks. RIM is seeking a permanent injunction banning the use of Kiks messaging application on its BlackBerry devices, as per the patent filed in the Federal Court of Canada.150 In December 2010, Sony Corp filed a complaint with the USITC, seeking to block LG Electronics from shipping phones to the US. Sony said that the phones, which include the Encore, LG Accolade and the Rumor Touch, use technology that infringes on its patents, and that their import would violate trade rules.151 In February 2011, LG Electronics countersued, seeking to block the sale of Sony Bravia televisions and PlayStation 3 consoles in the US.152
Sony and LG Electronics
Companies Nokia and Apple
Cases filed In December 2010, Nokia filed claims against Apple in the UK High Court, the Dusseldorf and Mannheim District Courts in Germany and the District Court of the Hague in the Netherlands, alleging that Apple infringed on its patents in many of its products sold in these countries. The products under question include the iPhone, iPad and iPod Touch. Nokias claims include patents related to touch user interface, on-device app stores, signal noise suppression and modulator structures.153 In January 2011, Taiwans Hon Hai Precision Industry filed a lawsuit in the Dongguan Intermediate Peoples Court in China against Taiwan-based component maker Suyin, alleging that the company infringed on Hon Hais patent rights when manufacturing CPU socket connectors.154, 155 In January 2011, Japans Sharp Corp. filed a lawsuit in the US against AU Optronics of Taiwan, alleging that the company had infringed on its liquid crystal display (LCD) patents. The complaint included the names of AU Optronics customers Benq Corp, Haier Group, LG Electronics, Sanyo Electric, TCL Corp and Vizio Inc.156 Sharp is seeking a US ban on the import and sale of those products that infringe on its patents. It is also demanding compensation from AU Optronics. The lawsuit came after Sharp and AU Optronics failed to renew a contract at the end of 2010, under which Sharp would license its patented LCD technology to AU Optronics.157
Hon Hai Precision Industry and Suyin Sharp and AU Optronics
Motorola Mobility and In February 2011, Motorola Mobility Solutions filed a lawsuit against TiVo Inc in the federal court in Texas, TiVo US, alleging patent infringement and claiming that Motorola owns the rights to certain digital video recording (DVR) technologies.158 Further, the NPEs also contributed to the increase in the number of patent lawsuits in 2010. These lawsuits involved a broad spectrum of technology companies, including many NPEs, and a number of companies have settled by agreeing to pay for the use of patents.159, 160, 161, 162
Table 5 lists some of the major lawsuits by NPEs in 2010. However, as NPEs are not the developers of technology, they are viewed as trolls by many industry executives, as they are not adding value to the industry but just unnecessarily increasing litigation costs.173
Table 5: Recent IP lawsuits by NPEs
NPEs Wi-LAN Inc
Case In February 2011, Canadian patent licensing company Wi-LAN Inc agreed to end litigation with CSR, a UK-based wireless technology company, after CSR agreed to pay to license Wi-LANs patent portfolio. Similarly, in January 2011, Wi-LAN announced settlements with PC maker Acer and chipmakers Intel, Broadcom and Atheros.163, 164 Wi-LAN has filed patent suits against Apple, Sony and Toshiba over Bluetooth technology; LG Electronics over the V-chip; HTC Corp.; Exedea Inc. over handsets; and Alcatel-Lucent, Sony Ericsson and Ericsson over base stations; among other lawsuits.165
Intellectual Ventures LLC
In December 2010, Intellectual Ventures, which holds and licenses thousands of patents, announced three patent infringement suits against makers of security software, memory chips and programmable semiconductors. The targeted companies include Symantec, McAfee, Elpida Memory, Hynix Semiconductor, Altera Corp, Lattice Semiconductor and Microsemi Corp.166, 167 Seeking to protect themselves from patent litigations, HTC and Samsung had already entered into long-term patent licensing agreements with Intellectual Ventures in November 2010.168
Interval Licensing LLC
In December 2010, Interval Licensing, a firm owned and controlled by Microsoft cofounder Paul Allen, revised a patent infringement suit against various technology giants, including Apple and Google, alleging infringement of e-commerce patents. The litigation centers around automatic discovery features such as displaying related content. Earlier in the month, the suit had been dismissed by the US district judge in Washington, US, on the grounds that the allegations lacked factual detail, such as the specifications of the goods and services of the defendants that infringe on the companys patents.169, 170, 171 In November 2010, the University of New Mexicos patent arm, STC, filed a lawsuit against Intel, alleging the infringement of a patent related to chip manufacturing. STC is seeking damages from Intel. Five companies including Toshiba, Samsung Electronics and Taiwan Semiconductor Manufacturing (TSMC) have already signed licensing deals with STC for use of its patents.172
STC
Companies taking steps to avoid IP litigation

IP disputes are a drain on a companys financial resources, as they can be very expensive and usually take years to be resolved.174 Many companies are taking relevant steps to avoid IP litigation. Cross-licensing agreements Many technology companies are entering into cross-licensing agreements with their traditional rivals to avoid future litigations. A cross-licensing agreement allows companies to access each others patent portfolio. These agreements allow them to avoid IP litigation, as a company that enters into cross-licensing agreement with its competitor can neither sue, nor be sued by, its rival.175 Rather, they enable the companies involved to innovate and operate freely, and help them keep pace with sophisticated technology and business demands.176
Technology companies are subscribing to defensive patent aggregation services to avoid potential lawsuits from NPEs.
Recent examples of such agreements include the following: Intel Corp and Nvidia In January 2011, Intel and Nvidia signed a six-year cross-licensing agreement to settle a year-long legal dispute over the extension of the patentlicensing agreement between the two companies. In February 2009, Intel had sued Nvidia to prevent it from developing compatible chipsets for next-generation Intel processors, claiming that the agreement between the two companies did not extend to processors with integrated memory functionality. In return for access to Nvidias portfolio of patents, Intel agreed to pay US$1.5 billion in licensing fees to Nvidia in five annual instalments, beginning January 18, 2011. This agreement ends the legal dispute between the companies, preserves patent peace and provides protections that allow for continued freedom in product design, said Doug Melamed, Senior Vice President and General Counsel, Intel.177, 178, 179 IBM and Samsung Electronics In February 2011, IBM signed a patent cross-license agreement with Samsung Electronics. The agreement allows the two companies to use each others
patented technologies. The financial details of the agreement were not disclosed.180 According to Dr Seungho Ahn, Executive Vice President and Head of the IP Center at Samsung Electronics, This licensing agreement will help both companies expedite innovation and achieve business growth by providing each company access to the others patents for basic technologies. We also hope the agreement will open new opportunities for wider collaboration between two of the leading innovators in the technology industry.181 Defensive patent aggregation services As technology companies look for ways to avoid potential lawsuits from NPEs, a number of them are subscribing to defensive patent aggregation services provided by start-ups such as RPX Corp and Allied Security Trust (AST).182, 183 A defensive patent aggregation service provider identifies and acquires patents that can be used offensively against members of its client network. The patents may be acquired from a third party or directly from an NPE. The service provider usually charges an annual fee from its clients in return for
providing a license to its entire portfolio of patents and promising not to litigate.184, 185 Defensive patent aggregator RPX charges its clients annual subscription fees, ranging from US$60,000 to US$6.2 million, based on the clients operating income.186 In return, clients receive rights to the entire RPX patent portfolio. As of October 2010, RPX had invested over US$240 million to acquire more than 1,500 patents and patent rights across six market sectors consumer electronics and PCs, e-commerce and software, media content and distribution, mobile communications and devices, networking and semiconductors. The company has over 70 clients, including major technology companies such as Intel, Sony, Hynix Semiconductor, Motorola Mobility, Research In Motion, HTC Corporation, LG Electronics, Nokia and Samsung.187, 188 Our clients are realizing the benefits of our platform, which provides them the opportunity to invest collectively in the patent market, while efficiently sharing resources and reducing litigation risk, said John Amster, Chief Executive Officer, RPX.189
Outlook
Patent attorneys do not expect any slowdown in IP litigations in 2011. In fact, the global mobile industry, specifically, is expected to experience a rise in patent litigation. At the same time, the rulings in those lawsuits that were filed in 2010 and are up for hearing in 2011 will influence whether other litigants choose to fight or settle their disputes.190, 191 In order to deal with the backlog of patent applications, the US is considering introducing the Patent Reform Act of 2011. This bill will address the massive backlog and speed up the process of patent prosecutions. It also proposes a shift in the US patent system which is currently based on the first-to-invent principle to one based on the first-to-file principle. In addition, the bill provides a significant cost advantage to companies when resolving any disputes that involve priority of invention. Currently, such a case could involve legal fees of up to US$400,000. However, under the new act, establishing priority of invention by using a filing date through provisional application costs just US$110. These changes are expected to benefit leading technology companies that spend millions to determine the date of conception and adhere to diligence rules.192, 193, 194 At the same time, it will also require increased diligence on the part of technology companies. Technology firms can avoid IP litigation cases and expensive settlement suits through stringent IP management. The following are some IP management practices that they can incorporate:195, 196, 197 Focus on contractual issues surrounding IP rights Technology and service-related agreements should clearly specify the rights of the different parties involved. This includes rights on who keeps the IP when the contract terminates and who has access to new IPs.
Technology companies are entering into cross-licensing agreements to avoid expensive litigation costs, and focus more on developing innovative products.
Enter into more cross-licensing agreements to avoid expensive litigation costs, and focus more on developing innovative products and keep pace with the changing demands. Keep track of IP laws in different geographies As companies are increasingly expanding their manufacturing bases across different geographies, they should keep track of all the IP laws in those countries. Also, the changing customer demand is compelling companies to focus on patent laws in different geographies, to avoid any undue hindrances in the sales of their products.198,199
IP management by technology companies will enable companies to not only save millions of dollars, but also maintain their established brand value.200
How are changing IP laws impacting the technology industry?
Further Information
Visit kpmg.com for the following related publications Semiconductor Industry Strength in an Unpredictable Global Economic Recovery: A Survey of Industry Executives - Fourth Quarter 2010 How KPMG firms can help Intellectual Property and Contract Governance We advise our clients on Intellectual Property (IP) management strategies that range from external protection and public profile considerations to reviewing the organizations own internal use and holdings of IP; as well as internal programs, policies, and procedures aimed at governing IP. Key contacts Gary Matuszak Global Chair, Electronics, Software & Services KPMG in the US Tel.+1 650 404 4858 gmatuszak@kpmg.com Maureen Migliazzo Global Executive Electronics, Software & Services KPMG in the US Tel.+1 650 404 4425 mmigliazzo@kpmg.com
Companies Mentioned in this Issue

ABN Amro Acer Atheros Alcatel-Lucent Allied Security Trust (AST) Altera Corp Apple AU Optronics Bank of America Benq Corp Broadcom Citigroup Cognizant Compal Electronics CSR Dell E. ON Elpida Memory
11 4, 20 20 20 21 20 2, 7, 17, 18, 19, 20 19 14 19 20 14 10, 13 4 20 4, 6 11 20
Ericsson Everest Group Exedea Inc Flextronics Fortis bank Foxconn Google Haier Group Hon Hai Precision Industry Hong Kong-based investment bank CLSA HP HTC Hynix Semiconductor IBM Infosys Intel Intellectual Ventures LLC
20 10 20 2, 4, 6 11 2, 4, 6, 7 20 19 19 3 4, 11, 14 18, 20, 21 20, 21 11, 17, 21 10, 13 11, 12, 17, 18, 20, 21 20
Companies Mentioned in this Issue

Interval Licensing LLC JP Morgan KiK Interactive KPMG Lattice Semiconductor LG LG Electronics McAfee Mercer Consulting Merry Electronics Microsemi Corp. Microsoft Moodys Investment services Motorola National Association of Software and Services Companies Nokia Nvidia Quanta Computer
20 14 18 8, 15, 23 20 4, 18, 19, 20, 21 18, 19, 20, 21 20 7 2 20 17, 18, 20 13 2, 17, 18, 19, 21 12 17, 19, 21 21 4
Research in Motion RPX Corp Samsung Sanyo Electric Sharp Sony STC Suyin Symantec Taiwan Semiconductor Manufacturing (TSMC) TCL Corp TCS TiVo Toshiba Vizio Inc Wi-LAN Inc Wipro
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19 2
Patent reform clears the Senate: debate over firstto-file patent system moves to the House, Lexology, March 15, 2011 Senate approves patent reform bill, EE Times, March 8, 2011 Intel pressing House to pass patent reform, Hillicon Valley, March 21, 2011 Q4 2010 Report, Apple TalkingPoint: Dealing With Intellectual Property Disputes, Financierworldwide.com, February 2011 Protecting intellectual property, KPMG, 2011 Intel 2009 Annual Report Evalueserve Analysis Sony Corporation, GlobalData, July 30, 2010
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Notes
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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. 2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International. Designed and produced by Evalueserve Contact: Vipin Kumar Head of Global Markets Research KPMG in India Tel.+91 124 612 9321 Publication name: Issues Monitor Publication number: 07 - 007 Publication date: April 2011

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Issues Monitor

Sharing knowledge on topical issues in the

April 2011, Volume Seven kpmg.ie

Issues Monitor: April 2011, Volume Seven | 1

Labor issues in China forcing electronics manufacturers to review strategy

2 | Issues Monitor: April 2011, Volume Seven

Labor issues compelling companies to review strategy

Issues Monitor: April 2011, Volume Seven | 3

Table 1: New regulations in China aimed at labor reforms

Purpose Encourage collective bargaining

Date January 2011

Address social security issues of workers

Grant more power to demand wage hikes

4 | Issues Monitor: April 2011, Volume Seven

Issues Monitor: April 2011, Volume Seven | 5

Electronics manufacturers consider relocation

City Dongguan Chennai Ho Chi Minh

Average wage per month per worker (US$) 521.9 78 116

6 | Issues Monitor: April 2011, Volume Seven

Country China India Mexico Vietnam Brazil

2010 815.3 478.3 46.9 47.3 103.6

2011 816.2 487.5 47.7 48.2 105.5

2012 816.3 498.4 48.5 49.1 108.1

2013 815.2 508.4 49.4 49.9 110.4

2014 812.4 517.6 50.2 50.7 113.1

Issues Monitor: April 2011, Volume Seven | 7

8 | Issues Monitor: April 2011, Volume Seven

Issues Monitor: April 2011, Volume Seven | 9

IT outsourcing industry growing amid challenging environment

10 | Issues Monitor: April 2011, Volume Seven

IT outsourcing and offshoring industry picking up

Y-o-y revenue growth (%)

Issues Monitor: April 2011, Volume Seven | 11

Figure 3: Offshore locations and regional features

Americas Mexico, Chile, Brazil

Mexico Costa Rica Brazil

India Sri Lanka

Vietnam Philippines Malaysia Indonesia

12 | Issues Monitor: April 2011, Volume Seven

Figure 3: Headwinds faced by clients in offshore regions

Regulatory measures impeding growth

Issues Monitor: April 2011, Volume Seven | 13

14 | Issues Monitor: April 2011, Volume Seven

Issues Monitor: April 2011, Volume Seven | 15

16 | Issues Monitor: April 2011, Volume Seven

Patent wars in technology industry

Issues Monitor: April 2011, Volume Seven | 17

Rise of IP litigation in technology industry

Major IP lawsuits and their drivers

18 | Issues Monitor: April 2011, Volume Seven

Table 4: Recent IP lawsuits by technology companies

Companies Apple and HTC

Motorola and Apple

Microsoft and Motorola

RIM and KiK Interactive

Sony and LG Electronics

Issues Monitor: April 2011, Volume Seven | 19

Companies Nokia and Apple

Hon Hai Precision Industry and Suyin Sharp and AU Optronics

20 | Issues Monitor: April 2011, Volume Seven

NPEs Wi-LAN Inc

Intellectual Ventures LLC