1 brian economaki gabriel gaspar harald tolleshaug tran thi thu huong s trategic r oadmap
TRANSCRIPT
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Brian EconomakiGabriel Gaspar
Harald TolleshaugTran Thi Thu Huong
STRATEGIC ROADMAP
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A. Perspectives
1. ITO and BPO Industry size across the globe
2. The Evolution of BPO solutions
B. Growth
1. vCustomer
2. Shaping the new Strategy
3. Going International
C. Plan
1. Implementation Roadmap
2. Financial Status
Presentation Agenda
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[ perspectives ]
The competitive Landscape
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Cost competitive destinations attracted most of ITO and BPO companies
ITO and BPO Industry size in Outsourcing Destination Countries 2004 [USD m]
Canada
8,200
5,500
200
Ireland
2,200
S. Africa
220
Hungary
50
25
Brazil
Poland
110
70
Romania
30
25 Malaysa
120
40
Philippines330
800 India
12.2
5.2
China
700
300
Russia
550
25
ITeS Exports
BPO Exports
Source: 1) neoIT
Mexico100
200
Situation Analysis: ITeS and BPO Outsourcing Destination
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As competitiveness increases, companies must offer value based solutions which improve their clients way of doing business
Services offered by major companies:
AMOUNT OF VALUE CREATED
Strategic Impact
1980 1985 1995 2000 2005 20101990
Out-tasking
BPO
Transformational BPO
Data Entry
Application Support Technical
Support
Maintenance
Rules-based Processing
Customer Contact/ Hardware & Installation Support Problem Solving
Full Process Outsourcing
Product Development & Testing
Design & Integration
Remote Infrastructure Management
Valu
e A
dd
ed
Situation Analysis: Value Creation through BPO
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Although it is the cost-benefit perspective which attracts new clients – Differentiation and Value must be created
vCustomer Solutions Objectives of Value Creation
Client Retention• MOVING FROM COSTS TO
SPEED AND INNOVATION
Custom Solutions• ADDING VALUE THROUGH
TRANSFORMATIONAL BPO
Client Acquisition• ENTERING NEW MARKETS
AND BUSINESS AREAS
SERVICES MIXCUSTOM PRODUCTSQUALITY AND EXPERTISE
Situation Analysis: Quality Differentiation
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Geographical Expansion
[ growth ]
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While major players (>1 bn USD) fight for large accounts, vCustomers specializes in middle-sized companies
Accenture, CSC, EDS, Fijutsu, HP and IBM combined have only 21% of market-share 1)
“Vendors who do not narrowly dominate niches in the broad market will continue to try and find the shrinking number of buyers who still buy on a relationpship basis.”
21 %
Vinnie MirchandaniFounder of Deal ArchitectAnd Jetstream Group
UNTAPPED DEMAND LIES ON MIDDLE-SIZED COMPANIES
WHO WERE LEFT BEHIND ON THE OUTSOURCING PROCESS
GROWTH POTENTIAL
Source: 1) Gartner
Growth Strategy: Potential of Middle-Sized Companies
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Competition is forcing players to expand internationally in order to further explore cost savings synergies
Products
Benefits National markets Consolidation activities
Regional markets
Phase 1: National consolidation Phase 2: Internationalization Phase 3: Multinational consolidation
Time
Country A Country B
Country C Country D
Country A Country B
Country C Country D
Country A Country B
Country C Country D
• Economies of scale• Risk is less dependent on
a single geographical area• Additional funds for further
growth – size drives further size
Growth Strategy: Benefits of CRM, BPO
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•Departmentalization of government Health Care Providers
•Demand for ITES in HR, Training, Revenue Cycle Management
•Looking to cut costs wherever customer care isn’t sacrificed
Trends Changing Demand: 2007-2010
•National Health Systems Gaining Interest in BPO
•Global Service Delivery in all Health Care Business Processes
•Positive impact of nearshoring
Solution: End-to-End Business Process Solutions in long term contracts, maintaining quality and evaluating performance
Current State of Demand: Health Care (Europe)
Growth Strategy: Health Care Upcoming in Europe
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Entering Europe through the back door – Cost-competitive countries on Eastern Europe will provide language and IT skills
MoscowRiga
Kiev
Warsaw
Prague
BudapestBucharest
• Language proficiency8
• Education System7
• Infra-structure6
• Location + Culture (nearshore)5
• Process maturity4
• Industry size3
• CAPEX + OPEX expenditures
2
• Labor cost1• Labor skill Level9
Medium
Low
High
Country Analysis Framework
Sofia
Growth Strategy: Competitive Entrance In Eastern Europe
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Expansion Location: Plovdiv & Varna (Bulgaria)As the market grows, further expansion can happen in Hungary
Bulgaria India USA
Cost[% of income per capita]
Min. Capital[% of income per capita]
Dealing with Licences[% of income per capita]
9.6
104.2
325
Procedures [#] 11
Difficulty of Hiring (0-100)
Difficulty of Firing(0-100)
Cost of Firing(0-100)
Strength of Investor Protection (0-100)
10
30
5.3
61
61.7
0
678
11
90
79
6.0
56
0.5
0
16.9
5
10
0
8.3
0
124001700
7900
2100700
Bulgaria (1-2 years) Hungary (3rd year) TOTAL
Cities with Students [# of graduates]
Source: “Doing Business in 2006 – World Bank and the International Finance Group, McKinsey Quarterly”
Need
for g
row
th
expa
nsio
n
Varna Plovdiv Budapest Szeged
Evaluation beforeexpading into Hungary
Growth Strategy: Entering Bulgaria, Monitoring Hungary
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Expansion Location: Monterrey, Mexico
•Primary Service: U.S. Market 81% ITES, 2006
•Serve Spanish speaking population in U.S.: est. 100m
•Proximity to U.S. border Nearshoring
•Infrastructure Strength:
•Two International Airports
•5 renowned Mexican Universities: Monterrey Institute of Technology and Higher Studies
Source: World Bank and IFC, 2006
Growth Strategy: Entering Mexico
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[ plan ]Implementation Roadmap
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Year 1
Bulgaria
• RPO Recruitment & training - Bulgaria
Year 2
Mexico Evaluate and develop
• RPO Recruitment & training – Mexico
• Evaluate Bulgaria
• Consider expansion Romania/Hungary
• Evaluate Mexico
• Further development on, or exit from, European healthcare market
Bulgarian call center goes live
Mexican call center goes live
Year 3
Internal
External
• Pursue healthcare clients in European Markets
Implementation Roadmap – Projects take place in a three year period according to milestones and checkpoints
3-Year Implementation: Overview
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Financial Status
Revenues 2003-2006
$0
$20,000,000
$40,000,000
$60,000,000
2003 2004 2005 2006
• Positive CF since Q4.2001
• 25 mio. $ accumulated money reserve
• Stable CF from established CRM business
Your financial flexibility is able to support the
recommended expansion without raising further capital
3-Year Growth: Financial Outlook
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3-Year Growth: Necessary Info. For Further Consulting
• Full disclosure of financials/accounts• Budget preparation, evaluative criteria
• Potential and existing partnerships• Offices/call centers operations• Historical process of expansion• Cash flows Risk evaluation• Client List• Contacts• R & D programs and projects• Strategic road map
Consulting for further opportunities through monitoring and evaluation of all emerging markets. Risk analysis
and trend identification, as well as strategic positioning for partnerships and/or acquisitions.
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Ease of Doing Business – a ComparisonWorld Ranking – Ease of Doing BusinessRanking Criterias
BulgariaBulgaria – Ease of Doing BusinessWhy Bulgaria?Cities to operate in – Eastern Europe
MexicoMexico – Ease of Doing Business
China – Ease of Doing BusinessWhy not China 1?Why not China 2?Why not China 3?
India – Ease of Doing Business
EU Map
SWOTvCustomer – the Company
Competitive LandscapeMotivations to OffshorePorter’s Five ForcesOffshore Market Potential 1Offshore Market Potential 2Multiple Engagement ModelsIndian Business ModelsVendor Selection Criteria
Country Attractiveness IndexITO LandscapeBPO LandscapeCountry SWOT 1Country SWOT 2Why Europe? – Offshore penetration by geography
BPO in Europe – Q1 2007
A Viable Investment
A Financial Example
Thank You. Questions?
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Porter’s Five Forces
IndexPorter’s Five Forces
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Doing Business – a Comparison
IndexEase of Doing Business
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Bulgaria
•member of the EU since 1.1.2007
•inflation rate of 6,5% in 2006
•flat corporate income tax 15% (no other European country beats this)
•established time limits on issuing licenses
•ranks 62 on the World Bank’s ‘Ease of Doing Business Ranking’, China ranks 91, India ranks 116 and US ranks 3
Source: “Doing business in 2006” – A copublication from the World Bank and the International Finance Corp., and “The World Factbook” - CIA
IndexOverview: Bulgaria
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Bulgaria – Ease of Doing Business
Source: “Doing business in 2006” – A copublication from the World Bank and the International Finance Corp.
IndexOverview: Bulgaria Cont.
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Mexico
•corporate income tax 30%
•Inflation rate of 3.4% in 2006
•ranks 73 on the World Bank’s ‘Ease of Doing Business Ranking’, China ranks 91, India ranks 116 and US ranks 3.
•nearshore to the US
Source: “Doing business in 2006” – A copublication from the World Bank and the International Finance Corp., and “The World Factbook” - CIA
IndexOverview: Mexico
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Mexico – Ease of Doing Business
Source: “Doing business in 2006” – A copublication from the World Bank and the International Finance Corp.
IndexOverview: Mexico Cont.
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China – Ease of Doing Business
Source: “Doing business in 2006” – A copublication from the World Bank and the International Finance Corp.
IndexOverview: China
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India – Ease of Doing Business
Source: “Doing business in 2006” – A copublication from the World Bank and the International Finance Corp.
IndexOverview: India
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Ease of Doing Business Ranking
Source: “Doing business in 2006” – A copublication from the World Bank and the International Finance Corp.
IndexEase of Doing Business By Country
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IndexEase of Doing Business Criteria
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IndexMap of EU
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Where to go – Eastern Europe
Plovdiv & Varna
IndexEastern Europe Suitabl Graduates
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SWOT
StrengthsQuality servicesCustomized solutionsCall centers in IndiaISO & Six Sigma certified
WeaknessesHigh costs - no economies of scaleSmall product umbrellaLimited financial abilityOnly located in India
OpportunitiesNearshoringIncreasing demand from Europe
ThreatsIncreasing competition Market saturationIncreasing nr. of BPO companiesIndustry M & ALosing quality during expansion
IndexvCustomer SWOT: April 2007
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vCustomer – the Company
•Close to 100% customer retention
•Ranked as fastest growing private company in the ITES industry in 2004
•Ranked among the top 5 pure play call-centers in 2006
•Ranked 12th among the top 20 BPO companies in India
•20 marquee clients
•4500 employees
IndexvCustomer: Company Profile
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IndexBPO Competitive Landscape
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Motivations to Offshore
IndexPotential Client Offshore Motivation
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•Inability to compete immediately with larger companies
•Lack of specialization/training of staff
•Economies of scale
•Trend toward megacontracts
IndexWhy not banking, financial services & insurance?
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IndexCountry Attractiveness Index 1
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Country Attractiveness Index 2 - ITO
IndexITO Landscape: 2006 (McKinsey)
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IndexBPO Landscape: 2006 (McKinsey)
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Country SWOT 1
IndexCountry Analysis (neoIT)
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Country SWOT 2
IndexCountry Analysis (neoIT) Cont.
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Why Europe?
IndexWhy Europe?
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•Current competitive strength•Foundation of company, developed infrastructure of operations•Despite rising labor costs, relatively low with other viable options•Potential for growth still high•Competitive advantage expertise of all business practices in country
vCustomer needs to continually monitor India during all future evaluation periods. Competitive advantage with familiarity can lead to positioning in
numerous circumstances, including partnerships, mergers, or any offerings of strategic buyouts.
IndexWhy India?
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Why Bulgaria?
Primary Criteria Secondary Criteria
•Strategic Partnership
•Nearshoring: EU
•Improving infrastructure
•Future potential
•EU Membership: Prioritized region
•Qualified workforce
•Gaining experience for potential EU operations
Ease of transition to essential market to optimize first mover
advantage
Index
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Why not China?
Red Ocean
•Economies of scale of larger (over $1b revenue) companies
•Pre-Olympic ‘boom’ vs. post-Olympic economy
•Strength in India
IndexWhy not China?
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Why not China?
• Lack of English speaking employees, high cost of internet connectivity, workforce immaturity.
• Unfamiliarity with culture• Economic advantages of EU and NAFTA• Not looking solely for cost advantages
China needs to be continually monitored as an expansion option to 2010 and beyond
IndexWhy not China? Cont.
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Why not China?: Nearshoring
IndexWhy not China? Cont.
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IndexOffshore Market Potential
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Offshore Market Potential 2
IndexITO/BPO Industry Outlooks: 2005
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JV/ Alliance
Indian best-of-breed vendor
Delay
Outsource to Global brand
Captive
JV/ Alliance
Indian best-of-breed vendor
Delay Captive
From primarily captive… …to a hybrid model
Feasibility of outsourcing the process
Cross-border operation sophistication
Outsource to Global brand
Source: McKinsey Analysis
IndexMultiple Engagement Models
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Pure Captive Model• An internal cost center or a 100%
subsidiary company set-up to execute offshore business processes and/or IT services
• Amex, Dell, Standard Chartered, HSBC, Ford, Sun
Captive Models
Joint Venture (JV)• Joint Venture with equity participation
from customer and vendor. Customer retains control due to investments in entity.
• British Telecom - Mahindra
Strategic Alliance/Joint Venture Models
BOT and Inverted BOT • Where the Indian Provider sets up facility
and provides implementation support to start with
• Customer can buy out at a predetermined stage
• Reverse scenario has also been seen in the market
• Aviva-WNS/EXL,24/7, AIG- Polaris
Pure Outsource• Use of a India-based provider to offshore
business processes or IT services
Outsource Model
Managed Outsource• Full-/part-time resources on the ground
in India to facilitate transition, relationship mgmt and transfer of organization and domain knowledge to third party providers
India Business Models
IndexIndian Business Models
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IndexCriteria for Vendor Selection
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Start Up Cost per Teleworker One-Time
Furniture, Equipment and Telecommunications $5900
One time charges, Set-up & Installation $1200
Total per Teleworker $7100†
Ongoing Monthly Costs Recurring
Telecommunications $110/month
Network & home office/teleworker support $110/month
Total Average Cost per Year $2640
Year One Average Cost $9740
Year Two Average Cost $2640
Recurring One-Time
Savings from unneeded office build out $1,500,000
One-Time start-up Costs (710,000)
Annual Real Estate Cost Avoidance $ 500,000
Productivity ($50K salary x .15 x 100) 750,000
Retention ($50K salary x .20 x 100) 1,000,000
On-Going annual costs (264,000)
Net Annual Savings (1st Year) 276,000 790,000
Net Annual Savings (2nd - 5th years) 1,986,000
Total Five Year Savings 10,010,0008
Startup Costs
Source: UCN, Inc.
Index
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BPO in Europe - 2007
Index
•BPO activity in last 12 months higher in EU than in US
•Benelux and Central Europe up 13%
-Trend for growth throughout all of Europe, not just UK
•Industry specific outsourcing responsible for increase in Europe
Source: Nelson Hall April 17, 2007
BPO in Europe: April 17th, 2007
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“Czech Republic, Hungary, Poland, and Slovakia—can offer average labor cost savings of 40 to 60 percent over costs in Western Europe, while cities in EU-candidate and non-EU countries can offer cost advantages of60 to 80 percent.”
- The McKinsey Quarterly - “The Overlooked Potential for Outsourcing in Eastern Europe”, Dec. 06
IndexA Viable Investment