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Off-Shoring in Central and Eastern Europe

Off-Shoring in Central and Eastern Europe. 4 th Vienna Economic Forum – VEIT V. DENGLER Vienna, November 5 th , 2007. Executive summary. OFFSHORING TO CENTRAL AND EASTERN EUROPE IS A KEY BUSINESS IMPROVEMENT LEVER DELL IS A GOOD EXAMPLE OF MOVE OF KNOWLEDGE JOBS TO NEW LOCATIONS.

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Off-Shoring in Central and Eastern Europe

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  1. Off-Shoring in Central and Eastern Europe 4th Vienna Economic Forum – VEIT V. DENGLER Vienna, November 5th, 2007 DELL CONFIDENTIAL

  2. Executive summary • OFFSHORING TO CENTRAL AND EASTERN EUROPE IS A KEY BUSINESS IMPROVEMENT LEVER • DELL IS A GOOD EXAMPLE OF MOVE OF KNOWLEDGE JOBS TO NEW LOCATIONS DELL CONFIDENTIAL

  3. CREDIT SUISSE UPS INBEV • Center of excellence for banking back office in Wroclaw • F&A center in Wroclaw • F&a/converged services centers in Prague and Budapest WIPRO • New service center in Bucharest Almost 80 new centers announced in 2006/07, ~40,000 additional FTE off-shored to Eastern Europe, of which 10,000 in new centers, 30,000 in existing centers Off-shoring to Central and Eastern Europe countries NEW CAPTIVE SETUPS LOGICACMG CONVERGYS EXPANSION OF OUT-SOURCING PROVIDERS Recent Announce- ments • New call center in Brno • Billing, customer support service from Budapest NOVARTIS LARGE OUT-SOURCING DEALS • F&A out-sourcing to Genpact Bucharest and Kolkata DELL CONFIDENTIAL

  4. "Came for cost, stayed for quality" CORPORATE/REGIONAL HEADQUARTERS KNOWLEDGE HUB TRANSACTION FACTORY TRANSACTION CENTER FOR WESTERN EUROPE EUROPEAN/GLOBAL CENTER FOR CORE COMPETENCIES EUROPEAN/GLOBAL CENTER FOR CORE COMPETENCIES Examples • Lufthansa (Cracow) • Zurich/Capgemini (Cracow) • P&G/HP (Bucharest) • Delphi (Cracow) • Siemens (Wroclaw) • SAP Labs (Sofia) • Dell (Bratislava) • JCI (Bratislava) FASTER MOVE TO KNOWLEDGE-INTENSIVESERVICES DRIVEN BY COMBINATION OF FACTORS • Talented workforce with good functional knowledge • Cultural proximity/accessibility/timezone overlap • Language capabilities DELL CONFIDENTIAL

  5. DELL Evolution in Bratislava 3 • Grew to a European Business Center by 2006, w/ num. headquarter functions • Over 1600 FTE by end 2007 covering a wide range of front and back office functions 2 • Expanded by 2004 to include German-language Sales and Customer Care • Center with up to 900 FTE to support full range of customer-facing functions 1 • Dell launched operations in Slovakia in November 2002 • Technical Support with up to 300 FTE for German language area DELL CONFIDENTIAL

  6. DELL Finance in Bratislava BACK OFFICE MID OFFICE FRONT OFFICE Value Channel Controlling Commission Targets Pricing Business Analytics Financial Planning &Analysis Business Controls GL Accounting OPEX Mgmt VAT Reporting FunctionalAccounting AP CreditCollections Time Back-office Mid-office Front Office FY’05 FY’06 FY’07 FY’08 DELL CONFIDENTIAL

  7. Executive summary • OFFSHORING TO CENTRAL AND EASTERN EUROPE IS A KEY BUSINESS IMPROVEMENT LEVER • DELL IS A GOOD EXAMPLE OF MOVE OF KNOWLEDGE JOBS TO NEW LOCATIONS • CHALLENGES OF OFFSHORING ARE LARGELY EXAGGERATED DELL CONFIDENTIAL

  8. Challenges of off-shoring are largely exaggerated • ONLY TRANSACTIONAL ACTIVITIES CAN BE OFFSHORED • SAVINGS EXPECTATIONS IN BUSINESS CASES ARE INFLATED • EASTERN EUROPE HAS PLATEAUED, THERE IS NO MORE VALUE TO BE EXTRACTED Activity spectrum and value • TALENT AVAILABILITY IS A MAJOR CONCERN • EVOLUTION OF COST LEVELS IS A MAJOR CONCERN • EASTERN EUROPEAN CENTERS END UP HAVING TOO MANY EXPATRIATES ( ) Location • RAMP-UP SPEED IS USUALLY OVERESTIMATED • TRANSITION IS COMPLEX AND ERROR-PRONE • OFFSHORE CENTERS HAVE POOR PERFORMANCE Organization and operations DELL CONFIDENTIAL SOURCE: MCKINSEY

  9. Wage differences will persist DELL CONFIDENTIAL SOURCE: MCKINSEY

  10. Executive summary • OFFSHORING TO CENTRAL AND EASTERN EUROPE IS A KEY BUSINESS IMPROVEMENT LEVER • DELL IS A GOOD EXAMPLE OF MOVE OF KNOWLEDGE JOBS TO NEW LOCATIONS • CHALLENGES OF OFFSHORING ARE LARGELY EXAGGERATED • WESTERN EUROPE LIVES OFF THE PAST – NEEDS TO DEVELOP NEW VALUE PROPOSITION FOR ATTRACTING BUSINESS DELL CONFIDENTIAL

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