The State of Service & Support in China

The State of Service & Support in China Presented by Dr. Baumin Lee CIO, 95Teleweb Inc. November 8, 2005

Bio – Dr. Baumin Lee • China MII CRM CommitteeDeputy Director • MII Federation of Informationization Promotion Expert Consultant • China Academy of Labor and Social Security Chief Auditor • MII Call Center Professional Jon Standard Commi Chief Adviser • Taiwan Call Center Development Association Director • 2002-present Shanghai Teleweb Technology President • 1998-2005 95Teleweb Inc. CIO • 1996, iPlanet Inc.Tech Director • 1997-1998，Tandem Corp. Tech Manager • 1988-1995 Bell LabsMTS • 1983-1987, National Regulatory Research Institute Research Asso. • The Ohio State University, ISE Department PH.D. • The Ohio State University Adjunct Professor

OUTLINE • Technical Support and Help Desk Outsourcing Market • The People’s Republic of China • China Call Center Market Status • China Call Center/Technical Support Challenges • Trend in China Call Center Technology • China SCP Experience • Service Providers In China Market • China Support Centers SWOT Analysis

Technical Support and Help Desk Outsourcing Market Dollars in Billion 2002 2007 International Data Corporation (IDC) predicts that the compounded annual growth rate (CAGR) for help desk outsourcing over the next five years will be 11.2%. According to IDC, the market for technical support and help desk business process outsourcing is expected to grow from $14.0 billion in 2002 to $21.5 billion in 2007. Source: Gartner Dataquest

Technical Support and Help Desk Outsourcing Market 2002 2003 2004 2005 2006 2007 Source: IDC 12/2002

Business Process Outsourcing Market 2000 2005 Gartner’s most recent projection for the worldwide BPO market predicted a $234 billion opportunity by 2005, with the market growing at a compound annual growth rate of 14% between 2000 and 2005. Source: Gartner Dataquest

2005-2009 China BPO Revenue Forecast $100M Total Revenue Growth IDC2005

Customer Service Center: Global Trend • Customer service centers are under significant cost pressure • Average Spend on Customer Service across industries: 2% to 4% of Revenue • Customer Service rapidly moving to multi-channel electronic delivery • Web and e-mail becoming dominant • However, customer still prefer human interface of Voice contact centers • Sell service Web modules and voice contact centers will therefore co-exist • Cost pressures will continue to increase on Voice-based Service Centers • 65% of Customer Service Centers costs are Resource Costs • There is this a huge opportunity to Co-locate/Out-locate Service Centers to low cost locations • There is already increasing tendency to outsource to low cost locations like China and India.

Overview of BPO in China • China’s BPO market was US$9.4B in 2004 and IDC forecasts this market to reach US$41.7B by 2009 at a compound annual growth rate (CAGR) of 37%. • BPO is still in its infancy in China with much of the concentration being in logistics and finance & accounting type of work • Most of the BPO consumption is by MNCs located in China with a handful of large local companies. • The logistics BPO market is the largest, followed by customer care, finance, HR and procurement. • Although BPO is just emerging in China, due to the country’s fast growing and internationalizing economy, it will be huge. Source: IDC 2005

Offshore Location Attractive Index 2004 (China only after India)

Factors for Offshore Location Selection Analysis

Issues Facing BPO Service Providers in China • Security: Security issues are of immediate concern to the buyers of outsourcing services. Clients are specific about data security, intellectual property rights and client confidentiality. • Employee security issues • Physical security • Human Resource: Since BPO is largely driven by Labour, it becomes critical to address the raising issues of HR. Critical HR issues facing the BPO industry are: • High attrition rates • Hiring the right kind of employees • Training the employees • Raising salary costs • Quality: One of the primary inhibitors is “quality delivered as anticipated”. Vendors need to address the rising concerns of quality as well as expectations

OUTLINE • Technical Support and Help Desk Outsourcing Market • The People’s Republic of China • China Call Center Market Status • China Call Center/Technical Support Challenges • Trend in China Call Center Technology • China SCP Experience • Service Providers in China Market • China Support Centers SWOT Analysis

THE PEOPLE’S REPUBLIC OF CHINA • Population of 1.3 billion people in 2004, expected to grow to 1.5 billion in 2020 • 3.7 million square miles: 22 provinces, 3 municipalities, and 5 autonomous regions • Socialist Market Economy in 1976 • One Country, Two Systems • GDP grew 8% and export grew 12% annually in 1978 – 1992 • WTO in 2002 and Olympics in 2008, World Trade Show 2010 • Open door policy to keep economic development on track • One of the world’s largest consumer driven economies

CC Location : Shanghai City

CC Location : Dalian City (Continue) The City Attractiveness of Dalian • International City • Downtown Area in Dalian • Star & Sea Square - the largest square in Asia • Golden Peddle International Golf Club

China Political, Economic, and Social Environment • Political Environment • Economic system reform and establishment of socialist market economic system • Government Service Department have all established service-type call center, • and this becomes a powerful growth field of China’s call center industry • the political environment of China has been gradually improved • Economic Environment • China has maintained an annual increase rate of 9%, Estimated by experts, • The contribution of China’s economic growth to the world GDP is 14%, only • after U.S. (20.7%) • The financial revenue of the whole country has reached 2.17 trillion Yuan with an • increase of 278.7 billion Yuan than that of last year • The 2008 Beijing Olympics and 2010 Shanghai World Fair will continuously • promote the development of China’s economy • Social Environment • China is a society that values human relations and face-to-face communication. • The concept of conducting business activities by phone hasn’t been broadly • accepted. • The service style of call center strengthens the customer relationship • and is expanding its social foundation in China • The call center for tele-shopping and e-commerce still lacks support from direct users • The social and individual credit system of China hasn’t established at present..

China IT & Software Industry • China’s mobile phone market has overtaken the US and is now the biggest in the world with more than 204 million subscribers at the end of 2004. • China is planning to spend more than $120 billion over the next five years developing its telecom and IT industries. • The number of Internet users in China at the end of 2004 has reached 96 million and will be 150 million by 2005. Now China is the world’s second-largest Internet user base. • China software market is expected to achieve a compound growth rate (CAGR) of 36.9%, reaching US$7.7 billion in 2006. • ERP applications will grow at a CAGR of 32% to reach US$3.6 billion by 2005. The CRM market is expected to grow at a CAGR of 37%, to reach US$2.7 billion by 2005.

China Call Center Industry Snapshot • 125,900+ call center seats • Compound annual growth rate >16% • Industry value estimate US$2.1 billion • 60% have been operating for <4 years • Non services call centers < 20% • Telecom Call Centers > 60% • Outsourcing call centers < 16% • Average CSR salary US$3500 • Annual loaded salary less than US$4000 >88% • Call Center consulting and training market >US$500M • More than 90% located in Beijing, Shanghai, and Guangzhou cities

China Vs. Worldwide Call Center Industry Infrastructure 100% Outsourcing, Consulting & training 14.37% 73% 80% 60% 85.63% 40% System Integration 20% 27% 0% Global China Source：CTIForum

Market Engineering Seats Forecasts for the China Call Center Services Market Source: CTIForum 2004

Market Drivers Source: Frost & Sullivan

Market Restraints China Call Center Market: Market Restraints Ranked in Order of Impact, 2001-2005 Source: Frost & Sullivan

Trends in China Service Center • Market is still relatively immature • China Service Centers tend to be small • China Service Centers not always tightly managed • Customer service most common business functions • Major technology Gaps • Majority are planning to upgrade their Technology • Low uptake of external QA programs • Outsourcing is fastest growing sector • Major issues with accessibility of skilled HR resources

What Are the Challenges • Lack of resources/industry know-how on technology and people management • Price competition on system integrators and outsourcing call centers • The doubtful effects for call center consulting • The traditional concepts from high level management. Call Center managers have difficulties on high quality people hiring, training, applying advanced technology, etc. • Internal Process is too long to kick off projects

Existing Technology Philippines Singapore Malaysia All Asia Countries Thailand HK India China Source: callcenters.net 2003

Equipment Enhancement Plan

CRM, WFM, and PD Enhancement Plan

VoIP and Speech Recognition Enhancement Plan

Decision Making

Call Center Issues Faced in Next 12 Months

Current China Service Center Operations Issues • Labour shortage • Staff Motivation and Training • Managing Growth and System integration • Need to demonstrate ROI • Sunk Costs restraining purchases • Lack of management skills/experiences • Poor technology/system issues • Standardized operation procedures • CRM implementation • Language Capabilities

95Teleweb – The First and only SCP Certified Contact Center in China

SCP Certified Center

Service Providers in China Market

Approximately 50% of the service contracts can not satisfy the customers

China IT Expenditure

IT Service Expenditure GDP Percentage IT Expenditure %

China Customers’ Selection Preference: Now High Client’s Selection Order 1 - Call Center 2 - Helpdesk 3 – Wireless/Mobile 4 – Server Consolidation 5 – OS Transfer 6 – Linux deploy 7 – New telecom Tech 8 – Network Infrastructure 9 – Build up Security 10 – Application Integration 11 – KM 12 – Data warehouse 13 - ERP 14 - SCM 15 - CRM 16 - e-Business Use ESP Tendency Medium Low High Low Medium Priority

China Clients’ Preference Choice: 2003-2004 High Client Selection Order 1 - Call Center 2 - Helpdesk 3 – Wireless/Mobile 4 – Server Consolidate 5 – OS Transfer 6 – Linux 7 – New Telecom Tech 8 – Network Infrastructure 9 – Build up Security 10 – Application Integration 11 –KM 12 – Data warehouse 13 - ERP 14 - SCM 15 - CRM 16 - e-Business Use ESP Tendency Medium Low Medium Low High Priority

China Outsourcing Market

Why China Businesses Select Outsourcing 1. Let own people conduct important tasks 2. Hire external experts 3. Committed to improve IT service to their end users 4. Lack of appropriate skilled internal staff 5. Can predict and control cost in a better way Why China Companies not select outsourcing Security and protection of sensitive date We can do it better 3. Headquarters policy 4. We can do it in a cheaper way 5. Do want to lose control China Outsourcing Situation

Expectation to Outsourcing service providers from China companies • Fast response on demand • Have demanded special skills 3. Understand our own Business 4. Cheap Price 5. Good Reputation

Economic growth IT service growth Continue opening trade New comers New Foreign entrants Oversee R&D centers Infrastructure Investment Energetic Government Promotion Skill set shortage In-mature industry Global economic instable Prefer in-house Market favoring “import/accepting” service transform Trend and problems for those service providers in China Trends Problems

The State of Service & Support in China