The World is Flat: Is business process outsourcing (BPO) more than just low-cost resourcing?

1. The World is Flat: Is business process outsourcing (BPO) more than just low-cost resourcing? BPO challenges and opportunities for Romania and your career. The World Is Flat: A Brief History of the Twenty-first Century is a best-selling book by Thomas L. Friedman analyzing the progress of globalization with an emphasis on the early 21st century.

2. Introduction into BPO Economic forces behind BPO Global forces behind BPO Market forces behind BPO Sourcing considerations BPO development: from low-end to high-end services BPO market BPO countries and their skills Romania’s value proposition for BPO SBsol BPO vision and strategy for market penetration Career opportunities for students and graduates Overview

3. Introduction into BPO

4. What about you? Offshore Value chain Insourcing ITES Onshore Vertical industries SSC Global delivery BPO FPO LPO Global sourcing MPO Outsourcing ASP KPO Captives ITO Nearshore Supply chain

5. Outsourcing Outsourcing became part of the business lexicon during the 1980s and refers to the delegation of non-core operations from internal production to an external entity specializing in the management of that operation. Outsourcing is utilizing experts from outside the entity to perform specific tasks that the entity once performed itself. Definitions

6. Business Process Outsourcing The transfer of management and execution of an entire business process to an external service provider, including technology, people, and process. In engaging BPO services, clients are buying access to executed business processes and business outcomes from their BPO providers. (IDC) The delegation of one or more IT-intensive business processes to an external provider that owns, administrates and manages the selected processes that are based on defined and measurable performance metrics. (Gartner) The transfer of a function previously performed (or considered to be performed) in-house to an outside provider. Definitions

7. Information technology enabled services (ITES) BPO is a part of the Outsourcing Industry. It is dependent on Information Technology, hence it is also referred to as Information Technology Enabled Services or ITES. a form of outsourced service which has emerged due to involvement of IT in various fields such as banking and finance, telecommunication, insurance, etc. Some of the examples of ITES are medical transcription, back-office accounting, insurance claim, credit card processing and many more. Definitions

8. BPO is often divided into two categories: back officeoutsourcing, which includes internal business functions such as billing or purchasing, and; front officeoutsourcing, which includes customer-related services such as marketing or tech support. The most common examples of BPO are call centers, human resources, accounting and payroll outsourcing. Definitions

9. BPOincludes the software, the process management, and the people to operate the service. ASPincludes only the provision of access to functionalities and features provided or 'served up' through the use of software, usually via web browser to the customer. Definitions Use of a BPO as opposed to an application service provider (ASP) usually also means that a certain amount of risk is transferred to the company that is running the process elements on behalf of the outsourcer.

10. Knowledge Process Outsourcing Knowledge Process Outsourcing is a sub set of Business Process Outsourcing. Legal Process Outsourcing Financial Process Outsourcing Medical Process Outsourcing Definitions

11. …..shore Outsourcing BPO that is contracted outside a company's own country is sometimes called offshore outsourcing. BPO that is contracted to a company's neighboring country is sometimes called nearshore outsourcing, and BPO that is contracted within the company's own country is sometimes called onshore outsourcing(also called domestic outsourcing). Offshore simply means: "any country other than your own." The Internet and high-speed Internet connections make it possible for outsourcing to be carried out anywhere in the world, a business trend economists call globalisation (also termed global sourcing or global delivery). Global sourcing: a corporate sourcing strategy that identifies and leverages those human resources and assets, regardless of geographic location, most appropriate for meeting the organization’s needs, often coming from both nearshore and offshore locations. Definitions

12. Captive centre / Shared Services centre Captives (centres), also known as offshore insourcing or offshore shared services centres, help organisations lower operating cost and improve overall performance. Shared Service Centres: shared services pull together scattered, autonomously run, internal services operations of an organisation into mega-service centres, which are structured as independent business with their own budgets and bottom-line accountability. Definitions

13. Supply Chain A supply chain, logistics network, or supply network is a coordinated system of organizations, people, activities, information and resources involved in moving a product or service in physical or virtual manner from supplier to customer. Supply chain activities (value chains or life cycle processes) transform raw materials and components into a finished product that is delivered to the end customer. Supply chains link value chains. Definitions

14. Economic forces behind BPO

15. How much should we do ourselves and how much should we buy from others? David Ricardo 19th Century Economist Where should we focus our resources? Ronald Coase 1991 Nobel Laureate, Economics Economic factors

16. Economic factors Organisational Boundaries and Efficiency • Ronald Coase asked, “…why is there any organisation?,” in other words, why do firms exist? • - Firms exist because the cost of a central authority organising transactions internally costs less than organising them externally in the marketplace • Ronald Coase also asked, “Why is not all production carried on by one big firm?” • - Because, at some point the cost of organising the next transaction internally will be greater than the cost of organising that same transaction in the marketplace • Thus, Ronald Coase defined the limit of the size of the firm using the concepts of transaction, or interaction, costs * Coase, Ronald, The Nature of the Firm, Economica, 1937

17. Adam Smith stated, “If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them…..” (The Theory of Absolute Advantage) David Ricardo replied that it’s more than absolute advantage; it’s the comparative advantage of focusing on the commodity in which a nation has a differential advantage and relying upon trade to obtain other goods * Even if a nation has an absolute advantage in commodities that it acquires through trade It’s a trade-off of opportunity costs, focusing on what you do best Thus, David Ricardo defined the benefits of specialization and the need to focus on core competencies Economic factors Organisational Boundaries and Specialisation * Ricardo, David, On the Principles of Political Economy and Taxation, 1817

18. 21st century 20th century • Networked Organization • Disaggregated • Specialized • Machine Bureaucracy • Integrated • Diversified Economic factors Expanding the Boundaries of Business Sawhney, Mohanbir, Kellogg School of Management, 2001

19. Economic factors The real economics of offshoring • Cost savings($0.58) • Goods/services sold • to India ($0.05) • Profits from India • Ventures($0.04) $1.45-1.47 0.45- $1.00 0.47 0.67 • Taxes($0.04) • Revenues($0.20) • Local suppliers($0.09) 0.33 …delivers value to India …creates new value from reemploying Us Labor.. …brings savings and returns to US… $1 previously Spent in US, now offshored to India… ...and makes the global pie that much bigger The McKinsey Global Institute finds that off shoring not only produces value for the countries that gain the jobs but also frees up capital in the United States for more productive uses. Most displaced workers find new positions within six months—possibly even in new ventures financed with money saved by off shoring work to cheaper labour markets.

20. Economic factors Policy dialogue: Pro’s • The arguments in most of such studies follow the logic of mainstream economics and are quite straightforward. • By moving work offshore, firms are able to lower their production costs. • Some domestic workers will be displaced but the benefits from lowering production costs, captured by the firms and customers, far outweigh any costs to displaced workers. • Many of the displaced workers will actually be net beneficiaries because they will be “freed up” to do more interesting and lucrative work.

21. Economic factors Policy dialogue: Contra’s • While these studies have some merit, they are incomplete in some respects: • they assume a very optimistic re-employment scenario for “freed up” workers, predicting short durations of unemployment and higher wages in their new positions. • most do not account for the lost wages due to unemployment in their models. • the studies do not capture difficult to measure effects such as the impact on future innovation and security. (For instance, evidence is already surfacing that many of our best and brightest college students are avoiding technology majors because of outsourcing.) • they ignore the downward pressure on domestic wages for jobs that are competed across borders.

22. Global forces behind BPO

23. Global forces Trends that are changing the rules in today’s business environment • The shift from domestic to global economy • The shift from manpower to technopower • The shift from company-led to consumer-driven market forces • The shift from an industrial economy to a knowledge economy • The transformation of the employer/employee relationship • New relationships and governance structures concerning vendors and supplier • Shortage of skilled labour in development nations

24. Market forces behind BPO

25. Market forces Why do companies outsource? Cost Effectiveness Access to High Quality Resources Focus on Core Competencies Drivers of Outsourcing Technology Expertise Higher productivity & Better service levels Domain Expertise

26. Market forces Main reasons for BPO Source: SBPOA online survey, 77 respondents, 2005

27. Market forces Perceived benefits of BPO Source: SBPOA online survey, 172 respondents, 2005

28. BPO development From low-end to high-end services

29. Evolution of the BPO market Advanced financial analysis and accountancy processes Call centres and data processing IT jobs and functions Phase I 1980s Phase II 1990s Phase III current BPO development A trend with a long history • Manufacturing operations have been relocating to reduce costs for over 50 years • Improvements in telecoms, IT and reductions in the cost of computing enabled the service sector to develop new operational models • Customer focus and direct channel acceptance fuelled the growth of call centres • Cost reduction was the primary driver predominantly through relocation and better wage deals in country • BPO goes beyond technology and applications -delivering integrated processes and outcomes

30. BPO development Outsourcing: historical context BPO Increasing complexity of legal and regulatory environment Competition drives companies to seek more cost effective ways to perform internal process w/o sacrificing quality Intense competition from foreign automakers Need to install ERP systems on time and within budget Mainframe computing allows for timesharing 1980 s 1990 s 2000 s 1960 s 1970 s Banking & brokerage outsourcing IT outsourcing Customer Care, Human Resources Supply Chain outsourcing Auto manufacturing outsourcing Pay roll outsourcing

31. BPO development Offshoring opportunities across the organisation

32. BPO development The offshore ITES/BPO marketplace can be segmented into two distinct pieces: transactional and full service/transformational relationships Stragegy Core Process Non-core Process Transformational BPO Transactional BPO Information Technology

33. KPO offers unlimited services Consulting I-Banking Industry Telecom/FS/Retail Insurance Underwriting & Asset Management Synthesized Reports Equities Research IP Portfolio Analytics Strategy Research KPOSM Global Research Financial Analytics Patent Design Analytics Claims Analysis Contact Centers & Customer Support Contact Centers & Customer Support BPO for clients Settlement Contact Centers & Customer Support BPO

34. BPO market

35. BPO market Global offshoring of services is growing rapidly

36. BPO market Offshore BPO service market ($ in billions) 2005-2009 CAGR 61% $ 42.9 • Romania’s Value Proposition • - Competitive labour cost • - Valuable human capital • - Multilingual • Reliable Infrastructure • Low risk • Solid economic fundamentals • Competitive taxation $ 30.2 $ 20.1 $ 12.6 $6.4 In 2005 Offshore BPO represented 5% of the total global BPO market, but is expected to represent 25% by 2009.

37. BPO market Sales & marketing is the smallest BPO market segment The growth of call centre outsourcing has attracted most of the attention because it involves significant numbers of jobs from the source countries

38. BPO countries

39. BPO countries BPO & Outsourcing destinations worldwide

40. Malaysia Thailand Vietnam Australia India Singapore Pakistan South Korea China Philippines Asia Pacific Brazil Chile Venezuela Americas Jamaica Mexico Canada Czech Republic Hungary Poland South Africa Ireland Israel UK Bulgaria Romania Russia Ukraine Europe, Middle East and Africa (EMEA) Infancy Emerging Escalating Established BPO countries BPO locations by stage of growth

41. BPO countries Competing countries High Size of circle corresponds to number of qualified workers • Singapore • Ireland • Australia • Holland • Hong Kong • Location attractiveness • Infrastructure • - Communication • - Basic infrastructure • Country risks/FDI incentives- Attractive incentives • - Political environment • Time zone attractiveness • U.K. • India • Romania ? • Philippines • Mexico • China Low Low High • Capabilities of workers • Qualifications/capabilities • Foreign languages (primarily English) • Quality of work/work ethic • Cost differential

42. BPO countries Country specialisation by niche • China: • Embedded Software • Hardware Services • Localization • Application Development • Russia: • High-End Software • Engineering • Philippines: • BPO • Contact Centers • Animation • Application Development • Ireland: • Packaged Applications • Localization • Product Development • India: • Application Outsourcing • ITO • BPO • Product Development • Contact Centers • Israel: • High-End Software • Learning Systems • Canada: • Application • Development • BPO • Contact Centers • Romania: • Application • Development • Contact Centers • BPO

43. Large Multinational Corporations • EDS • Accenture • IBM • HP Pure Play Indian BPO companies WNS EXL Service ICICI One Source 24/7 Indian BPO Industry Segments Companies with Captive Facilities AMEX Fidelity DELL Microsoft Indian Integrated IT-BPO providers Infosys BPO Wipro BPO HCL Nipuna (Satyam) BPO countries BPO landscape in India

44. BPO countries Eastern Europe focusing on Near-Shore Off-shoring… • Highly talented pool of engineers and scientists • Robust education system with ample supply of professionals for analytical work • Moderate, but increasing labor costs • Non-English languages • Proximity to European markets

45. Large Multinational Corporations Pure Play BPO companies Conectys EasyCall Wipro Genpact ContactLine Romanian BPO Industry Segments Companies with Captive Facilities Microsoft Romanian Integrated IT-BPO providers BPO countries BPO (incl. R&D) landscape in Romania • Accenture • HP • Siemens • Alcatel • Intel • Infineon • Oracle • Freescale • ACI Siveco Softwin Intrarom Romsys iQuest Techteam Sistec-SBsol XL World

46. Romania’s value proposition for BPO

47. BPO value proposition Romania Romanian competitiveness on the global ITO & BPO market Romania has a long history of education and research in all fields of engineering and software: 116 universities, 36 have a computer science related faculty Romania’slocationis an advantage in itself - major multinational IT companies are present in Romania Romanian graduates are multi-lingual (1st place in the Certificate of Proficiency in English exam at Cambridge University) and world class concerning their competencies Made in Romania Romania’s legal system and culture - similar to those in Europe and US. Romania’s density of software graduates per thousand inhabitants is significantly higher than in USA, five times higher than in Russia and nearly seven times bigger than in India. The cost of a skilled professional = 1/3 in US and Europe

48. BPO value proposition Romania University graduates in Romania (by education field) • high performances in international competitions • high percentage of economic & technically competent professionals • strong language skills: English, French, German, Italian, Spanish, Russian, etc. • highest growth rate of IT specialists in the region • large skilled labor force at comparatively low wage rates Arts 2% Engineering 21% Education 32% Medicine 6% Law 12% Economy 27% Total number of University graduates in 2003/2004:110,533 Source: National Institute of Statistics

49. SBsol BPO vision & strategy

50. SBsol BPO vision & strategy Vision “Our Business Is To Improve Other People’s Business” Sistec-SBsol Assure the right people at the right place Constantly tailor our services to the needs of our clients Provide high quality services using latest technology Market leader provider of BPO services in Central and Eastern Europe