ACE Strategy for Global Expansion: Beyond India and Sustainable Growth

1. vCustomer : Global expansion in a changing environment Clement Kang Isabel Kuo Lin Na Stephanie Chong

2. Agenda: A sneak peak Decision Problem and ACE strategy External and Internal Analysis • 1 : Adopt key industry verticals 2 : Create barriers through technology 3 : Expand Globally Timeline and financials

3. Key question and strategy : ACE In light of changing trends: How to grow beyond India and build sustainable competitive advantage? dopt key industry verticals reate barriers through technology xpand globally Decision problem

4. Global Expansion with BPO focus to (1) Address Labour Issues (2) Build Language Capability Needs to expand beyond India Global presence Demand for multi-language services • Increasing demand for • Companies with Global • Presence • Increase in MNC’s Trends Rising Wages Near-shoring • 16 - 18% Pay Hike • Cultural Affinity Talent scarcity Demand for BPO Services • CAGR of 10.9 till 2009 • Most Sought after in US, Europe then Asia • Limited Pool of Talent • Demand >> Supply External Analysis

5. Expand via strategic partnerships & differentiate with value-added services What is vCustomer good at?  Technology- based Strong Financial Position • Scott Oki: investment funding • US$1B Funding available • Create barriers via technology • Cutting edge facilities  Resources Strategic Partnerships Language Capabilities • Tech support in Bulgaria • Experience in strategic alliances • English, Spanish, • French, German Global Presence BPO Service Provider • One of the top firms • Many industries • US, India, UK and Philippines Internal Analysis

6. Expand via strategic partnerships & differentiate with value-added services Global Expansion with BPO focus to (1) Address Labour Issues (2) Build Language Capability External + Internal = Strategy ACE Strategy Internal Analysis

7. Adopt key verticals in BPO Trend of moving from task-oriented to process-oriented BPO services - Doing more tasks within a process instead of just one single task Industry Focus Healthcare (current) Retail banking Market size of US$34B Insurance Market size of US$28B Broad shared services market in 2008 - US$57B Adopt BPO

8. Relationship managers for BPO clients vCustomer Client’s Process Roles of RMs A A Coordinate between vCustomer and its clients B B RM Promote vCustomer’s services to existing clients C C D Receive and relay feedback from customers D E E Build relationships and foster trust Adopt BPO

9. BPO and CRM are imitable Low barriers to entry in the provision of BPO and CRM services Increase in competition as more firms enter the industry Need for higher value-added services for higher margins and increased barriers to entry Downward margin pressures and reduced profitability in the future Create Barriers

10. Create barriers through software solutions • Report generation • Decision-making analysis • Data capture • Routine work • Decision-making • Implementation A B C D E F G H I Process Currently in BPO services on data capture and routine work Move forward to provide more value-added services • Attract more customers • Create customer loyalty • Increase revenue per customer • Create barriers to entry through technology Provide Software Solutions Create Barriers

11. Expand globally: China & Bulgaria ● Bulgaria ● ● ● ● China New Expansion Expand

12. Government encourages FDI to promote China to be major outsourcing country • Booming industry, retail sector at $938 billion • Predominantly Mandarin speaking • Close proximity to Japanese and Korean speaking • Asian culture • Median weekly wage is estimated to be 34 euros • One of six favored industries • Computer science graduates increase from 40k to 140k yearly • High tech infrastructure in major cities : airports and highways • Govt investments to improve infrastructure in second tier cities • AT Kearney Global Services Location Index 2007 : Financial Attractiveness • #3 after Thailand and Indonesia Access to Language Regula-tory cost Talent Pool Infra- structure Economic/Political Low Wages Why China? • AT Kearney Global Services Location Index 2007 : Full results • Rank #2 after India External Env Expand

13. China: Acquisition strategy CPI Data Analysis • Physical Attributes: • 3 production centers • 500 employees • In Xi’an, Wuhan and Hebei • Acquisition: • 51% stake • Value at 38m • 20% premium ~ 45-50m Projected Revenue: • Key Benefits: • Software development expertise • Focus on Healthcare, Financial, • Insurance and Manufacturing 74 m Optimistic 44 m Expected Pessimistic 15 m Expand

14. Over 450,000 students studying at least one foreign language • German (20%), French (20%), Spanish, Russia, English (70%) • AT Kearney Global Services Location Index 2007 : Financial Attractiveness • #1 among Eastern European countries • Median weekly wage is estimated to be 37 euros • 20,000 students in IT-related degree programs • 28,000 professionals in IT sector • Necessary infrastructure in place in capital of Sofia • Development in Plovdiv and Varna Access to Language Regula-tory cost Talent Pool Infra- structure Economic/Political Low Wages Why Bulgaria? External Env Expand

15. Bulgaria: Joint venture strategy JV partner + vCustomer Partner Firm Company A Company B vCustomer vCustomer’s clients vCustomer’s clients Expand

16. Expansion in China Acquire CPI Integration Expansion into Bulgaria Joint venture Review the JV relations Three-year horizon outlook Mid 2007- Mid 2008 Mid 2008-Mid 2009 Mid 2009-Mid 2010 TPE Preparation Synergy Realization Build up on CRM, BPO and software arms Develop software for other locations Build up on CRM and BPO services Develop software capabilities

17. Financial Projections NPV = 13.4mil Financials

18. 40 Million revenue 3 year outlook 2 countries 1 consulting firm Winning strategy, winning team ACE Strategy

19. Case US Call Center Attrition Rates Risk Mitigation China IP Rights Alternative Chinese Coy Alternative Bulgarian Coy Technology risks Competitors Too diversified Financials Valuation of Companies Numbers Cost of Workers Profit Margin Competition Industry Comparisons Assumptions What happens after 3 years Address cultural differences Types of Outsourcing Top 4 Languages Spoken BPO Market Global BPO Market- Industry Global BPO Market- Geography Global BPO Market- Segments Country Country Comparison Measures Country Comparison Worldwide Country Comparison Worldwide ( financial attractiveness) Country Comparison- Asia Country Comparison- EU Country Comparison- EU II Education and Language in Bulgaria Further Analysis

20. Types of Outsourcing • Offshoring describes the relocation of business processes from one country to another. • 2. Nearshoring: relocation of business processes to (typically) lower cost foreign locations, but in close geographical proximity • 3. Rightshoring-Projects are designed and managed locally. U.S Call centers service • rightshoring demand in uS

21. Top Languages Spoken Source: Ethnologue:Languges of the World,15th Ed, 05

22. Global BPO Market By Industry

23. Global BPO Market by Geography

24. Global BPO Market Segments

25. Financial Score Compensation Infrastructure Tax & Regulatory People Score IT/ BPO Industry size/ quality Laborforce Availibility Educational Skills Language Skills Attrition Risks Environmental Score Economical/ Political Infrastructure Quality Cultural Exposure IP Security Country Comparison Scores Source: A.T. Kearny Global Services Location Index 2007

26. Country Comparison- Worldwide

27. Country Comparison Worldwide

28. Countries comparison- Asia

29. Countries comparison- Asia

30. Countries Comparison- Eastern Europe

31. Countries Comparison- Eastern Europe II

32. Higher education and foreign language in Bulgaria

33. US Call Centres Objective Satisfy Demand for rightshoring in US Strategy Continue doing so as demand for BPO Services in US remains at 59%

34. Attrition Rates in India • Cause • High Turnover Rates are a result of talent scarcity, which led to the pursuit • Of many firms to attract talents from other firms through higher pay • vCustomer • #2 in Industry in terms of employee satisfaction • Main reason for leaving : lack of growth Opportunity/ Promotions • Solution: Focus on Employee Growth Opportunities • Global Expansion translates into overseas job prospects & leadership positions • Systematic key performance indicator and appraisal systems to encourage • employee growth opportunity and satisfaction Source: http://www.physorg.com/news69676084.html BPO E-Stat 2006, Balancing Right, dgindia.com

35. IP Rights in China • Companies are starting to demand for protection for thei IP rights. • International pressures that force china to improve its IP laws • For e.g,New progress for IP rights. From a survey done by OECD, China is making changes to Bankruptcy law, company law and implementation of the Constitutional amendment on property rights

36. IT United- Similar functions, slightly smaller and fewer branches compared to CPI. Many firms in the Xi-an province They are the china outsourcing capital focusing primarily on software solution 20% Premium Alternative Chinese Company

37. Form an alliance with the firm Sofica Sofica focuses on end-to-end BPO solutions highly competitive cost & premium quality CRM and consulting expertise Alternative Bulgarian Firm

38. Valuation

39. Revenue: Rs 320 (05) – Rs353 (06) (grew 10%) MCI’s deal: expected to gain revenue of 100m at yearly from this deal Now about 6000 workers in India Numbers

40. China: 34 eur / wk  $44 / wk Total cost for 1 CRM / BPO worker in a year = 44*52= 2288 Total cost for 1 software worker in a year = 44*1.5*52= 3432 Bulgaria: 37 Eur / wk  $48 / wk Total cost for 1 CRM / BPO worker in a year = 48*52 = 2496 India: 22 Eur / wk  $29 / wk Total cost for 1 CRM / BPO worker in a year = 29* 52 = 1508 Cost of workers

41. Tata Consulting Group Cost of employee ~ 35% Profit Margin ~ 26% Wipro Cost of employee ~ 39% Profit Margin ~ 23% Profit Margin comparison

42. Industry comparisons

43. vCustomer: 25% Cost of Employees 18% Profit Margin 150m in Revenue 37.5m in staff costs Profits  27m Assumptions

44. Revenue

45. Cost

46. 3 Year Financials

47. 3 Years Financial II

48. Cannot match bigger players in terms of financial muscle. Technology demand is less than expected. Focus on core business CRM and BPO. Risk Mitigation – technology risks

49. Tier II firm like 24/7 ,ICICI, WNS Global Do not yet have focus on software technology Focus on BPO and BOT Focus on mid-sized firms, SMEs We are attractive to them because we embrace technology earlier than them. First mover advantage Software takes time to develop, one step ahead of the competitors Risk Mitigation - competitors

50. Where industry trend is headed Providing broader range of service Not too many because learning curve for each industry is not steep. Eg: data entry is pretty standard all industries Reap economies of scale Risk Mitigation – Too diversified