vCustomer :

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
dopt key industry verticals reate barriers
through technology xpand globally
Decision problem
4
Needs to expand beyond India
Global presence
Demand for multi-language services

• Increasing demand for
• Companies with Global
• Presence

• Increase in MNCs

Trends
Rising Wages
Near-shoring

• 16 - 18 Pay Hike

• Cultural Affinity

Demand for BPO Services
Talent scarcity

• CAGR of 10.9 till 2009
• Most Sought after in US, Europe then
  Asia

• Limited Pool of Talent
• Demand gtgt Supply

External Analysis
5
What is vCustomer good at?
?
Technology- based
Strong Financial Position

• Scott Oki investment funding
• US1B 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
External Internal Strategy
ACE Strategy
Internal Analysis
7
Adopt key verticals in BPO
Industry Focus
Healthcare (current)
Retail banking Market size of US34B
Insurance Market size of US28B
Adopt BPO
8
Relationship managers for BPO clients
vCustomer
Clients Process
Roles of RMs
A
A
B
B
RM
C
C
D
D
E
E
Adopt BPO
9
BPO and CRM are imitable
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
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

Create Barriers
11
Expand globally China Bulgaria
?
Bulgaria
?
?
?
?
China
New Expansion
Expand
12
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 Xian, 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
Why Bulgaria?
External Env
Expand
15
Bulgaria Joint venture strategy
JV partner vCustomer
Partner Firm
Company A
Company B
vCustomer
vCustomers clients
vCustomers clients
Expand
16
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
Winning strategy, winning team
ACE Strategy
19
Further Analysis
Case US Call Center Attrition Rates Risk
Mitigation China IP Rights Alternative Chinese
Coy Alternative Bulgarian Coy Technology
risks Competitors Too diversified Financials Valu
ation of Companies Numbers Cost of Workers Profit
Margin Competition Industry Comparisons Assumption
s 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
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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
1. Mandarin 1.051 billion
2. English 510 million
3. Hindi 490 million
4. Spanish 420 million
9. French 130 million
10. German 129 million
Source EthnologueLanguges of the World,15th Ed,
05
22
Global BPO Market By Industry
IT 43
Financial 17
Communcation 16
Manufacturing 15
Consumer Goods 9
23
Global BPO Market by Geography
U.S. 59
Europe 27
Asia Pacific 9
Others 5
24
Global BPO Market Segments
Simple Bulk Transactions 58B
Broad share services 57B
Niche Verticals 24B
High Volume Vertical Procedures 6B
25
Country Comparison Scores

• 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

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
India China Malaysia Thailand Indonesia Philippines Singapore
Financial 3.22 2.93 2.84 3.19 3.29 3.26 1.65
People 2.34 2.25 1.26 1.21 1.47 1.23 1.51
Environmental 1.44 1.38 2.02 1.62 1.06 1.26 2.53
Total 7 6.56 6.02 6.02 5.82 5.75 5.69
30
Countries Comparison- Eastern Europe
Bulgaria Slovakia Estonia Czech Republic Latvia
Financial 3.16 2.79 2.44 2.43 2.64
People 1.04 1.04 0.96 1.1 0.91
Environmental 1.56 1.79 2.2 2.05 2
Total 5.76 5.62 5.6 5.58 5.55
31
Countries Comparison- Eastern Europe II
Poland Hungary Lithuania Romania Russia Ukraine
Financial 2.59 2.54 2.6 2.88 2.61 2.76
People 1.17 0.95 0.83 0.87 1.38 0.98
Environment 1.79 1.98 1.98 1.53 1.16 1.09
Total 5.55 5.47 5.41 5.28 5.15 4.83
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 B
PO 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
Alternative Chinese Company

• 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

37
Alternative Bulgarian Firm

• Form an alliance with the firm Sofica
• Sofica focuses on
• end-to-end BPO solutions
• highly competitive cost premium quality
• CRM and consulting expertise

38
Valuation
(in mil USD) Kingdee AsiaInfo Neusoft Estimate CPI
Revenue 79.2 109.5 291
Net Income 13.5 5.8 35
No. of Employees 3200 1800 6740 500
Market Capitalization 361 275 1245 75
Mkt Capitalization per worker 0.11 0.15 0.18 0.146
Premium 20 90
39
Numbers

• Revenue Rs 320 (05) Rs353 (06) (grew 10)
• MCIs deal expected to gain revenue of 100m at
  yearly from this deal
• Now about 6000 workers in India

40
Cost of workers

• China 34 eur / wk ? 44 / wk
• Total cost for 1 CRM / BPO worker in a year
  4452 2288
• Total cost for 1 software worker in a year
  441.552 3432
• Bulgaria 37 Eur / wk ? 48 / wk
• Total cost for 1 CRM / BPO worker in a year
  4852 2496
• India 22 Eur / wk ? 29 / wk
• Total cost for 1 CRM / BPO worker in a year
  29 52 1508

41
Profit Margin comparison

• Tata Consulting Group
• Cost of employee 35
• Profit Margin 26
• Wipro
• Cost of employee 39
• Profit Margin 23

42
Industry comparisons
Tata Wipro Polaris (Software)
Cost of employee 35 39 10
Profit Margin 26 23 4

43
Assumptions

• vCustomer
• 25 Cost of Employees
• 18 Profit Margin
• 150m in Revenue
• 37.5m in staff costs
• Profits ? 27m

44
Revenue
Revenue   China Bulgaria India
CRM / BPO (numbers) 300 100 6000
CRM / BPO Revenue per worker 20400 20400 20400
Software (numbers) 200 0 0
Software Revenue per worker 96000 96000 96000
Total (in mil USD)   25.32 2.04 122.4
Grand total       149.76
45
Cost
Costs        
Worker Cost        
CRM / BPO Cost per worker 2288 2496 1508
Software Cost per worker 3432 0 0
Total cost (in mil USD)   1.3728 0.2496 9.048
Grand total        
        10.6704
46
3 Year Financials
  FY2007 FY2008 FY2009
Revenue      
China CRM / BPO 3.1 6.9 7.7
China Software 9.6 23.0 27.6
Bulgaria CRM / BPO 1.1 2.3 2.6
Bulgaria Software 0.0 0.0 0.0
       
Total 13.8 32.2 37.9
47
3 Years Financial II
Total Revenue 13.8 32.2 37.9
Profit Margin 0.18 2.5 5.8 6.8
Discount rate 10   5.3 5.6
NPV 13.4    
48
Risk Mitigation technology risks

• Cannot match bigger players in terms of financial
  muscle.
• Technology demand is less than expected.
• Focus on core business CRM and BPO.

49
Risk Mitigation - competitors

• 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

50
Risk Mitigation Too diversified

• 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

51
What happens after three years?

• Expect CRM market to be very saturated
• BPO accounts for large portion of revenue
• Higher demand from Asia
• Higher demand for software, value added services
  we provide
• Make additional investments in software
  capabilities
• Expect to expand to cheaper countries like
  Vietnam, Indonesia and Africa.

52
How to address cultural differences?

• Relationship manager should be of the local
  culture (from China in China)
• Integration phase replicate business environment
  across regions , inculcate corporate culture
• 1 manager to manage portfolio of clients.
• Depending on size, estimate for large companies
  at about 1-15.
• Small companies 60 -80