Expand
Adopt
Create
vCustomer :
Global expansion in a changing environment
Clement Kang
Isabel Kuo
Lin Na
Stephanie Chong
Create
Expand
Agenda: A sneak peak
Decision Problem and ACE strategy
External and Internal Analysis
1 : Adopt key industry verticals
2 : Create barriers through technology
Adopt
3 : Expand Globally
Timeline and financials
In light of changing trends:
How to grow beyond India and build
sustainable competitive advantage?
Create
Expand
Key question and strategy : ACE
dopt key industry verticals
reate barriers through technology
Adopt
xpand globally
Decision problem
Expand
Needs to expand beyond India
• 16 - 18% Pay Hike
Create
• Increasing demand for
Companies with Global
Presence
• Increase in MNC’s
Rising Wages
Talent scarcity
• Limited Pool of Talent
• Demand >> Supply
Adopt
Global presence
Demand for multilanguage services
Trends
Near-shoring
• Cultural Affinity
Demand for BPO Services
• CAGR of 10.9 till 2009
• Most Sought after in US,
Europe then Asia
Global Expansion with BPO focus to
(1) Address Labour Issues (2) Build Language Capability
External Analysis
Create
Expand
What is vCustomer good at?
 Technology- based
• Scott Oki: investment funding
•US$1B Funding available
• Create barriers via technology
• Cutting edge facilities

Language
Capabilities
• English, Spanish,
French, German
Global Presence
• US, India, UK and Philippines
Adopt
Strong Financial Position
Resources
Strategic Partnerships
• Tech support in Bulgaria
• Experience in strategic
alliances
BPO Service Provider
• One of the top firms
• Many industries
Expand via strategic partnerships & differentiate with value-added
services
Internal Analysis
Adopt
Create
Expand
External + Internal = Strategy
Expand via strategic partnerships & differentiate with value-added
services
Global Expansion with BPO focus to
(1) Address Labour Issues (2) Build Language Capability
ACE Strategy
Internal Analysis
Expand
Adopt key verticals in BPO
Industry Focus
Trend of moving from taskoriented to process-oriented
BPO services
- Doing more tasks within a
process instead of just one
single task
Healthcare
Create
(current)
Retail banking
Market size of US$34B
Adopt
Insurance
Broad shared services market
in 2008 - US$57B
Market size of US$28B
Adopt BPO
Relationship managers for BPO clients
Expand
vCustomer
Client’s
Process
A
A
B
Create
Roles of RMs
C
D
Coordinate between
vCustomer and its clients
B
RM
C
D
Promote vCustomer’s
services to existing clients
Receive and relay
feedback from customers
E
E
Adopt
Build relationships and
foster trust
Adopt BPO
Expand
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
Adopt
Low barriers to entry
in the provision of
BPO and CRM
services
Create
BPO and CRM are imitable
Create Barriers
Create barriers through software
solutions
Expand
• Data capture
• Routine work
Adopt
Create
Process
A
B
C
Currently in BPO
services on data
capture and
routine work
• Report generation
• Decision-making • Decision-making
• Implementation
analysis
D
E
F
Move forward to
provide more
value-added
services
Provide
Software
Solutions
G
H
I
• Attract more customers
• Create customer
loyalty
• Increase revenue per
customer
• Create barriers to entry
through technology
Create Barriers
Expand
Expand globally: China & Bulgaria
Adopt
Create
●
Bulgaria
●
●
●
●
China
New
Expansion
Expand
Expand
Why China?
Adopt
Create
Regula
-tory
cost
Infrastructure
Access to
Language
Low Wages
External
Env
Talent Pool
Econo
mic/Po
litical
•Government
•AT Kearney
encourages
•High
tech FDI to
•One
Global
•AT
Kearney
ofServices
six
•
Predominantly
promote
infrastructure
China
in to
favored
Location
Global
Services
industries
Index
Mandarin
be
major
major
cities
:
•Median
2007 : Financial
Location
weekly
Index
speaking
outsourcing
airports
and
wage
•Computer
Attractiveness
2007
: isFull
estimated
results
country
highways
•Close proximity to
to
be 34 graduates
euros
science
Japanese
and
•Booming
•Govt
investments
industry,
increase
•#3 after
•Rank
#2from
Thailand
after
40k
Korean
speaking
retail
to
improve
sector
at
to
and
India
140k
Indonesia
yearly
$938
infrastructure
billion
•Asian
culturein
second tier cities
Expand
China: Acquisition strategy
Physical Attributes:
Acquisition:
• 3 production centers
• 500 employees
• In Xi’an, Wuhan and Hebei
•51% stake
•Value at 38m
•20% premium ~ 45-50m
Create
Expand
CPI Data Analysis
Projected Revenue:
Adopt
Key Benefits:
• Software development expertise
• Focus on Healthcare, Financial,
Insurance and Manufacturing
80
60
40
Optimistic
74 m
Expected
44 m
Pessimistic
20
15 m
0
FY07
Expand
FY08
FY09
Expand
Why Bulgaria?
Infrastructure
Low Wages
External
Env
Talent Pool
Econo
mic/Po
litical
•AT Kearney
• Over 450,000
Global
•Necessary
Services
students
•20,000 students
studyingin
Location
infrastructure
Index
in
at
IT-related
least one
degree
2007
place: Financial
in capital of
foreign
programs
language
Attractiveness
•Median weekly
Sofia
wage is estimated
•German
•28,000 (20%),
to be
37 euros in
•#1
•Development
among
French
professionals
(20%),in IT
Eastern
Plovdiv European
and Varna
Spanish,
sector Russia,
countries
English (70%)
Adopt
Create
Regula
-tory
cost
Access to
Language
Expand
Expand
Bulgaria: Joint venture strategy
JV
Partner
Firm
partner
Adopt
Create
+
vCustomer
Company A
vCustomer
Company B
vCustomer’s
vCustomer’s
clients
clients
Expand
Expand
Three-year horizon outlook
Mid 2007- Mid 2008
TPE
Preparation
Mid 2008-Mid 2009
Expansion in China
Acquire CPI
Mid 2009-Mid 2010
Synergy
Realization
Integration
Create
Build up on CRM, BPO and software arms
Develop software for other locations
Expansion into Bulgaria
Adopt
Joint venture
Review the JV relations
Build up on CRM and BPO services
Develop software capabilities
Financial Projections
Expand
Revenue Projection (in US$M)
40
30
20
10
0
Total for software
Create
Total for CRM/BPO
FY2007
FY2008
FY2009
9.6
23.04
27.648
4.182
9.1392
10.235904
Profit Projection (in US$M)
8.00
7.00
6.82
6.00
5.79
5.00
4.00
3.00
Adopt
2.00
NPV = 13.4mil
2.48
1.00
0.00
FY2007
FY2008
FY2009
Financials
Adopt
Create
Expand
Winning strategy, winning team
ACE Strategy
Adopt
Create
Expand
Further Analysis
Case
US Call Center
Attrition Rates
Risk Mitigation
BPO Market
China IP Rights
Global BPO Market- Industry
Alternative Chinese Coy
Global BPO Market- Geography
Alternative Bulgarian Coy
Global BPO Market- Segments
Technology risks
Competitors
Country
Too diversified
Country Comparison Measures
Financials
Country Comparison Worldwide
Valuation of Companies
Country Comparison Worldwide
Numbers
( financial attractiveness)
Cost of Workers
Country Comparison- Asia
Profit Margin Competition
Country Comparison- EU
Industry Comparisons
Country Comparison- EU II
Education and Language in Bulgaria Assumptions
What happens after 3 years
Address cultural differences
Types of Outsourcing
Top 4 Languages Spoken
Adopt
Create
Expand
Types of Outsourcing
1. 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
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
Adopt
Create
Expand
Top Languages Spoken
Source: Ethnologue:Languges of the World,15th Ed, 05
Create
Expand
Global BPO Market By Industry
IT
43%
Financial
17%
Communcation
16%
Manufacturing
15%
Adopt
Consumer Goods 9%
Adopt
Create
Expand
Global BPO Market by Geography
U.S.
59%
Europe
27%
Asia Pacific
9%
Others
5%
Adopt
Create
Expand
Global BPO Market Segments
Simple Bulk Transactions
$58B
Broad share services
$57B
Niche Verticals
$24B
High Volume Vertical
Procedures
$6B
Expand
Country Comparison Scores
• Financial Score
– Compensation
– Infrastructure
– Tax & Regulatory
Create
• People Score
–
–
–
–
–
IT/ BPO Industry size/ quality
Laborforce Availibility
Educational Skills
Language Skills
Attrition Risks
Adopt
• Environmental Score
– Economical/ Political
– Infrastructure Quality
– Cultural Exposure
– IP Security
Source: A.T. Kearny Global Services Location Index 2007
Adopt
Create
Expand
Country Comparison- Worldwide
Adopt
Create
Expand
Country Comparison Worldwide
Adopt
Create
Expand
Countries comparison- Asia
Adopt
Create
Expand
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
Adopt
Create
Expand
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
Adopt
Create
Expand
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
5.47
5.41
5.28
5.15
4.83
5.55
Adopt
Create
Expand
Higher education and foreign language
in Bulgaria
Adopt
Create
Expand
US Call Centres
Objective
Satisfy Demand for rightshoring in US
Strategy
Continue doing so as demand for BPO Services in
US remains at 59%
Attrition Rates in India
Expand
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
Adopt
Create
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
Expand
IP Rights in China
• Companies are starting to demand for
protection for thei IP rights.
Adopt
Create
• 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
Adopt
Create
Expand
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
Adopt
Create
Expand
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
Adopt
Create
Expand
Valuation
(in mil USD)
Kingdee
AsiaInfo
Neusoft
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%
Estimate
CPI
90
Adopt
Create
Expand
Numbers
• 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
Expand
• China: 34 eur / wk  $44 / wk
Create
Cost of workers
• Bulgaria: 37 Eur / wk  $48 / 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
– Total cost for 1 CRM / BPO worker in a year = 48*52 =
2496
Adopt
• India: 22 Eur / wk  $29 / wk
– Total cost for 1 CRM / BPO worker in a year = 29* 52 =
1508
Adopt
Create
Expand
Profit Margin comparison
• Tata Consulting Group
• Cost of employee ~ 35%
• Profit Margin ~ 26%
• Wipro
• Cost of employee ~ 39%
• Profit Margin ~ 23%
Adopt
Create
Expand
Industry comparisons
Cost of
employee
Profit Margin
Tata Wipro Polaris
(Software)
35% 39% 10%
26% 23%
4%
Adopt
Create
Expand
Assumptions
• vCustomer:
– 25% Cost of Employees
– 18% Profit Margin
• 150m in Revenue
– 37.5m in staff costs
– Profits  27m
Adopt
Create
Expand
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
25.32
2.04
122.4
Total (in mil
USD)
Grand total
149.76
Expand
Cost
Costs:
Create
Worker Cost
CRM / BPO
Cost per
worker 2288
2496
1508
Software
Cost per
worker 3432
0
0
0.2496
9.048
Adopt
Total cost (in mil
USD)
1.3728
Grand total
10.6704
Adopt
Create
Expand
3 Year Financials
FY2007
FY2008
FY2009
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
Revenue:
Create
Expand
3 Years Financial II
Total
Revenue
Profit
Margin = 0.18
13.8
32.2
2.5
Adopt
Discount rate:
10%
NPV
13.4
37.9
5.8
6.8
5.3
5.6
Adopt
Create
Expand
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.
Adopt
Create
Expand
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
Expand
Risk Mitigation – Too diversified
• Where industry trend is headed
– Providing broader range of service
Create
• Not too many because learning
curve for each industry is not steep.
– Eg: data entry is pretty standard all
industries
Adopt
• Reap economies of scale
Adopt
Create
Expand
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.
Adopt
Create
Expand
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