India Overview.ppt
Document Sample
1
iTech 2004
ITES-BPO:
Infrastructure Challenges
January 13th 2004
CB Richard Ellis - Global
2002 HIGHLIGHTS *
• Sale and lease Worlds Largest
assignments,
Real Estate Consulting Firm
valuing over $ 80
billion Annual revenues exceeded US$
1.75 Billion in year 2002
• $ 9 billion in Global firm with 14,000
commercial employees in 250 offices
financings through spanning 48 countries across six
L.J.Melody &
Company continents
Ability to translate strategy into
transaction and more
• 940 million square
feet of property
and corporate
facilities under
management
$ 1.75 Billion
$ 1.2 Billion
$ 1.3 Billion
$ 1.2 Billion
$ 1 Billion
• $ 14 billion in
assets under
management
1998 1999 2000 2001 2002*
through CB
Richard Ellis * Combined figures
investors
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CB Richard Ellis - India
HIGHLIGHTS
India’s Largest
• Over 400
dedicated Real Estate Consulting Firm
professional staff. First global real estate consulting firm to
establish operations in India in 1995.
• Over 450 Full-fledged offices in major cities including
Consulting New Delhi, Mumbai, Bangalore and Chennai
Assignments .
undertaken in 67
cities in Indian sub Project Offices in Chandigarh, Hyderabad,
continent. Calcutta, Saharanpur and Kanpur.
Experience with the Public and Private
sector spanning industrial and residential
• Transacted more
than 5 mn. sq. ft. township developments, IT parks, office
buildings, retail and entertainment formats,
resorts and hotels.
• More than 20 mn. Assisted Government in Infrastructure
sq. ft. under FM Development projects.
• Project
Management for
over 2.3 mn. sq. ft.
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Integrated Service Delivery Platform
Over 450 assignments
Over 20 mn sft under executed across 67
management Strategic cities in India
Certified for quality and Consulting
excellence ~ ISO 9001
Prominent Clients
Tidel Park
Project management of Prominent Clients
Integrated
over 2.3mn sftStadiumService
HiTech City
Asset Mohali Cricket ITDC - Disinvestment Transaction
Services Delivery Platform
MGF Mall AAI - Disinvestment
Extensive Market
Kinfra – IT Park
Management
Specialize in Project
Management for „BPO”
Sun Microsystems Coverage
Hyderabad Airport
HP-Compaq Pre Merger
companies
Over 5 mn sft
transacted Prominent Clients
Prominent Clients
Intel
The World Bank
American Express
Kinfra IT Park
Project Cisco
ABN Amro
Hughes Software
Daksh E Services Management TATA Teleservices
Aviva
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Agenda
Redefining the Economic Paradigm
India Economy
Indian Real Estate Industry
Infrastructure (Real Estate!!)
The Way Forward…
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Redefining the Economic Paradigm..
“A nation should specialize in exporting those goods/services for which its opportunity
cost of production is lower than other countries' opportunity costs”
- Alfred Marshall
Location
India‟s emerging
Emerging Trade
Alternatives ~
Production
Paradigm ~ From
comparative
Guns and Butter
Possibility Curve ~
advantage within
principal of
(Production) to
India
comparative
Processes and
advantage
Solutions (Services)
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Strategic Importance - Location
Location decisions are essentially capital investment decisions that
impact shareholder wealth through their expected effect upon future
corporate expenses and revenues
Location choice should relate to the broader context of company's
efforts to increase its sources of competitive advantage
A formal committed location search process guided by strategic
business drivers is imperative
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Is India the right location -
INDIA IS SHINING
Some positive indicators…
• GDP Growth – 7-8%
• Sensex crosses 6000
No more a • India's foreign exchange
STATEMENT reserves are over US$100
But a billion
FACT ?? • Brand ‘India’
• Emerging an R&D hub
Challenges…
Well YES!
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9
Indian Real Estate Industry
How important is Real Estate
Barriers To Achieving 10%GDP Growth (2000 – 2010)
This represents
0.20% 0.10%
almost 25%
0.70% additional growth,
hence Real Estate
1.30%
key for Higher
Status Quo Growth Economic Growth
Product Market Barriers
Land Market Barriers
Privatization It becomes
5.50%
Labour Market Barriers pertinent for the
Lack Of Infrastructure Govt. under such
2.30%
circumstances to
focus on real
estate reforms, that
would further
*Source: Mckinsey Report On India 2000 improve the
industry prospects
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Indian Real Estate Industry
Historically….
High Real Estate cost
Minimal Financial Institution participation
High borrowing cost
Limited supply
Majority – Average & low quality construction
Strata Ownership
Restrictive legislative framework like ULCRA
High Transaction costs and Property tax
Rent control legislation
Ownership / Title / Legal issues
Real Estate not seen as regular income generating asset – primarily capital gain
expectation.
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Real Estate Affordability
GDP p er Head at PPP Vs Re al Estate Co st in USD p er sft pe r mo nt h
GDP per head in USD at PPPP
12.00 30,000
USD per sft per month
10.00 25,000
8.00 20,000
6.00 15,000
4.00 10,000
2.00 5,000
0.00 0
Kuala Lumpur / Malaysia
Bangkok/ T hailand
Jakar ta/ Indonesia
M umbai/ India
Manila/ Philippines
Tokyo/ Japan
Shanghai/ China
H ong Kong
Seoul/ S Korea
Singapore
GDP p er h ead
Re al es tate co st
High Real estate costs show the inefficiency in the market.
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Indian Real Estate Industry
Current View…
• Rationalization of Real Estate prices
• Increased funding avenues at lower cost
• Increased supply of quality Real Estate
• Better quality construction
• Increased awareness for a quality product – across sectors
• Slowly Real Estate is being seen as an investment opportunity with regular
income
• Reforms pacing up
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Stamp Duty rates – Asian Markets
Country Stamp Duty+ Registration Tax (%)
Malaysia 1% upto RM 4,00,000; 3% for remaining
Hong Kong 3.75%
Thailand 2.5% (+ specific business tax @ 0.5 % if applicable)
Philippines 2.25%
Singapore 1.5% on first S$ 1,80,000 + 1.5% on next S$ 1,80,000 + 3% thereafter
Korea 5.8%
State Stamp Duty+Registration Tax (%)
Haryana 12.5 - 15.5%
Kerela 15.50
UP 14.50 The Way Forward:
HP 14.00
Stamp Duty rates
In line with
Rajasthan 12.00
Other Asian
Uttaranchal 12.00
Markets
Karnataka 9.65
Delhi 8.00
Maharashtra 8.00
Noida 8.00
Andhra Pradesh 6 - 8%
Punjab 6.00
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Infrastructure (Real Estate!!)
Infrastructure Issues - Manpower Issues overriding all other shortcomings
• Convoluted licensing process
• Excessive investment – time and
money associated with multiple
meetings
• Lead time for commissioning of
Telecom Services
MANPOWER
+ve for other locations –ve for
• Real Estate India
• Standardized good quality Real
Estate not available except in
pockets
• Difficulty in obtaining land for
development
• Power Supply problems
• Additional investment in terms of
captive power and UPS system
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Impact of BPO on the Real Estate Industry
• Advent of BPO has lead to new concepts and dimensions evolving in the
Real Estate sector…
• Location strategy based on critical organizational parameters
• Scalability
• 24X7 Operations
• Sudden ramp-ups
• Redundancies in all aspects of operations
• Criticality of Project Management – “Crashed Timelines”
• Broadened scope of Facilities Management
• Time Scheduling
• Optimal utilization of space – “Production Area Maximization”
• Mushrooming of ancillary industries – Fleet Management, Catering etc.
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Unprecedented Commercial Demand – The Ripple Effect
ITES Demand
Over100 million
sq. ft. by 2008
Steel & Cement – Rs. 28.5 billion @
Employment – 0.5 million people @
Generate revenue for Govt. – Rs. 23 billion @
@ Estimate figures based on in-house calculation
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Country Selection Criteria for Offshore Sourcing
Relevant skill sets
Cost of Labour
Language Skills
Security/Business Continuity
IP Protection
Country Infrastructure
Cultural Fit We expect infrastructure to
become even more important and
Proximity to the US A key differentiator in the
future
0 1 2 3 4 5 6
Source: Gartner Research
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If we get things right….
CHINA
MEXICO
INDIA RUSSIA
Manpower Skills BRAZIL
and Cost PHILLIPINES
HUNGARY
+ IRELAND
Infrastructure PAKISTAN
SOUTH AFRICA
ROMANIA
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The Way Forward…
Average rentals being paid in the sector
Rentals (in Rs./sq ft) - BPO Space
60
Rentals (In Rs./Sq. Ft./Month )
50
50
40
40
30 35
27
30
20
10
0
1999 2000 2001 2002 2003
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Real Estate As An Investment Opportunity – A Comparison
Comparison Real Estate Yields
15
14
13
12
11 The
Points
10 difference
9 in realized
returns
8
7
6
5
1998 1999 2000 2001 2002
Year
T-Bill 10-Year Govt Bond 3-year Bank Deposit Yield on Commercial RE
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Real Estate As An Investment Opportunity
Comparison Real Estate Yields
4.5% 1.5% 1.6% 0.5% 1.1% 2.3% 4.5% 4.5% 1% 2.5% 2.05% - Inflation Rate
14.00%
12.00%
10.00%
Yield Rate
8.00%
6.00%
4.00%
2.00%
0.00%
Mumbai
Bangkok
Hong Kong
Copenhagen
Frankfurt
Kuala Lumpur
New Delhi
London
Bangalore
Singapore
Sydney
* Grade A office space; 3-year lock-in; high quality tenants
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The Way Forward……
In Summary…
• The fist wave of BPO players : low cost high quality manpower
• The next phase of the Outsourcing Wave–
• World economy wants to emulate the success of the first wave BPO players….
• BPO players have to cope with rapid expansion
• Pressure on infrastructure in various cities due to sustained growth
We have to…
• Simplify – acquisition & disposition process
• Land Reforms
• Legal & Legislative reforms
• Reduce Real Estate Transactional costs
• Real estate funding
• Foreign, Domestic, Banking, FI’s, Insurance, etc.
• Financial Instruments – REITS, Securitization, etc.
• Spend in Infrastructure
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BPO Players – They are here but we need to take care of them
Exult Reuters 3G
EDS Convergys Verizon
IBM Global DELL Progeon
Accenture Hewlett Packard Hughes Software BPO
Sitel GE Capital WirpoSpectramind
Sykes HSBC – EDP Churchill
Prudential SCOPE Fidelity
Vertex Barclays Teletech
JP Morgan Lloyds TSB Logica CMG
ICT Group American Express TESCO
Goldman Sachs Bank Of America Daksh e Services
Morgan Stanley Qualcomm The list is endless…
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Thank You
Manish Kashyap
CB Richard Ellis
Head – Transaction Management, South Asia
manish.kashyap@cbre.com
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Nature of work carried out
S.no. Location Nature of work carried out No. of
shifts/day
1 Chennai Financial Analysis, Transaction Processing, Electronic Data Interchange, Customer 1
Analysis, Data mining
2 Chennai Financial Analysis, Transaction Processing, Electronic Data Interchange, Customer 1
Analysis, Data mining
3 Chennai Customer care, technical support, Document Management, Customer Analysis, 2
Records Management, Billing Services
4 Bangalore Database Management, Data Mining, Software Development, Financial Analysis 1.5
5 Bangalore Claims Processing, Asset Management, Document Management, Customer Care, 3
Animation, Financial Reporting, Telemarketing, GIS, Transcription
6 Noida Tax Processing, Claims Processing, Billing Services, Accounting Transactions, 3
Customer Care, Payroll Services, Telemarketing, Credit Card Services, Web Sales,
General Accounting,
7 Delhi Claims Processing, Document Management, Animation, Customer Care, Biotech 3
Research, Credit/Debit Cards, Telesales, Payroll Services, Records Management,
Accounting Transactions, Risk Management, Billing Services
8 Gurgaon Claims Processing, Document Management, Billing Services, Credit Card, Database 3
Marketing, Telesales, Customer Care, Web Sales, Transaction Processing
9 Gurgaon Billing Services, Accounting Transactions, Credit/Debit Card, Database Marketing, 3
Telesales, Customer Care, Web Sales, Benefits Administration, HR Services
10 Gurgaon Claims Processing, Asset Management, Customer Care, Financial Analysis, 2
Financial Management, Document Management, Billing Services, Telemarketing
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Age, style and standard of building being used
S.n Location Area Age Land Zoning Landlord Standard Rent
o. (sq. ft.) Provisions (INR/sqft/month)
1 Chennai 27,000 3 years, multi- Commercial A/C Grade A Rs.38
tenanted
2 Chennai 44,000 3 years, multi- Commercial A/C Grade A Rs.40
tenanted
3 Chennai 22,000 3 years, multi- IT Park A/C, Power Grade A Rs.47
tenanted back-up
4 Bangalore 63,000 9 months, multi- Commercial A/C, Power Grade A Rs.62 (including
tenanted back-up fit outs)
5 Bangalore 110,000 8 months, multi- Commercial Power back- Grade A Rs.41
tenanted up
6 Noida 140,000 2 years, Industrial Shell only Industrial Rs.11
independent Grade
7 Delhi 40,000 3 years, Industrial Shell only Industrial Rs.30
independent Grade
8 Gurgaon 100,000 4 years, Industrial Shell only Industrial Rs.19
independent Grade
9 Gurgaon 200,000 1.5 years, Commercial A/C, Power Grade A Rs.35
independent back-up
10 Gurgaon 40,000 1 year, independent Industrial Shell only Industrial Rs.18
Grade
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Workspace density standards & cost per workspace
S.no. Location Workspace Density Workspace Density Cost per workspace – Capital
Standards (Gross) Standards (Net) Expenditure (Gross)
(INR)
1 Chennai 145 sq ft 108 sq ft 212,000
2 Chennai 100 sq ft 75 sq ft 155,000
3 Chennai 100 sq ft 77 sq ft 150,000
4 Bangalore 95 sq ft 78 sq ft 114,000
5 Bangalore 120 sq ft 96 sq ft 140,000
6 Noida 75 sq ft 70 sq ft 130,000
7 Delhi 95 sq ft 78 sq ft 175,000
8 Gurgaon 84 sq ft 63 sq ft 143,000
9 Gurgaon 100 sq ft 75 sq ft 150,000
10 Gurgaon 80 sq ft 60 sq ft 144,000
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Facility Management - Facility Management - manpower and operation cost per
Facility Management - manpower and operation cost per workspace and operation
cost per workspace
S.no. Location Running cost per sq ft/month
1 Chennai Rs.3.6 (All FM - HK, Security, M&E, Misc. Maintenance) Note: The variance in FM
costs are attributable to the
2 Chennai Rs.4.3 (All FM - HK, Security, M&E, Misc. Maintenance)
following:
3 Chennai Rs.3.5(All FM - HK, Security, M&E, Misc. Maintenance)
•Building systems
configuration and design
4 Bangalore Rs.5(All FM - HK, Security, M&E, Misc. Maintenance) •Client specific requirements
• Differential operating
5 Bangalore Rs.4.8(All FM - HK, Security, M&E, Misc. Maintenance) manpower rates across India
• City specific costs variance
6 Noida Rs.10.5(All FM - HK, Security, M&E, Misc. Maintenance)
The exclusions to the costs
provided are:
7 Delhi Rs.6.5(All FM - HK, Security, M&E, Misc. Maintenance)
• Annual equipment
maintenance contracts
8 Gurgaon Rs. 14(All FM - HK, Security, M&E, Misc. Maintenance)
•Spares/ replacements
9 Gurgaon Rs.12(All FM - HK, Security, M&E, Misc. Maintenance) • Electricity consumption
10 Gurgaon Rs.7.2(All FM - HK, Security, M&E, Misc. Maintenance)
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Thank You
Manish Kashyap
CB Richard Ellis
Head – Transaction Management, South Asia
manish.kashyap@cbre.com
32
Infrastructure Issues – Strengthen India’s Position
• Increasing Govt. patronage
• SOP’s & tax concession regime
• Allow easy foreign exchange handling
MANPOWER • Simplified investment in BPO ventures &
infrastructure industries
India’s population would/could
continue to churn cheap labour for • Highly efficient telecom services
the BPO sector
• Better connectivity, lower rates
• Real Estate
• Abundant supply of good quality real estate
development & rational prices
• Power Sector Improvements
• Efficient supply& distribution system
• Other reforms
• Law and order
• Public transportation
• Change in school/college curriculum
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Real Estate – TRENDS In India – The Good News
Past 5 Year Trend Of Rentals
Rentals (In Rs./Sq. Ft./Month )
120
110
105 100
100
90
90
80
60
60 52
60 46 45 51
40
45 33
38 35
20
0
1998 1999 2000 2001 2002
Rentals - New Delhi CBD - Commercial Rentals - Super Prime Residential
Rentals - Gurgaon A Grade Commercial
• Rentals & Capital values have fallen across all major markets.
• Improving real estate options for the IT / ITES sector
• Timelines for Construction and Interior Fit-outs have reduced drastically
• Developers increasingly adapting to the needs of this industry
• Better quality of construction and interior fit-outs
• Scientific approach in managing of facilities and allied activities
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ITES Industry ~ Fast Changing Dynamics
Shorter Forecasting horizons
Shortening lead times for evaluating new location, acquiring space
and commencing operations
High opportunity loss due to lack of capacity
Lack of organized data ~ difficulty in comparative analysis on common
platform
Adhoc capital investment, delays resulting in higher costs
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