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Webcast - February 12_ 1999

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Webcast - February 12_ 1999 Powered By Docstoc
					                                      WEBCAST
December 20, 2000
11:00 am to 12:00 PM Pacific Time

Guest: Dr. Kewal K. Verma, President, BCA International
Moderator: Syed Rizvi, semiconbay.com

Subject: Strategic Management Tools – Benchmarking, Competitive Analysis and
         Outsourcing”.

This webcast will address some of the business aspect of High-Tech companies with special
emphasis on requirements of the Semiconductor Industries worldwide.

In today’s multicultural and multinational complex industrial world, new approaches and new
avenues need to be explored for successful operation of companies. Benchmarking,
competitive analysis, strategic business/ technology alliance development, and outsourcing are
some such tools that until recently resided within the academic walls of universities and other
institutions of learning. Today these tools are being successfully applied by the industries
worldwide.

In this webcast Dr. Kewal Verma, President of BCA International will provide an in depth
understanding of these tools so that a newcomer on the scene can learn to incorporate these
tools in the industry to improve productivity, competitiveness and profit margins.

Dr. Verma has the first hand knowledge of these tools from his work at SEMATECH, which later
led the formation of his own consulting company, BCA International, for assisting the
semiconductor companies using these tools.

Bio:
Dr. Verma manages his consulting company, BCA International (BCAI), offering services in
outsourcing software development, benchmarking, competitive analysis, strategic
business/technology alliance development, project/program management, and customized
workshops, seminars and training courses. He is also on the faculty of the University of
Phoenix, Arizona, and teaches graduate courses, Strategic Management of Research and
Development and Information Technology Projects Management. He has M.Tech. and M.S.
degrees in Metallurgical Engineering and Ceramic Science respectively, and a Ph.D. degree in
Ceramic Science. He is a senior member of the Institute of Electrical and Electronics Engineers
(IEEE) and the International Microelectronics and Packaging Society and Educational
Foundation (IMAPS), member of Surface Mount Technology Association (SMTA), Austin
Software Council (ASC) and Semiconductor Equipment and Materials International (SEMI)
Austin Steering Committee, two-term President of Central Texas Electronics Association
(CTEA).

He has published on variety of diverse subjects, such as Outsourcing as a Strategic Tool,
Outsourcing Software Development, Multi-layer Co-fired Ceramic Package Technology and
Advanced Packages for VLSI and VHSIC Chips, Gold Alloy Conductor Inks for Die Attach and
Wire Bonding, Capacitor Electrode Inks, Electronic Properties of Ag-doped As2S3 Glasses, High
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Reflective Index Glass Micro-spheres and Reflex Reflectors, Metal Powder Preparation and
Characterization.

Syed Rizvi: Where can Benchmarking help me in Semiconductor Manufacturing?

Kewal K. Verma: Benchmarking has been extensively used in the industry in a variety of areas,
such as technology, manufacturing, operations, management, purchasing, supplier selection,
training, finance, business and marketing.

Benchmarking, involves self-assessment and comparison with other successful companies in
the industry, and thus provides an insight into the required changes and improvements.
Accordingly, it is as useful in semiconductor manufacturing as any other area. Some examples
in the semiconductor manufacturing may be;
     - Identify Best-of-Breed Tools
     - Yield Improvement
     - Productivity enhancement
     - Faster time to market
     - Improved Return on Investment
     - Improved Supplier Relations
     - Effective Supplier Management
     - Cost effective Inventory management
     - Identify Best Practices in manufacturing, training, management, marketing, etc.

Syed Rizvi: Who are the people in industry using benchmarking?

Kewal K. Verma: Industry leaders Xerox, Motorola, IBM, AT&T, HP, and others have used
benchmarking since late seventies. Some examples in the literature include following
companies:

         Company                          Areas Benchmarked                    Reference
Rubbermaid, Inc., Analog         Total Quality: process, commitment         1993, Octobers,
Devices, Johnson, Motorola       to the customers, involvement of           Fortune
& Federal Express                employees, & best practices
Motorola, Xerox, Kodak &         Community colleges nationwide for          1993,
Digital                          Supplier Training, teach courses to        September,
                                 suppliers of consortium members            Business Week
Chrysler, Citicorp, Johnson      Cash Management, Operational               1995, June,
& Johnson, & Motorola            Functions, Finance & Accounting            Global Finance


Syed Rizvi: It sounds like a large, complicated and expensive program, useful for big
companies like Motorola, IBM, HP and Intel, is it not?

Kewal K. Verma: Perhaps it is true that these companies used benchmarking more than others
and used the tool effectively, but as a tool, as a process itself, benchmarking may not be
complicated, large or expensive.

I teach benchmarking as a five-step process consisting of goal setting, competitive analysis,
sensitivity analysis, strategic planning and implementation. The sources of information, method
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of data collection, relevance of data with the goals, planning, and implementation are some of
the reasons for the success or failure of a benchmarking program. Their complexity and cost
depends on the goals and objectives, what do we need to accomplish. Obviously, identifying the
best-of-breed CVD or an implanter tool would not be as large and complicated as identifying
best-of-breed tools for a new semiconductor-manufacturing factory.

Accordingly, the benefits to big or small company may range from completion of a short-term
project to an establishment of a new company culture and discipline for self-assessment,
developing long-term vision and success.

Syed Rizvi: How much would it cost me?

Kewal K. Verma: Such an estimate would be placing a cart in front of the horses rather than
the other way around. However, benchmarking done on routine bases on pre-selected common
and standard subjects for multiple clients may cost $10-50K. Whereas benchmarking for a
custom project may not be estimated without a series of interviews with the client and a
preliminary quick assessment of the project.

Syed Rizvi: How do I go about setting up a benchmarking program?

Kewal    K. Verma: Benchmarking may be looked at program consisting of the following process
steps:
    -    Goal Development
    -    Competitive Analysis
    -    Sensitivity Analysis
    -    Strategic Planning
    -    Implementation

One would start with the first step Goal Development and identify/define the problem(s). This
would be an extensive exercise. A well-understood and carefully defined problem has better
chances of success. A recommended procedure may be to -
   - Interview management to set soft goals
   - Interview relevant department and division heads
   - Interview customers
   - Develop benchmarking methodology – plan, process
   - Identify partners, target companies, factories, etc.
   - Modify goals to be measurable, wherever possible quantifiable and realistic

This is not an appropriate place to teach benchmarking. However, for planning purposes your
process may look like figure-1.




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                  Figure – 1.    Benchmarking Semiconductor Factories


The figure represents a generic benchmarking process. For specific custom project, each box
in the flow chart may be filled accordingly. However, the process steps shown on the right side
of the figure in blue color would remain same. Progress of the project may be tracked by
making each operation box with a start and estimated completion date.




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Syed Rizvi: How is Competitive Analysis different than Benchmarking or are they the same?
Kewal K. Verma: Competitive Analysis has been shown as integral part of benchmarking. This
step involves development of a Metrics, relevant to the goals, against which relevant data will
be gathered and analyzed.

However, Competitive Analysis may be a stand-alone project consisting of the following major
steps –
          - Develop goals
          - Develop Metrics for data collection
          - Form work teams of experts
          - Identify sources for data collection
          - Gather data / enter into the database
                 i. Gather same data on your own company
          - Data analysis and reporting
                 i. Identify strengths and weaknesses, including your own
                ii. Identify trends

Syed Rizvi: How do I do benchmarking, where can I go to learn about the benchmarking
process?

Kewal K. Verma: I have been teaching a workshop on benchmarking at SEMICON West and
NEPCON WEST in California. Interested people may contact SEMI, headquartered in
California, or coordinators of NEPCON west, Reed Exhibition companies headquartered at
Norwalk, Connecticut. I can be reached at BCA International, Austin, TX, USA, phone/fax 1-
512-292-8351, at bcaikkv@earthlink.net or Kewal_Verma@BCAInternational.net.

Syed Rizvi: You mentioned Outsourcing in the benchmarking process, is that what you are
referring to as the strategic management tool?

Kewal K. Verma: In benchmarking, outsourcing is considered a part of the strategic planning,
which is one of the process steps in benchmarking. After the areas for improvements have
been identified and prioritized, following strategic decisions need to be made –
           - Schedule targets, consistent and compatible with the overall corporate goals and
               objectives
           - Plan action strategy
           - Identify areas for dropping or a later look
           - Plan outsourcing in consideration of the corporate goals and objectives, and its
               core competencies

Syed Rizvi: You mentioned outsourcing as a strategic tool, how is outsourcing a strategic tool?

Kewal K. Verma: Worldwide companies are using outsourcing as a strategic tool to improve
their ability to concentrate on the core competencies. Outsourcing is not sub-contracting or
fixing business processes. It is a strategic decision about creating value. It is about
reengineering and being able to provide customers a greater value faster, at a lower cost and
higher quality. By outsourcing non-core functions, companies are able to concentrate on
improving core competencies and look at the broader business issues. It has helped companies
gain competitive advantage by allocating resources to develop new tools, technologies,
methodologies and procedures.


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Syed Rizvi: How big is the outsourcing industry?
Kewal K. Verma: Outsourcing industry has grown from about $150 Billion worldwide in 1997
(Figure-2) to about $240 Billion by the end of 1999 and according to Dataquest it is estimated to
grow to $ 630 Billion by 2003.




  Figure – 2 The market for outsourcing continues to explode at CAGR of 14%


In addition to the information technology, today outsourcing covers administration, customer
service, finance, HR, real state, sales and marketing, distribution and transportation. Within
information technology, outsourcing includes maintenance and repair, training, R&D,
applications development, consulting and reengineering, data management, network
management, etc.

Syed Rizvi: Who is using outsourcing?

Kewal K. Verma: Several semiconductor manufacturing companies, such as Motorola, IBM,
Intel, TI and equipment supplier companies, such as Applied Materials, KLA, Lam Research
have either outsourced or formed strategic alliances with software development companies in
India, Ireland, Hungary, etc.
As indicated earlier outsourcing covers a lot more than just the IT companies.
         - Technology companies
                o GE, Microsoft, Intel, IBM, HP, SUN, Lucent, Alcatel, Nortel, CA, Cisco, NCR,
                   Sequent, VLSI, Analog Devices, TI, Cirrus Logic, Seagate, Compaq, Oracle,
                   EDS, Motorola, and more
         - Retail companies
                o Nike, J.C. Company, Dr. Pepper, Cadbury, Nestle, and more
         - Finance companies
                o Citibank, Wells Fargo, AMEX, Putnam, and more

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Syed Rizvi: Where can you use outsourcing?

Kewal K. Verma: Today outsourcing cover a lot more than just the IT industry, it covers:

   -   Information technology – maintenance and repair, training, applications development,
       consulting and reengineering, data management, network management, etc.
   -   Administration – mailroom, reproduction, training, etc.
   -   Customer service – tech support, field service, dispatch, etc.
   -   Finance – payroll, accounting, purchasing, records, etc.
   -   HR – relocation, recruiting, training, insurance, etc.
   -   Real estate - facility management, food services, maintenance, security, etc.
   -   Sales and marketing – mail, advertising, telemarketing, field sales, etc.
   -   Distribution – freight, leasing, warehousing, operations, logistics, etc.
   -   Transportation – fleet management, operations, maintenance, etc.
   -   Health care – insurance, patient records, health services, etc.

In the back-end assembly and packaging manufacturing industry, there are several areas, such
as components and materials distribution, inventory control, materials handling, package design
and test, manufacturing automation, factory design, and package and factory modeling and
cost analysis that can benefit by the outsourcing services provided by software companies.

Syed Rizvi: Why would a company want to get involved in outsourcing?

Kewal K. Verma: Decision about outsourcing and what to outsource requires careful
assessment and planning. In this regard, it is different from subcontracting or fixing business
processes. In contrast, outsourcing would involve carefully restructuring the company around its
core competencies and the business relationship with outsourcing partner.

Right reasons for outsourcing and its benefits should be carefully analyzed and clearly
understood. Although strategically the non-core functions are outsourced, a function that does
not fit or is wrong or it cannot be done in house should not be selected. However, the selected
partner would have access to superior technology, higher quality standards, better
manufacturing practices, be able to save time. Consequently, it will translate to lower cost.

Internal benchmarking and competitive analysis tools may be employed to evaluate internal
processes and functions to assess and evaluate your own company and also in the selection of
a supplier partner.

Syed Rizvi: Can you briefly describe what outsourcing is and how does one go about it?

Kewal K. Verma: Outsourcing is a strategic tool used by companies to improve their ability to
concentrate on the core competencies, outsourcing non-core functions. Outsourcing is not
contacting or fixing business processes. It is about creating value. It is about reengineering and
being able to provide customers a greater value faster, at a lower cost and higher quality.

Using outsourcing as a strategic tool companies can gain competitive edge by outsourcing non-
core functions to an outside organization and concentrating on internal reengineering. The
reengineering process is referred to the fundamental rethinking and radical change in the
business outlook, focusing on broader business issues, employing resources towards
developing new tools, technologies and skills. A dramatic improvement in performance may be

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realized, providing value to the customer in terms of productivity, quality, service and speed.
Thus offering customers a greater performance at lower cost.

Syed Rizvi: Sounds risky, how does one reduce and manage risk involved in outsourcing?

Kewal K. Verma: Success of the outsourcing project may depend upon the time and effort
spent in a careful assessment of your own capabilities, needs and expectations. Internal
benchmarking and competitive analysis tools may be used or outside consultants help may be
worth the expense. Important consideration also being that a redistribution and relocation of
resources, people, equipment, and operations will be required. A clear understanding of the
expectations and the relevant schedule is essential in the supplier selection and implementation
of the business relationship.

Selection of an appropriate supplier partner and establishing proper business relationship may
go a long way in risk reduction and risk management.

Syed Rizvi: You mentioned supplier selection, how would you select the right supplier?

Kewal K. Verma: Following supplier attributes and considerations would prove to be very useful
in the supplier selection.
     - Common business and strategic objectives
     - Business and cultural compatibility
     - Technical expertise
     - Quality focus
     - Supplier resources
     - Business reputation - stability and credibility
     - Contract terms – flexibility
     - Risk sharing
     - Cost
     - Consultants help

Since in most cases the partnership may last from six months to several years, business
reputation, stability and credibility of the supplier are important. Supplier may not only be able to
supply adequate resources, but it should be able to expand and grow with the industry and the
client. Because of the relatively long-term relationship, the supplier should be able to
accommodate ever-occurring changes in the market conditions and the technologies, and be
able to share the associated risks.

Consulting help is available to identify potential partners and best practices in the industry.
International organizations, such as SEMICON West and NEPCON West have offered
workshops on benchmarking (taught by Dr. Verma). Consulting companies, including BCA
International and individuals are available to offer benchmarking and competitive analysis help
or offer customized training that may help in the supplier selection

Syed Rizvi: What kind of relationship do you need with your supplier?

Kewal K. Verma: Supplier with compatible business strategies and goals would form a stronger
and beneficial relationship. Perhaps it is somewhat related to size of the outsourcing project,
but the relationship is not that of a contractor or a true partner. It is a business relationship and


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needs to be treated as such. Clearly defined expectations, deliverables and schedule must be
defined and agreed, early on.

Although a contract outlining deliverables and schedules is necessary, the relationship should
be flexible to accommodate the rapidly changing tools, technologies and the market conditions
over a period of time. In order to ensure commitment and dedication in a responsible business
relationship the risk and award must be shared. The supplier cannot be expected or forced to
accept the risk unless there is a promise of an award.

Syed Rizvi: Why is your discussion more inclined towards software outsourcing?

Kewal K. Verma: Although outsourcing as an industry has moved beyond the IT infrastructure
in scope and complexity. Software development still plays a predominant role in the non-IT
areas, such as the administration, customer service, finance, HR, real state, sales and
marketing, distribution and transportation, automation in manufacturing, design, test and so on.

I have personal interest in outsourcing software development. Through BCA International, I
have benchmarked software industry in India. The project included organization and
coordination of a strategic technology tour of India for business alliance development, and
understanding political environment and Govt. support to the Indian software industry.

Syed Rizvi: In the area of software development, we hear about India quite a bit, why is it so?

Kewal K. Verma: Software industry in India has a strong and sustaining infrastructure. As
shown in Figure–3, Software industry in India is $3.9 Billion strong and has grown at the rate of
54%. The software export revenue for 1998-99 has been $2.65 Billion and has grown at 57.4%.
India exports software to 86 countries. Over 203 fortune 1000 companies have outsourced
software development in India.




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Figure–3 Software industry in India is expected to grow from $3.9 Billion to $5.7
                                Billion by 2000.

As shown in Figure–4, majority of the software exports, about 61%, go to North America,
Europe being the next highest importer at 25%. In addition to the industry emphasis on exports
to the North America, it has major initiatives with Europe and Japan.




  Figure – 4 61% of the exports go to North America. Europe is the next largest
                                    importer.

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Syed Rizvi: What are the advantages of outsourcing software development in India?

Kewal K. Verma: Global corporations in USA, Japan, Europe and Asia have been looking at
India for –
      Cost advantage
      Established quality standards
      State of the art technologies
      Dedicated development centers
      Experience with large projects
      On time deliveries
Some of the other advantages of outsourcing software development in India would include the
following:
           I. Low cost – high quality
                     Considering the currency conversion and the pay scale, 30-40 percent
                        lower development cost is possible.
          II. Virtual software factories => reduced time to market
                     The 11-hour time difference allows combined professional teams in USA
                        and India 20-24 hour workdays.
         III. Established high quality standards
                     Five (5) companies have SEI’s CMM level-5 quality rating
                     12 companies have SEI’s CMM level-3 and level-4 quality rating
                     20 companies have level-2 quality rating
                     Over 115 companies re ISO 9000 certified
         IV. Globally competitive skills and state-of-the-art technology, proven capability to
              handle large projects
          V. High speed (Satellitea0 data links and services available
         VI. Access to large pool of qualified English speaking professionals with mathematical
              and logical expertise
                     As of 1998, over 200K professionals are employed by the software
                        industry
                     150 universities and 460 institutions produce over 115K engineering
                        graduates per year
                     55K professionals join software industry per year
        VII. Strong and stable industry infrastructure
                     $3.9 Billion software industry grown at the rate of 54%
                     IT companies with significant global operations
                     1998-99 exports by the top five companies range $35 Million to $169
                        Million.
                     Proven capability to handle large projects
                     Senior management often has U.S. experience, education or training
                     As member of the WTO, Indian Government has supportive policies,
                        including –
                     Tax holiday, up to 5-years
                     Equity, up to 100% possible
                     Investment friendly and free market oriented business environment

Top twenty or so IT companies in India have Global operations. Their access to the state-of-
the-art-technology technologies is almost immediate, often before these become available to
the public in the U.S. Most of these companies would typically have the following technologies
and skills, and work with several domains and platforms:
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          -   Technologies available: OOPS, Client/Networking, GUI/Multimedia, CASE Tools,
              4GLs
          -   Hardware platforms include: IBM Mainframe, AS-400, ES-9000, RISC-6000,
              DEC, HP, Unisys, DG, Tandem, UNIX, PC, MAC, PS/2, Novell LAN, SUN, etc.
          -   Development Platforms: PC (DOS, Windows, NT, Apple), Mainframe, UNIX,
              Midrange, etc.


Syed Rizvi: What types of services, products and applications do the Indian software
companies commonly provide?

Kewal K. Verma: About 650 software companies in India are involved in the following
application development segments.


                     Application Segment Companies Involved
                                             (%)
                       Banking                82
                       Insurance              55
                       Defense                38
                       Manufacturing          70
                       Hotels                 56
                       Transport              65
                       Retail & distribution  73
                       Communications         78
                       Government             70
                       Others                 55

Services and software activities of the Indian software companies may be summarized as
follows:

   -   Dollar amount of the on-site services (59%) is significantly more than the offshore
       services (32.2%). However, same amount of dollars would buy significantly more
       offshore services than on-site.

               Types of Services     U.S. $, M      % of Total
               On-Site Services        917.3           59
               Off-Shore Services      500.65          32.2
               Off-Shore Packages      136.8            8.8
               Software Activity     Domestics       Exports
                                     $, M     %     $, M    %
               Projects              239     28.6   489.76 31.5
               Professional Services  34.29 4.1     752.5 48.4
               Products & Packages 434.6 52.0       136.79 8.8
               Training               50.95 6.1      23.33 1.5
               Support & Maintenance 26.74 3.2       46.67 3.0
               IT enabled             50.14 6.0     105.71 6.8


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   -   Exports in products and packages ($136.79 Million) are significantly less than the
       domestic consumption ($436.6 Million).

   -   The domestic size of projects ($239 Million) and products and packages ($434.6 Million)
       is a strong indication of the growing and strengthening infrastructure.

Syed Rizvi: How easy or difficult is it to maintain a long distance relationship with an Indian
software company?

Kewal K. Verma: There are some obvious concerns and issues involved in distant
management of projects. However, good project management practices are as effective in the
distant project management as well. As mentioned earlier, well-planned, well-negotiated
projects, mutually agreed upon deliverables and schedules, awards and penalties would
significantly increase chances of success.

A commonly used model consists of the 30/70or 20/80 rule. This project management rule
implies that at any given time 20-30 percent of the project team would work on the client site,
predominantly involved in the project management and 70-80 percent of the tam may work
offshore, predominantly involved in the software development tasks.

Other models involve the 7/24 rule. The 11-12 hour time difference works to an advantage.
Software professionals can review and share each other’s work around the clock through
dedicated communication links. Work completed in India in the evening would be available to
an engineer coming to work in the morning at the client site in the U.S. on his/her arrival in
the morning and vice versa. Because of the 11-12 hour time difference, it is morning in the
U.S. when it is evening in India and vice versa.

Syed Rizvi: Is English language a problem?

Kewal K. Verma: Indian software industry represents second largest supplier base of English
speaking professionals. Occasionally, the cultural difference may create some humorous or
somewhat embarrassing situations, but English language is not a problem.

Syed Rizvi: What about the people who would rather have software professionals work on
their site in the U.S., where they can have some control on the project?

Kewal K. Verma: Most of the software companies would be willing to accommodate client’s
requirements. Almost any reasonable agreement can be worked out. However, same amount of
dollars would buy significantly more offshore services than on-site. Better cost advantage may
be realized by mixing on site and offshore activities. As mentioned earlier, 30/70 or 20/80 on-
site versus offshore mix seem to work.

Syed Rizvi: We are almost out of time but I have a few more questions that may not be directly
related if I may.

Kewal K. Verma: OK, I will try my best. Otherwise, I will be available to your audience offline.

Syed Rizvi: When you and I went to the graduate school, this benchmarking and outsourcing
were never heard of. How did these come about and how did you get involved in this field.


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Kewal K. Verma: Two things come to mind. One, there were other ways we were
accomplishing similar objectives, and second, the obvious and common sense things don't get
noticed as much. For example, when you did your Masters or Ph.D. thesis, did you not spend
time to find out what has already been done, so that you do not repeat the same thing or take
advantage and learn from what has been done already?

My reason for direct involvement is that that folks at SEMATECH thought it relevant to learn
about what the foreign competition is doing, so that we can choose our projects smartly, and
therefore competitive analysis and benchmarking.

Syed Rizvi: People may like to contact you. How can they reach you after this webcast? I
encourage our audience to go to our listserv and continue this discussion.

Kewal K. Verma: You can reach me at:

Dr. Kewal K. Verma, President
BCA International
3910 Danli Lane
Austin, Texas 78749, USA
Phone/fax: 1-512-291-8351
E-mail: bcaikkv@earthlink.net
        Kewal_Verma@BCAInternational.net
URL: http://www.BCAInternational.net

Syed Rizvi: Thank you for joining us during our webcast today. Hope to see you again in the
future.

Kewal K. Verma: My pleasure, see you next year!




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