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         vCustomer :
         Global expansion in a changing environment
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                                     Clement Kang
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                                       Isabel Kuo
                                         Lin Na
                                    Stephanie Chong
         Agenda: A sneak peak


                Decision Problem and ACE strategy
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                  External and Internal Analysis


                  1 : Adopt key industry verticals
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                 2 : Create barriers through technology


               3 : Expand Globally
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            Timeline and financials
         Key question and strategy : ACE

         In light of changing trends:
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         How to grow beyond India and build
         sustainable competitive advantage?
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                            dopt key industry verticals

                            reate barriers through technology

                            xpand globally
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         Decision problem
          Needs to expand beyond India

              Demand for multi-                         Global presence
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              language services                     • Increasing demand for
             • Increase in MNC’s                      Companies with Global
                                                      Presence

               Rising Wages               Trends                Near-shoring
               • 16 - 18% Pay Hike                          • Cultural Affinity
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                     Talent scarcity                   Demand for BPO Services
               • Limited Pool of Talent             • CAGR of 10.9 till 2009
               • Demand >> Supply                   • Most Sought after in US,
                                                    Europe then Asia
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         Global Expansion with BPO focus to
         (1) Address Labour Issues (2) Build Language Capability

                    External Analysis
Expand   What is vCustomer good at?


             Technology- based                          Strong Financial Position
                                                        • Scott Oki: investment funding
         • Create barriers via technology
         • Cutting edge facilities                      •US$1B Funding available



                                            Resources           Strategic Partnerships
               Language
                Capabilities                                  • Tech support in Bulgaria
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         • English, Spanish,                                  • Experience in strategic
           French, German                                     alliances

                 Global Presence                          BPO Service Provider
         • US, India, UK and Philippines                • One of the top firms
                                                        • Many industries
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         Expand via strategic partnerships & differentiate with value-added
         services

                      Internal Analysis
Expand   External + Internal = Strategy


         Expand via strategic partnerships & differentiate with value-added
         services




         Global Expansion with BPO focus to
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         (1) Address Labour Issues (2) Build Language Capability




                                   ACE Strategy
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                   Internal Analysis
Expand   Adopt key verticals in BPO


           Industry Focus

                                               Trend of moving from task-
              Healthcare                       oriented to process-oriented
                 (current)                     BPO services
                                                 - Doing more tasks within a
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                                               process instead of just one
            Retail banking                     single task
           Market size of US$34B


               Insurance                       Broad shared services market
           Market size of US$28B               in 2008 - US$57B
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                                   Adopt BPO
         Relationship managers for BPO clients

          vCustomer        Client’s
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                           Process     Roles of RMs
             A
                              A
                                         Coordinate between
             B                           vCustomer and its clients
                              B
                                         Promote vCustomer’s
             C        RM      C
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                                         services to existing clients

                              D          Receive and relay
             D
                                         feedback from customers
                              E
             E                           Build relationships and
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                                         foster trust


                           Adopt BPO
Expand   BPO and CRM are imitable

          Low barriers to entry          Increase in competition
           in the provision of           as more firms enter the
             BPO and CRM                        industry
                services
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             Need for higher
              value-added                   Downward margin
           services for higher               pressures and
              margins and                 reduced profitability in
          increased barriers to                the future
                  entry
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                                  Create Barriers
         Create barriers through software
         solutions
                                      • Report generation
                    • Data capture
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                                       • Decision-making • Decision-making
                    • Routine work          analysis      • Implementation


         Process   A      B     C      D      E       F       G     H      I

                   Currently in BPO    Move forward to
                   services on data     provide more
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                     capture and        value-added          • Attract more customers
                     routine work         services           • Create customer
                                                             loyalty
                                                             • Increase revenue per
                                         Provide             customer
                                        Software             • Create barriers to entry
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                                        Solutions            through technology


                                                  Create Barriers
Expand   Expand globally: China & Bulgaria




             ●
                     Bulgaria
                                ●               ●
                                        ●
                                        ●
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                                                     China




                                    New
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                                    Expansion


                                            Expand
Expand   Why China?


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

                      CPI Data Analysis
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          Physical Attributes:                     Acquisition:
          • 3 production centers                   •51% stake
          • 500 employees                          •Value at 38m
          • In Xi’an, Wuhan and Hebei              •20% premium ~ 45-50m
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                                                   Projected Revenue:
                                              80             Optimistic     74 m
          Key Benefits:                       60
                                                             Expected       44 m
          • Software development expertise    40
          • Focus on Healthcare, Financial,   20
                                                             Pessimistic
                                                                            15 m
            Insurance and Manufacturing
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                                              0
                                                      FY07       FY08      FY09

                                                       Expand
Expand   Why Bulgaria?


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

                              JV
                            Partner
                             Firm
                            partner
                               +
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                           vCustomer

          Company A        vCustomer          Company B


                           vCustomer’s
                         vCustomer’s
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                               clients
                            clients
                                         Expand
          Three-year horizon outlook

           Mid
         TPE 2007- Mid 2008                  Mid 2008-Mid 2009              Mid 2009-Mid 2010
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                                                                               Synergy
         Preparation
         Expansion in China                                                    Realization

         Acquire CPI     Integration


                                           Build up on CRM, BPO and software arms
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                                                    Develop software for other locations


         Expansion into Bulgaria

         Joint venture                                                      Review the JV relations
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                                       Build up on CRM and BPO services

                                                       Develop software capabilities
         Financial Projections
                                        Revenue Projection (in US$M)
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                                   40

                                   30

                                   20

                                   10

                                        0
                                                 FY2007              FY2008      FY2009
                   Total for software              9.6               23.04       27.648
                   Total for CRM/BPO              4.182              9.1392     10.235904
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                                            Profit Projection (in US$M)

            8.00
            7.00                                                                  6.82
            6.00                                              5.79
            5.00
            4.00
            3.00
                                                                                            NPV = 13.4mil
                                  2.48
            2.00
            1.00
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            0.00
                             FY2007                       FY2008              FY2009




                                                                                                   Financials
         Winning strategy, winning team


           ACE Strategy
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Create
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                    Further Analysis

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

                  1. Mandarin                       1.051 billion
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                  2. English                        510 million
                  3. Hindi                          490 million
                  4. Spanish                        420 million
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                  9. French                         130 million
                  10. German                        129 million
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         Source: Ethnologue:Languges of the World,15th Ed, 05
Expand   Global BPO Market By Industry


            IT              43%

            Financial       17%

            Communcation    16%
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            Manufacturing   15%

            Consumer Goods 9%
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Expand   Global BPO Market by Geography



              U.S.             59%

              Europe           27%
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              Asia Pacific     9%

              Others           5%
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Expand   Global BPO Market Segments


          Simple Bulk Transactions    $58B


          Broad share services        $57B
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          Niche Verticals             $24B


          High Volume Vertical        $6B
          Procedures
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           Country Comparison Scores

         • Financial Score
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             – Compensation
             – Infrastructure
             – Tax & Regulatory

         • People Score
             –   IT/ BPO Industry size/ quality
             –   Laborforce Availibility
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             –   Educational Skills
             –   Language Skills
             –   Attrition Risks

         • Environmental Score
             – Economical/ Political
             – Infrastructure Quality
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             – Cultural Exposure
             – IP Security
         Source: A.T. Kearny Global Services Location Index 2007
         Country Comparison- Worldwide
Expand
Create
Adopt
Expand
Create
Adopt    Country Comparison Worldwide
Expand
Create
Adopt    Countries comparison- Asia
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
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         Total           7       6.56    6.02       6.02       5.82        5.75          5.69
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Expand   Countries Comparison- Eastern Europe


                         Bulgaria   Slovakia   Estonia   Czech      Latvia
                                                         Republic



         Financial       3.16       2.79       2.44      2.43       2.64


         People          1.04       1.04       0.96      1.1        0.91
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         Environmental   1.56       1.79       2.2       2.05       2




         Total           5.76       5.62       5.6       5.58       5.55
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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
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         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
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         Higher education and foreign language
Expand
Create
Adopt
         in Bulgaria
Expand   US Call Centres



         Objective
         Satisfy Demand for rightshoring in US


         Strategy
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         Continue doing so as demand for BPO Services in
            US remains at 59%
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         Attrition Rates in India

         Cause
         High Turnover Rates are a result of talent scarcity, which led to the
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         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
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         Solution: Focus on Employee Growth Opportunities
         • Global Expansion translates into overseas job prospects & leadership
         positions
         • Systematic key performance indicator and appraisal systems to
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         encourage
          employee growth opportunity and satisfaction
         Source: http://www.physorg.com/news69676084.html
         BPO E-Stat 2006, Balancing Right, dgindia.com
         IP Rights in China

          • Companies are starting to demand for
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          protection for thei IP rights.

          • International pressures that force china to
          improve its IP laws
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          • 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
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Expand      Alternative Chinese Company



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


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


         (in mil USD)         Kingdee   AsiaInfo   Neusoft   Estimate
                                                               CPI
         Revenue               79.2      109.5      291

         Net Income            13.5       5.8        35
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         No. of Employees      3200      1800       6740       500

         Market                361        275       1245       75
         Capitalization
         Mkt Capitalization    0.11      0.15       0.18      0.146
         per worker
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         Premium: 20%                                          90
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
Create
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Expand                    Cost of workers


         • 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
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            – 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 =
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              1508
Expand      Profit Margin comparison


         • Tata Consulting Group
         • Cost of employee ~ 35%
         • Profit Margin ~ 26%
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         • Wipro
         • Cost of employee ~ 39%
         • Profit Margin ~ 23%
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Expand          Industry comparisons


                         Tata Wipro Polaris
                                    (Software)
         Cost of         35% 39% 10%
         employee
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         Profit Margin   26% 23%    4%
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Expand                Assumptions


         • vCustomer:
           – 25% Cost of Employees
           – 18% Profit Margin
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         • 150m in Revenue
           – 37.5m in staff costs
           – Profits  27m
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Expand
         Revenue

         Revenue:                     China     Bulgaria          India

         CRM / BPO       (numbers)        300              100        6000
                         Revenue
         CRM / BPO       per worker     20400         20400          20400
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         Software        (numbers)        200                0            0
                         Revenue
         Software        per worker     96000         96000          96000
         Total (in mil
         USD)                           25.32              2.04       122.4
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         Grand total                                                149.76
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         Cost

         Costs:

         Worker Cost
                              Cost per
         CRM / BPO              worker 2288     2496     1508
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                              Cost per
         Software               worker 3432     0        0
         Total cost (in mil
            USD)                       1.3728   0.2496   9.048

         Grand total
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                                                         10.6704
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         3 Year Financials

                              FY2007   FY2008   FY2009

         Revenue:

         China CRM / BPO      3.1      6.9      7.7

         China Software       9.6      23.0     27.6
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         Bulgaria CRM / BPO   1.1      2.3      2.6

         Bulgaria Software    0.0      0.0      0.0
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         Total                13.8     32.2     37.9
Expand   3 Years Financial II


          Total
          Revenue          13.8          32.2         37.9

          Profit
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          Margin = 0.18            2.5          5.8          6.8

          Discount rate:
            10%                                 5.3          5.6
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          NPV                     13.4
         Risk Mitigation – technology risks


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


         • Tier II firm like 24/7 ,ICICI, WNS Global
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            – 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
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           embrace technology earlier than them.
         • First mover advantage
         • Software takes time to develop, one step
           ahead of the competitors
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         Risk Mitigation – Too diversified


         • Where industry trend is headed
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            – Providing broader range of service
         • Not too many because learning
           curve for each industry is not steep.
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            – Eg: data entry is pretty standard all
              industries
         • Reap economies of scale
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         What happens after three years?


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


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