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									                               Targeting Reforms Through a
                                 Sector Specific Approach

                                                             Fadi Farra
                                                 OECD Principal Administrator

                                                    Sofia, 20 November 2007




                                                   Private Sector Development Division
                                                  Investment Compact Programme
PSD_WB project_SEEIC presentation_Paris_121107                                           OECD Private Sector Development   1
Agenda


 Regional approach: Western Balkans

 Country specific approach: Moldova




 PSD_WB project_SEEIC presentation_Paris_121107   OECD Private Sector Development   2
Agenda


 Regional approach: Western Balkans

 Country specific approach: Moldova




 PSD_WB project_SEEIC presentation_Paris_121107   OECD Private Sector Development   3
                                                                                           Objective

Increasing investment and trade in the Western Balkans


 Overriding question: How to increase investment and trade in a selected number
 of industry sectors in the Western Balkans?

         • What are the end-customer requirements in those sectors and what are
           the industry/supply implications?

         • How attractive and competitive are the sectors?

         • What is the recommended positioning to attract investment and trade to
           the selected sectors?

         • What are the main barriers and how to remove them?

         • What are the implementation steps needed to attract investment and
           trade?




 PSD_WB project_SEEIC presentation_Paris_121107                        OECD Private Sector Development   4
                                                                                                                                                                                          Methodology
Prioritising sectors rigorously
The OECD Sector Prioritisation Index
    Sample output                                                                                                                                                             Preliminary

  Country
  Benefits3                                           OECD Sector Prioritization Index - SEE region1
  60
                           Travel & Tourism                     Telecomms 4                    Automotive5
   55
                                     Financial Services        Healthcare &              Real Estate
   50
             Construction                                        Pharma
   45
   40        Mean: 39
                                                                                                                                                                     Textiles 6
   35
               Energy & Electricity                                                                                                          Food & Beverages
   30                                                             Metal                                Printing & Publishing

   25
                                                  Mining
   20
                                                                       Mean: 30




   15
                                                                                      Agriculture
                                                                                                                                                                       Market Attractiveness2
   10
        20                                25                                30                          35                              40                             45                             50
NOTES: 1 Points allocation has been weighted against 2005 real GDP figures for Albania, Bosnia and Herzegovina, Croatia, FYR Macedonia and Serbia
        2 Variables   in Market Attractiveness and weights: market growth (20%), total output share and growth rate (20%), value added (20%), exports as a proportion of total exports (10%), trade
          balance (10%), degree of industry consolidation (10%), number of establishments (10%)
         3 Variables   in Country Benefits and weights: FDI stock (20%), employment level (20%), potential for employment generation (20%), potential for innovation (20%), spill-over to other
          industries (20%)
         4 OECD classification   based on NACE codes; includes ICT and BPO services
         5 OECD classification   based on NACE codes; includes automotive components
         6 OECD classification   based on NACE codes; included in consumer goods and retailing
Sources: National Statistics, UNIDO, OECD analysis, market research companies
     PSD_WB project_SEEIC presentation_Paris_121107                                                                                                                  OECD Private Sector Development       5
                                                                                                                                                   Business Process Outsourcing
Example 1: Business Process Outsourcing
SEE countries have the basics to compete

Leveraging their competitive labor costs in services

 Index
 (100:                     Relative comparison of average monthly labour cost in services (2005)
Hungary)

                                                          104
                        100

                                     88




                                                                      40
                                                                                 37          34
                                                                                                       31
                                                                                                                 21.9       21.5
                                                                                                                                                    15
                                                                                                                                                                                (1)
                                                                                                                                                                         4.4

                     Hungary Poland                    Croatia        BiH        Serbia        Albania UNMIK/Kosovo Moldova                                             India
                                                                        Montenegro     FYR Macedonia

               Sample of CEE countries                                  SEE countries covered by the project                                           Other references

  Source: International Labour Organization; zdnetasia; Wall Street Journal, OECD interviews
  Note: Monthly wages have been calculated on 2003-05 or 2003-06 average; using the LABORSTA Labour Statistics Database and covering, unless specified only the category J
  (financial intermediation) and K (business activities, real estate and renting). For Albania overall figures are based on category I (transport, storage and communications) due to the
  absence of statistics on J/K in the ILO databases
  (1) average monthly wages in all services
  PSD_WB project_SEEIC presentation_Paris_121107                                                                                                      OECD Private Sector Development       6
                                                                                                                                                                 BPO strategy
Opportunities also exist to attract investments from
global players already present in the region

                 Country                   Captive service                 Third-party service               Planned ITO and R&D BPO functions
                                              centers1                          providers

        Poland                                                                                               • IT Support
                                                                                                             • Sw Dvpt.
                                                                                                             • Data pro.


        Czech Republic                                                                                       • IT Support


                                                                                                             • ITO



        Hungary                                                                                              • Global IT
                                                                                                             • Service center
                                                                                                             • SW. Dvpt.




        Romania                                                                                              • SW. Dvpt.




                             Indian players like Wipro are also allocating assets in Eastern Europe

Note: (1) Offshoring: business process offshoring and IT, both captive and outsourced; Eastern Europe = Bulgaria, Czech Republic, Hungary, Poland, Romania, Russia,
Slovakia, FTEs: Full-Time Equivalents; Source: The overlooked potential for outsourcing in Eastern Europe, McKinsey Report, 2006
http://www.mckinsey.com/clientservice/bto/pointofview/pdf/MoIT10_eastern_euro.pdf)


  PSD_WB project_SEEIC presentation_Paris_121107                                                                                               OECD Private Sector Development   7
                                                                                                                                                                      BPO barriers
Skill gaps and infrastructure are the key barriers
to address in priority
                                                                                                                                              Based on preliminary survey results


                       Sector specific barriers                                                                  Potential resolution approach

Skill gap and shortages

 Significant skill gap in both languages and practical                                         Align ministry of economy and education priorities –
                                                                                                leverage Irish and British best practices
engineering education

 Lack of government coordination to align resource                                             Leverage companies to support / chair applied courses
                                                                                                - Develop SME-FDI linkages (1)
requirements with economic needs

 ‘’Brain drain’’ effect with emigration in the sector to
other countries

Infrastructure:

 Physical and ICT Infrastructure limitation in some                                            Leverage public-private partnerships to support high-
countries (Albania, UNMIK/Kosovo and Moldova)                                                   quality digital infrastructure


Investment promotion:

 Lack of focus in terms of investment promotion and                                            Build and promote integrated clusters focusing on
countering risks perception eg. data privacy and                                                costs, innovation advantages and new service lines
intellectual property/confidentiality
                                                                                                Offer higher level of protection through easier access to
                                                                                                courts and transparency
Note(s): (1) To provide certifications like the Capability Maturity Model Integration CFA: Certified Financial Analyst; CPA: Certified Public Accountant


 PSD_WB project_SEEIC presentation_Paris_121107                                                                                                        OECD Private Sector Development   8
                                                                                                            Textile & garment
Example 2: Textile and garment
Speed to market and differentiation now mainly drive the sector
The global market for apparel is evolving rapidly with changing end-customer and consumer
requirements influencing the structure of the industry

         Consumers are devoting a greater share of their                Apparel retailers are responding by increasing the
           money to non-apparel goods and activities                   number of products offered and decreasing the time
                                                                                             to market
       Apparel Spending as % of Total Annual Expenditures               Number of UPC registrations in the US apparel
                         (1990-2000)                                                sector (1990-2006)
7%                                                              1600



6%                                                              1200



5%                                                               800



4%                                                               400



3%                                                                 0
       1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000          1990   1991   1992   1993   1994   1995   1996    1997    1998

                                    US        UK


                      Time to market has reduced from 12-16 weeks in 1995 to 2-5 weeks in 2006

     Sources : Bureau Of Labor Statistics, UC Council
     PSD_WB project_SEEIC presentation_Paris_121107                                                   OECD Private Sector Development   9
                                                                                                       Textile & garment advantage

SEE can differentiate through cost and speed advantage

 The Western Balkans could be a prime off-shore production location for leading EU apparel
 retailers based on its geographic proximity to EU markets, low labour cost and know-how in value-
 added manufacturing, especially in the clothing sector


               Relative low cost of production…                                     …Supported by other key strengths
                 Production Cost Index (2005)

       FYR Macedonia                                                      History: Long and reliable history of providing
              Romania                                                    EU apparel retailers
                Albania
                                                                          Speed: Able to ensure quick delivery of goods
Bosnia and Herzegovina
                                                                         to EU markets, especially Italy
               Bulgaria
                Poland                                                    Quality and Technology: High quality with
               Hungary                                                   increasingly sophisticated use of technology in
                Croatia                                                  business operations
               Slovakia                                                   Skills availability: University system with a
Serbia and Montenegro                                                    history of producing graduates in design and
       Czech Republic                                                    textile-related engineering
               Slovenia
                                                                         Trade: Preferential trading relationship with the
                   Italy
                                                                         EU and opportunity of diagonal cumulation of
                           0      20        40      60   80     100      origin within the region and extension of the pan-
                                                                         European diagonal cumulation of origin
   Source: OECD Regional Capability Survey (RCS) in the Western Balkans 2007, KSA

   PSD_WB project_SEEIC presentation_Paris_121107                                                      OECD Private Sector Development   10
                                                                                                          Textile & garment barriers

Short and long term barriers to address

Early survey results indicate that firms in the Western Balkans are constrained by sector
specific barriers


     Example of sector specific barriers to address                              Example of import / export delays in 2006

  Lack of training – Few programmes in place to
 assist garment firms in training new employees
  Significant delays at customs borders for the
 Importation of raw materials


 Longer term barriers to address:
  Limited and expensive access to finance for new
 investments and working capital
  Basic infrastructure, especially electricity, is not
 reliable, particularly in Albania




  Source: OECD Regional Capability Survey (RCS) in the Western Balkans 2007 ; World Bank 2006

  PSD_WB project_SEEIC presentation_Paris_121107                                                        OECD Private Sector Development   11
                                                                                                                                                          Automotive sector
Example 3: Automotive components
Focus on cost reduction leading to opportunities for components suppliers
The global automotive industry is mature and characterised by slow growth and focus on cost
reduction in the past decade

     In recent years car sales have been stagnating in                                                            To increase profits, Automotive Manufacturers are
                      OECD countries                                                                                    increasingly outsourcing components

                       New car sales in EU, US and Japan                                                                % of car value outsourced 1985-2000
                        (in thousand vehicles) 1990-2004
  28.0
                                                                                                                                              45%
  27.0                                                                                                                  PSA                            70%

  26.0

  25.0                                                                                                                                         50%
                                                                                                                      Renault                        65%
  24.0
                                                                                                                                                             80%
  23.0

  22.0
                                                                                                                         Fiat                        65%
  21.0                                                                                                                                                   75%

  20.0
         1990
                1991
                       1992
                              1993
                                     1994
                                            1995
                                                   1996
                                                          1997
                                                                 1998
                                                                        1999
                                                                               2000
                                                                                      2001
                                                                                             2002
                                                                                                    2003
                                                                                                           2004




                                                                                                                                1985   1997    2000 (est.)




                                                                                           Asian Development Bank, 2002
   Sources : Standard and Poor DRI, OECD, ACEA, US Bureau of Transportation Statistics, JAMA,

   PSD_WB project_SEEIC presentation_Paris_121107                                                                                             OECD Private Sector Development   12
                                                                                                            Automotive components advantage

SEE has both a cost and EU proximity advantage


                                Operating Cost Index, Automotive Component Sector, 2005

                                      Countries in the Western Balkans and Eastern Europe
                                         (includes labour costs, property costs and utility costs)

                     100
                                       92


                                                        73

                                                                       61
                                                                                       58              58

                                                                                                                       44




                  Hungary            Croatia      Czech Republic   Bosnia and      Macedonia         Slovakia        Serbia
                                                                   Herzegovina




 Sources: OECD interviews, MIGA, Locomonitor,

 PSD_WB project_SEEIC presentation_Paris_121107                                                                   OECD Private Sector Development   13
… and an opportunity to work with many               Automotive components advantage


component suppliers
Mercedes-Benz C-Class Sedan: Components outsourced




 PSD_WB project_SEEIC presentation_Paris_121107            OECD Private Sector Development   14
                                                                                                                                                Automotive components barriers
Skill gaps and standards are sector specific
barriers to address in priority
                                                                                                                                              Based on preliminary survey results


                       Sector specific barriers                                                                  Potential resolution approach

Skills gaps:

• Limited design skills
                                                                                                Training with companies to develop further design and
• Shortage in applied skills                                                                    technology based collaboration skills

                                                                                                Linkage programs to develop more practical skills and
                                                                                                value-added services / skills

Quality standards:

 Need for systematic ISO and automotive sector                                                 Working with international bodies and collaborating
standards and accreditation, including environmental                                            with OEM further to upgrade standards as required
standards to be put in place


Administrative procedures

 Timing to open a company, get access to court,                                                Opportunity to build further clusters in the industry
obtain VAT reimbursement, etc.                                                                  with both OEM and components suppliers in eg BiH

                                                                                                Opportunity to advertise further the local capabilities
                                                                                                and potential for value-added services


Note(s): (1) To provide certifications like the Capability Maturity Model Integration CFA: Certified Financial Analyst; CPA: Certified Public Accountant


 PSD_WB project_SEEIC presentation_Paris_121107                                                                                                        OECD Private Sector Development   15
Agenda


 Regional approach: Western Balkans

 Country specific approach: Moldova




 PSD_WB project_SEEIC presentation_Paris_121107   OECD Private Sector Development   16
How to: address skill gaps
The call center example

Example of actions to address skill gaps in Moldova
                                                                                                                Cost
              Awareness
                                                                                                     • Competitive cost positions
                                                                                                       in call centers, among the
      • Job fairs at universities                                Cost(1)                                lowest in South Eastern
         • Develop company                                       5                                               Europe
           chaired courses                                                                              • Up to EUR 6/ hour vs.
                                                                            Entreprises                    EUR 10-12/hour on
                                                                            Students                       average in Europe


                                                                                                       • Develop anti-poaching
                                                                                                       guidelines to limit salary
                                            Awareness




                                                                                          Quantity
                                                                                                               inflation
                                                                 0
                                                                                                              Quantity
                                                                                                     • Link ministry of education
                                                                                                       and economy priorities
                 Quality

         • Offer internships                                                                          • Increase the number of
    • Company universities and                                                                            languages graduates
            training                                                                                    focusing on niche areas
                                                                  Quality                                      like Italian


                                                                                                      • Consider one/two other
           Notes (1): Ranking: (1) Poor; (5) outstanding                                              languages like Swedish to
  Source: OECD field survey with 200 students and 40 companies                                         carve an unique position
 PSD_WB project_SEEIC presentation_Paris_121107                                                                OECD Private Sector Development   17
How to: Find relevant local and foreign companies
 Building a database with company profiles and offering




PSD_WB project_SEEIC presentation_Paris_121107            OECD Private Sector Development   18
 How to: directly target key companies

Targeting BPO companies directly – The Moldova case

  Timing                Paris – December 5                   London – December 6              Paris – December 7
Morning           ITO/BPO companies                   ITO/BPO companies:                      Suez    company     –
meetings             CSC ATOS                           EDS                                  environmental
                     ORIGIN                             IBM                                 Sodexho      –   Food
                     STERIA                             Accenture                            services leader
                     BULL                               HP                                  Groupe     casino   –
                     Cap Gemini                         Unisys                               leading retailer
                     Infosys                            TATA consulting                     SFR/Bouygues        -
                                                                                               Telecom
Lunch                      Continued from above       Lunch with Journalists:              Lunch with economic
meeting                                                  BBC, Financial Times, The journalists:
                                                          Economist, Telegraph             Le Monde, Les Echos,
                                                                                           RTL
Afternoon              Axa Assistance – interest        BP – Energy leader                  Wrap – up meeting
meetings                in Moldova                       Tesco – Retail leader                with OECD
                       Carrefour      –    Leading      The Carphone Warehouse –            Establishment of next
                        retailer                          mobile phone leader                  steps
                       Credit Agricole - Bank           Goldman Sacks – leading bank        Departure          to
                       Groupe Schneider Areva            working with private equity          Chisinau
                        transport et distribution –      AT     Kearney      –    leading
                        electrical systems provider       management consulting firm
                                                          with focus on outsourcing



                                  Road-show involving minister of economy and experts

  PSD_WB project_SEEIC presentation_Paris_121107                                                OECD Private Sector Development   19

								
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