Experience Excellence: The Philippine Advantage January 2011 Miguel Garcia President Diversified Technology Solutions International DTSI Anthem Solutions Inc Board of Trustees Business Processing Association of the Philippines All information and data in this presentation is the exclusive property of BPAP, Everest Global, and Outsource2Philippines and cannot be copied, distributed, or sold without the express written permission of the copyright owners. Copyright 2010 BPAP, Everest Global, & Outsource2Philippines
Philippine IT-BPO: Established excellence in voice to growing non-voice capability VOICE Customer interaction and support, telemarketing, advisory NON-VOICE FAO, HRO, LPO, health care information management, transcription, research and analytics, supply management, procurement, industryspecific services (health, telecoms, energy) ITO/ESO ADM, IT infrastructure management, product development Design process delivery services CPO Creative process outsourcing: animation, game development 1 Copyright 2010: Business Processing Association of the Philippines. All rights reserved.
Road Map 2010 put the industry on a rapid growth trajectory Philippine IT-BPO industry size 2006 2009; US$ billion # FTEs (~ 000) ~50% ~26% ~19% x% YoY Growth ~25% 240 300 370 440 530 Global share 1 5% 6% 6% 7% 8% Impact over 5 years Contribution to GDP Employment generation Foreign exchange earnings Growth of Next Wave Cities 4% 5% of annual GDP Largest private sector new job creator 350,000 direct and Up to 0.7 1.0 million indirect jobs Significant export impact 3 rd -largest export earner based on net value added Catalyzed growth of 10+ Next Wave Cities adding over 50,000 jobs FTEs = full-time employees, YoY = year on year 1 Philippines IT-BPO market as percentage of global offshore services market, in revenue terms Sources: BPAP; Everest analysis Proprietary & Confidential. Copyright 2010 BPAP, Everest Global, & Outsource2Philippines 2
Philippine IT-BPO: Double-digit growth during the global financial crisis Over $7 billion in revenues, 19% growth amidst the global crisis Sector 2009 Revenues ($000,000) % change vs YA Contact center (voice BPO) 5,100.0 23.0 Back-office/KPO (non-voice BPO) 1,118.0 35.0 IT outsourcing 568.0-5.5 ESO and design process delivery 228.0 0.0 Transcription (non-voice BPO) 186.8 3.0 Animation 120.0 0.0 Game development 4.5 50.0 TOTAL Philippine IT-BPO (export) Source: BPAP, ACPI, CCAP, GDAP, MTIAPI, PSIA 7,325.3 19.0 3 Copyright 2010: Business Processing Association of the Philippines. All rights reserved.
Philippine IT-BPO: Double-digit growth during the global financial crisis Over 70,000 new jobs created in 2009 Sector 2009 Employment (FTEs) % change vs YA Contact center (voice BPO) 280,000 23 Back-office/KPO (non-voice BPO) 86,000 25 IT outsourcing 35,300 0 ESO and design process delivery 12,000 0 Transcription (non-voice BPO) 20,224 0 Animation 8,000 0 Game development 640 28 TOTAL Philippine IT-BPO (export) 442,164 19 Source: BPAP, ACPI, CCAP, GDAP, MTIAPI, PSIA 4 Copyright 2010: Business Processing Association of the Philippines. All rights reserved.
The Philippine talent value proposition: large pool of young, English-speaking speaking talent Number of college degree graduates Medical and natural sciences, allied fields Business, accounting, and related fields Social and behavioral sciences, education 2009 Annual growth 132,244 107,272 68,764 Engineering and architecture 50,734 IT-related and mathematics 47,928 Fine arts, masscom, humanities 12,269 TOTAL Tertiary level 469,654 5.8% Abundant labor force of 38 million Over 450,000 college graduates per year Large pool of accounting and business graduates English proficiency Affinity with Western culture Customer service orientation Highly trainable Cost effective High level of commitment and loyalty Pop Labor force Unemp rate Literacy World 6,768M 3,179M 8.7% 82.0% India 1,130M 509M 7.8% 61.0% China 1,330M 814M 4.3% 91.6% Suitability rates are empirically based on a total of >80 interviews with HR professionals working in each country Brazil 201M 102M 8.1% 88.6% Philippines 100M 38M 7.5% 92.6% Source: CHED 2010; CIA World Factbook 2010 5
Suppliers and captives service a range of verticals and globally prominent logos Wide range of industry-verticals serviced Supplier presence across industry verticals 1 # FTEs servicing ( 000s) # Firms Captives of 60+ Fortune 1000 firms Banking and financial services 75+ 50+ MDR and healthcare 40+ 40+ 25+ Telecom, travel, energy, and media 15+ 25+ BFSI = banking, financial services, insurance; MDR = manufacturing, distribution, retail 1 Per Everest-O2P survey of ~200 firms across the Philippines IT-BPO industry Sources: BPAP database; survey results
Contact center sector: The world s best One of the fastest-growing industries in the country No. of contact centers in the Philippines: 239 (Oct. 2010) Total full-time employees in 2010: 350,000* Estimated revenues in 2010: US$6.3 billion* Revenue growth from 2009: 25%* Key Players in the Country Third-party providers: Convergys, TeleTech, Stream Global Services, Sykes Asia, Aegis PeopleSupport, Teleperformance, Sitel, CyberCity Teleservices, Telus, epldt Ventus, Sutherland, ACS, HTMT, IBM Daksh, KGB, Transcomm, eperformax, Link2Support, Genpact Captives: HSBC, Dell, Shell, Siemens, Verizon, Citigroup, Six Continents Intercon Hotels, Henkel Financial Services, GE Money, Trend Micro, Oracle Technology, Western Union, Ford (Percepta), DHL *As reported by CCAP, December 2010 7 Copyright 2010: Business Processing Association of the Philippines. All rights reserved. 2010* Offshoring Destination of the Year National Outsourcing Association, UK *(also 2007 & 2009)
Back-office and KPO: Best-kept secret No. of service providers: 96 Total full-time employees: 86,000 Estimated revenues in 2009: US$1.12 billion,+35% vs year ago Key Players in the Country Captives: JP Morgan Chase, Emerson Financial Services, Deutsche Knowledge Services, Thomson Reuters, Chevron, Maersk Global Service Centres, Manulife Financial, Procter & Gamble, B&M Global Services (Baker & McKenzie), Ericsson, Lexmark, McKinsey, Hewitt Associates, Nestle, Watson Wyatt, DSM (White & Case), Integra BPS (formerly AIG) Third-party providers: SPi, Accenture, Amdatex, IBM Business Services, DDC Group, Digitrans Japan Phils. Inc., RG Financial, Sencor, Transprocure, EXL, RR Donnelly, SVI Corporation, Vantage Information Services (MT), Global Excel (HR), BPO International, E-Scribir, Prople, Infinit-O, Affinity Express, Eximius BPO, Asiatype, Integreon Invariably our local offices are impressed with the dedication and energy brought to the table by our Manila service center colleagues. Joeri J. Timp Executive Director B&M Global Services 8 Copyright 2010: Business Processing Association of the Philippines. All rights reserved.
Diversification into non-voice and more complex services continues Copyright 2010 BPAP, O2P, TeamAsia 9 Copyright 2010: Business Processing Association of the Philippines. All rights reserved.
Non-voice capability uncovered Meaningfully large-scale delivery centers for transactional non-voice services are possible Multi-function centers delivering an array of voice and non-voice services (including limited IT delivery) are possible Complex non-voice services (e.g., analytic, legal services) can be delivered from the Philippines although the center size is likely to be small The Silent Knight The Philippines Emerging Non-voice BPO Capability Everest Research Institute, January 2009 The Philippines can play an important role in the global services supply chain for nonvoice BPO. Everest Research 10 Copyright 2010: Business Processing Association of the Philippines. All rights reserved.
Philippines is second only to India in provision of offshore healthcare services ~US$1.5 billion ~25% ~8% Rest of the world (~US$400 million) Philippines (~US$94 million) China key services supported: Healthcare customer care Network support Central and Eastern Europe key services supported: Healthcare customer service and BPO outbound Support for oral and surgical (e.g., ophthalmology) areas ~67% India (~US$1 billion) 100-150 firms with an average size of US$5-10 million. Key areas include: Medical Transcription: Estimated at ~US$650 million, employing ~52,000 FTEs 1 Revenue Cycle Management: Estimated at ~US$350 million (including coding) 2 Claims processing: (emerging activity area) Major payer process outsourced Sizeable availability of HIPAA trained talent pool Off-shore healthcare market 1 NASSCOM estimates 2 ValueNotes Research estimates Source: Everest analysis
Healthcare offshoring in the Philippines has grown rapidly over the last 5 years Philippines Healthcare offshoring market size 2004-09; US$ million FTEs serving global markets 1 Industry focus split CAGR: ~40% Cont. Europe (1%) UK APAC Domestic North America Industry overview Extensive experience in medical transcription Small but growing presence in HIM and revenue cycle management 30+ setups with over 12,000 FTEs earning around over US$90 million in industry revenue Serve North American, European, and Asian markets Key industry strengths Sizeable and amenable talent pool Abundant nursing and allied medical graduate pool Strong English voice skills Cultural affinity to U.S. Emerging local demand for EMR / EHR, telemedicine etc. 1 Everest-O2P survey results Source: BPAP, Primary interviews with suppliers, Everest analysis
Philippines has been exporting IT services for over 3 decades Software development companies: 135 (export only) Total IT professionals: 35,300 Revenues in 2009: US$ 568 million Capabilities Applications development and maintenance IT operations and infrastructure Software product development Business analysis, project mgmt, education Key Players in the Country Accenture, IBM Solutions, HP, RCG, Siemens, Headstrong, Fujitsu, Pointwest, Oracle, Lawson, Misys, Logica, NEC, Safeway, Netsuite, Tsukiden, Jupiter Systems, Sun Microsystems, Unisys Source: BSP 13 Copyright 2010: Business Processing Association of the Philippines. All rights reserved.
Creative process outsourcing: exporting animation, digital games, designs, and other creative content Total animation and game development studios in the country: 77 Total animators and game developers in the country: 8,640 Revenues in 2009: US$124 million Capabilities - 2D/3D animation incl. pre- and post-production work - Flash animation, Web design, graphics and art design - Interactive game dev (PC gaming and console games) - Medical/educational animation, e-learning Key players in the country Toon City, Top Draw, Artfarm Asia, Toei Animation (since 1986), Animation 1, Holy Cow!, Digital Exchange, Top Peg Animation and Creative Studio, Geebo Digital, Flipside Games, CreativeAsia, Cutting Edge, Anino, Micronet Software Manila, Japan Media Programming Cebu 14 Copyright 2010: Business Processing Association of the Philippines. All rights reserved.
Engineering and design process outsourcing: geographically diverse market Total number of engineering design companies: 45 Total number of full-time engineers: 12,000 Estimated revenues in 2009: US$228 million Capabilities Over 75,000 licensed professionals 40,000 graduates of engineering courses annually (CAD-enabled) Internationally accepted engineering standards computer-aided manufacturing (CAM); computer-integrated manufacturing (CIM) Key Players in the Country Bechtel, Bouygues Construction, Chiyoda, Eichleay Pacific, Fluor Daniels, Foster Wheeler, Hyundai, JGC Phils. (since 1989; now 850 FTEs), Kajima, Keppel, KHI Design and Technical Services Inc. (for Kawasaki), MHI Technical Services Corp. (for Mitsubishi), Nakayama, Parsons Brinckerhoff, Tsuneishi (in Cebu) 15 Copyright 2010: Business Processing Association of the Philippines. All rights reserved.
The Philippines has established itself as a mature Tier-1 destination in a competitive global environment Mature Credible Emerging Mexico, Brazil, Columbia, Chile, and Argentina: Evolving rapidly as nearshore base to drive penetration in North America Source: Everest analysis Eastern Europe: Established near-shore destination Egypt, Morocco, and South Africa: Significant government-backed push to target UK and Europe China: Domestic and APAC centric scale and capabilities Philippines: Reaching #1 in voice BPO (330K+ FTEs) #2 in non-voice/it- BPO (200K+ FTEs) India: Industry leading scale and capabilities Voice: 350K+ FTEs Non-voice IT-BPO: 1.4M+ FTEs) Proprietary & Confidential. Copyright 2010 BPAP, Everest Global, & Outsource2Philippines 16
Philippines is also relatively stable, though there are concerns around safety and labor pool sustainability Risk index for English BPO (Higher score implies higher risk) Skilled Englishspeaking talent availability 1.75 1. 76 1.81 1.87 1.87 2.01 2.15 2.19 Safety and security Investment climate Physical and social infrastructure India Philippines Poland Malaysia Egypt Romania China Mexico Proprietary & Confidential. Copyright 2010 BPAP, Everest Global, & Outsource2Philippines 17
Philippines is among the top-3 global sourcing locations in terms of talent availability Annual tertiary graduate pool 2010; 000s Annual supply of F&A/business graduates 2010; 000s Annual supply of technical talent for IT 2010; 000s Sources: Commission on Higher Education (CHED, Philippines); global industry data; Everest analysis
Philippines is currently among the most cost- competitive destinations for IT-BPO services Direct operating cost 1 per FTE for English voice work 2010; US$ 000 per annum per FTE MARKET AVERAGES ENGLISH-LANGUAGE VOICE EXAMPLE 70-72 Reflective of market averages. Range could vary depending upon Tier-1 vs. Tier-2 cities Suppliers vs. captives Scaled operations vs. mid-size operations 29-32 24-26 19-20 16-17 15-16 14-15 US Tier-2 Mexico City Krakow Kuala Lumpur Cairo Metro Manila Delhi/NCR 1 Ongoing costs only; excludes margins/mark-ups, centralized corporate overheads, initial investment, set-up costs, and travel costs Note: Source: Exchange rates for local currencies with respect to the U.S. dollar have been averaged for 12 months from Oct. 1, 2009 to Sept. 30, 2010 Everest analysis Proprietary & Confidential. Copyright 2010 BPAP, Everest Global, & Outsource2Philippines 19
Combined with broader talent pool indicators, Philippines is well positioned amongst global locations Cumulative talent competitiveness index for BPO (Higher score implies greater competitiveness) 3.05 Scalability 2.20 Experienced talent pool Quality of English accent (cultural affinity with U.S.) Size of graduate pool 1.56 1.46 1.30 0.95 0.75 0.64 India Philippines China Egypt Malaysia Mexico Poland Romania Key takeaways Top-3 global location in graduate pool size Third-largest talent pool in delivery of voice, F&A, and IT services Amongst the largest experienced talent pools globally Source: global industry data
Likewise, Philippines is the among the lowest cost locations for non-voice BPO work Direct operating cost 1 per FTE for F&A transactional work 2010; US$ 000s a year per FTE MARKET AVERAGES FAO EXAMPLE 1 Ongoing costs only; excludes margins/mark-ups, centralized corporate overheads, initial investment, set-up costs, and travel costs Note: Exchange rates for local currencies with respect to the U.S. dollar have been averaged for 12 months from Oct. 1, 2009, to Sept. 30, 2010 Source: Everest analysis
and for IT services Direct operating cost 1 per FTE for IT Applications Development and Maintenance (ADM) 2010; US$ 000s per annum per FTE MARKET AVERAGES ADM EXAMPLE 1 Ongoing costs only; excludes margins/mark-ups, centralized corporate overheads, initial investment, set-up costs, and travel costs Note: Exchange rates for local currencies with respect to the U.S. dollar have been averaged for 12 months from Oct. 1, 2009, to Sept. 30, 2010 Source: Everest analysis
Competitive investment incentives Income Tax Holiday (ITH) for 4 years, extendable to 8 years After the ITH period, special 5% tax on gross income in lieu of all national and local taxes Exemption from duties and taxes on imported capital equipment, spare parts, supplies, and raw materials Domestic sales allowance of up to 30% of total sales Exemption from export taxes, wharfage dues, imposts and fees Exemption from Value Added Tax (VAT) on allowable local purchases such as telecom, power, and water bills Additional deduction of 50% of total manpower training cost under the special 5% gross income tax regime There are 129 IT parks and centers across the country Source: Philippine Economic Zone Authority
Reliable and redundant connectivity TGN-IA Transmission Backbone Networks PLDT Digital Fiber Optic Network (DFON) Globe Telecom Fiber Optic Backbone Network (FOBN) TelicPhil (BayanTel) Nationwide Digital Transmission Network (NDTN) AAG EAC APCN2 C2C BALLESTEROS LAOAG VIGAN TUGUEGARAO CAUAYAN SFLU BAGUIO SOLANO DAGUPAN URDANETA TARLAC CABANATUAN CANERO SUBIC SAMPALOC AURORA ERMITA MAKATI BACOOR NASUGB U NAGA BATANGAS PAGBILAO PILI MAMBURAO LEGASPI DONSOL SORSOGON MASBATE SAN JOSE CALBAYOG Cable Landing Stations Ballesteros, Cagayan Tanza, Cavite Nasugbu, Batangas Bauang, La Union ROXAS CADIZ ORMOC BANATE SAN REMIGIO ILOILO TALISAY LILOAN LAHUG BACOLOD TALISAY DUERO MARIBOJ OC TAGBILARAN DAUIN CDO MANTICAO ILIGAN PAGADIAN COTABATO ZAMBO ANGA TACLOBAN MAASIN CABADBARAN BUTUAN DAVAO GEN. SANTOS
The Philippine work place infrastructure proposition: IT-BPO designed, suitable infrastructure Lowest rental rates in the region; dedicated IT parks right in the center of business districts Eastwood City Cyberpark Quezon City RCBC Plaza, Makati City PBCom Tower Makati City Bonifacio Technology Center, Taguig City METRO MANILA McKinley Hill Taguig Northgate Cyberzone Muntinlupa City
BPAP: Executing the road map Business environment Leading the industry priorities behind govt policy and legislative agenda fiscal incentives, data privacy, IP protection, cybercrime, Labor Code amendments, DICT Supporting investors with set-up through industry roundtable Infra Telco, Property, Hardware Provide best options available that fit requirements Provide end-to-end service support Complete delivery and afterdales service BPAP advisors Provide industry overview Organize site visits and meetings with vendors & govt Government BOI, PEZA, LGUs Due diligence assistance Business registration facilitation After care service Investor Assistance Group Staffing consultants/advisors Provide overview on talent pool based on competency requirements Deliver recruiting and training quantity and quality requirements Legal consulting Provide end-to-end quality assurance for investors setting up operations in the Philippines Assist investors with government approvals 26 Copyright 2010: Business Processing Association of the Philippines. All rights reserved.
BPAP: Executing the road map Ilocos Cordillera Central Luzon Manila Bulacan Cagayan Valley Baguio Southern Tagalog Angeles/Clark Santa Rosa Metro Cavite Lipa Bicol Metro Manila has 340K IT-BPO FTEs, making it the BPO capital of the world; 30 other RP cities host BPO companies Developing and promoting Philippine top-10 next-wave cities to host more BPO companies Next Wave Cities Eastern Visayas Western Visayas Iloilo Bacolod Cebu Dumaguete Central Visayas Cagayan de Oro Western Mindanao Northern Mindanao Super cities have >15,000 IT-BPO workers Large cities have a potential capacity of 10,000 15,000 Mid-sized cities 5,000 10,000 Central Mindanao Southern Mindanao Davao Another 20-plus cities offer a potential capacity of <5,000 FTEs each 27 Copyright 2010: Business Processing Association of the Philippines. All rights reserved.
Road Map 2016: Driving to Global Leadership Proprietary & Confidential. Copyright 2010 BPAP, Everest Global, & Outsource2Philippines 28
Why is the Philippines a Top Offshore BPO Location? Cost Competitiveness Labor costs for English speaking professionals amongst lowest in the world All-in costs amongst lowest in the world Excellent Telecom Infrastructure Began deregulating early, in the mid-90s Cost of bandwidth has dropped over 85% in last 5 years (from $14K in 2001 to < $1.5K per month for E1 lines to US) Plentiful Quality Office Space Abundant and low-cost real estate in several urban areas Renters market today, 1.1 million sq.m. in new supply 2009-2010 of which less than 10% is committed Tax-Free Holidays 4 to 8 year Income Tax Holiday Approximately 15% tax rate after lapse of holiday Strong Government Private Sector Partnership Comprehensive McKinsey-BPAP (Business Processing Association of the Philippines) Roadmap 2010 to achieve $10+ Billion revenues, 1 million employees Global Reputation Catching up with India ($4.1 Billion in 12/08 versus $4.8 Billion for India in 3/08 but faster growth rate Positive experiences of captives Dell, JPMorgan, HSBC, Citi and outsourcers Accenture, IBM, Teletech, Convergys, etc. 29
Philippine IT outsourcing: continuing to establish a strong niche in global ITO space IT Skills IT Operations Mgt Data Center Operations Applications Development & Maintenance IT Infrastructure Service Desk Technical Consulting/ Business Analysis Maintenance Application Development & Deployment Asset Management Package Implementation Remote Network Application Conversion & Integration Application Maintenance & Support Copyright 2009: Business Processing Assoc iation of the Philippines. All rights reserved 30
Managed Services for the Enterprise
Managed Services Business Drivers Reduce Cost Managed Service Organizations Provide Economies of Scale Extend Solution Availability Real time monitoring of solution and communication network Global Best Practices Access to best practices adopted by top companies Resource Limitations Managed Service Organizations Provides Abundance of Skilled Manpower Increase Productivity Focus on core business not communication applications/ multi-vendor networks Risk Management Service Level Agreements
Enterprise Managed Services Focus Areas Communication Infrastructure IP Telephony Audio Conferencing Audio Messaging Video Infrastructure Call Center Infrastructure Automatic Call Distribution Reporting Self Service Workforce Management Recording Computer Telephony Integration WAN LAN Network Infrastructure Security Wireless Computing Desktop Infrastructure Server Infrastructure Storage
Managed IT Services Scope of Support Incident Management Problem Management Change Management Release Management Security Management Capacity Management Service Desk Availability Management System Administration Performance Management
Managed Services Operates on ITIL-Based Standards International set of documented IT best practices, which supports: Reducing capital IT costs Improving user productivity Measurement and improvement of IT performance and service provisioning Improving communication and information flows between IT and other departments Ability of IT to adjust as business opportunities and challenges arise Defines IT in terms of services rather than systems Clearly identifies roles and responsibilities for Service Management Effective foundation for quality IT service management Provides proven value to customers Flexibility to choose services and scale as needed Definable and repeatable framework creates consistency and simplifies working together
Managed Services Value Hierarchy Build and Managed Enterprise Value Staff Augmentation Out-Tasking Outsourcing Rapid Skills Deployment Core Competency Optimization Operational Efficiency Capital and Operational Effectiveness
Build and Managed Facility Build Out Technology Build Out Maintenance Services Managed Services Site Selection Architectural Design Civil, Mechanical, and Electrical Works Project Management Supplier Management Security Solutions Architecture Capacity Planning Equipment Acquisition System Integration Connectivity 24x7 Technical Support Onsite Dispatch Parts Replacement Multi-Vendor Management 24x7 Monitoring 24x7 Helpdesk T1, T2, T3 Support ITIL Based Processes Network Optimization Facility Management Monthly Charges Per Seat Usage Service Level Agreement
Diversified Technology Solutions International Inc. Corporate Overview Leading Systems integrator, managed facilities and managed technology provider in the Philippines with Contact Center Domain and BPO Expertise Servicing over 50 contact centers, majority of top US call centers and Fortune 500 companies Installed/enabled 100,000+ call center seats in the US and Philippines Value Offerings Turnkey facilities complete with technology and telephony using a capital preservation model Flexible facility solutions which include incubators and swing space Network infrastructure connecting the US and the Philippines Assistance on ancillary services such as recruitment, accounting, legal services Contact Center Optimization, M&A Technology Integration, and Business Process Consulting and Professional Services Contact Center Applications and Solutions including Hosting and Managed Services Supply of technology, global purchase discounts extended and full post sales support Global project management