Costa Rica Success Stories September 2014

Costa Rica Success Stories September 2014

1. Why Centralize and Optimize? 2. Proven Track Record: Success Stories 3. Lessons Learned 4. Costa Rica as a Shared Services Center Hub 5. The Right Conditions to Succeed 6. Key Success Factors to Encourage a SSC Transformation

Origin Objective Solutions Results In the early 1990 s large companies were looking for a new, more cost efficient model for running back office services To move routine, transactional work to specialists dedicated to processing it more efficiently at lower cost To focus on core business Shared Service Centers (in-house): resources and capability retained within the organization Outsourcing (external option): Third-party provider appointed to undertake delegated activities Transfer of activities to a new centralized location(s) Location/time zone of centers common to operating units, markets, and geographies Tend to result in a regional SSC for optimization Source: Ernst & Young, 2014

Generations of SSC Set-up Maturity Best-in-class Focus on initiating and stabilizing operations Rapid cost reduction Savings of up to 15% based on labor arbitrage Single function/geography Key Outcome: Reduce complexity and initiate efficiency Source: GENPACT Europe, 2014 Focus on increasing efficiency and productivity Further cost reduction Savings of 5-15% by setting up a systematic process-focused organization Intensive review of IT systems and controls Consolidating processes: Multiple functions/geographies Key Outcome: Operational excellence drives robust efficiency Strategic business partner fully optimized for effectiveness and business impact Deliver greater value to the organization through: End-to-end process view Cross-functional scope to maximize benefits Global charter rather than regional basis Focus on business outcomes (e.g. working capital improvement) Key Outcome: Focus on effective scope and location optimization

A processes and technology platform evolution A sophistication story of technical and professional skills An improved bottom line and increased productivity OBJECTIVE Centralize P&G operations for all the Americas DRIVERS Political stability Strategic location Support to FDI 1999 2004 Start-up of operations Transactional processes: Customer service Payroll F&A 2005 2007 Financial Services Hub of the Americas 2003-2005: Outsourcing alliance: - HR to IBM - IT to HP - Property mgmt. to Jones Lang LaSalle Processes: - Financial reporting - Planning & analysis - Tax compliance 2008 2012 Business Transformation Center 2005-2008: Gillette acquisition Processes: - Analysis of technological and financial processes of the company - Reinvention of the company best practices through the alignment of processes - Reducing operational costs and delivering tangible value to the company 2013 2014 LA Planning Service Center Total of FTEs: 1,500 Currently objectives: Productivity, quality and high-value added services Processes: end-to-end services that includes: - Planning - Logistics - Inventory management - Packing - Raw materials supply and forecasting Languages: English, Portuguese, and Spanish Costa Rica does not manufacture any goods, but this center executes the different supply chain processes for P&G LA

OBJECTIVE Lowering transaction processing costs 2004 2005 Build & implement 2006 2007 Stabilization and internal control 2008 2013 Services optimization 2014 A Global Center of Excellence DRIVERS Strategic location Quality of talent A successful manufacturing facility with over 25 years operating in the country Started operation Transitioned lowcomplexity functions - Basic performance metrics - Build and expand An experience of continuous improvement: 10 th Anniversary in 2014 A strong Technical High School pipeline that has allowed Baxter to grow with the right talent Current objectives: - Focused on process improvement - Strong performance metrics - Expansion to new geographies Total of FTEs: 220 Languages: English, Spanish, Portuguese Process to all Americas: - Fixed assets - F&A - Travel and expenses - Talent acquisition - Small call center operation Global finance and nonfinance processes Analytics services Excellence End-to-end processes

OBJECTIVE - Centralization of the regional operations for CA, Panama and Dominican Republic DRIVERS - English proficiency - A local subsidiary carrying out payroll and customer service functions for their employees since 2001 2004 2007 Standardization: CA & Caribe Started up with: 45 FTEs F&A processes: - AP and treasury - General ledger, fixed assets and intercompany accounting - Bank reconciliation - Master data mgmt: creating and managing data in SAP 2008 2012 Up the Value Curve: Americas 2008: - Incorporation of treasury processes 2009: - SAP implementation 2010: - Formal expansion of F&A processes to all the Americas - Generation of 100 additional jobs 2013 2014 Strategic & analytical phase Current objectives: - Deliver value-added services - Support regional markets Total of FTEs: 157 Growth expectation: 250 FTEs Current markets: Americas, except Brazil Initial HR processes: - Payroll - Communication with employees 2011: - Incorporation of HR processes 2012: - Supply Chain processes (logistics y production planning) A successful near shore location for all the Americas A highly complex and sophisticated processes transition Soft skills paving the way for excellence and productivity

1998 2006 Transactional Phase 2007 2009 An outsourcing strategy 2010 2013 Global Center of Excellence 2014 End to end processes OBJECTIVE - Open a Regional Operational Center to service LA & CA DRIVERS - Strategic location - English skills - Support to FDI 1999-2001: - HR processes and customer services 2002-2003: - From 130 to +300 FTEs 2004-2005: - From 310 to 370 FTEs 2005: 450 FTEs focused on CC and IT Support in Spanish, English, French, Mandarin, Russian, German, Italian, Portuguese, Cantonese 2006: incorporation of collections and new soft skills Spin-off from First Data WU becomes an independent public traded company 2007-2008: - From 650 to 1,000 approx.. FTEs Processes included: - F&A - Fraud prevention - Compliance - Procure-to-pay 2009: - 1,000 approx.. employees Processes included: - F&A, compliance - Customer service & HR (payroll to CR, Argentina, Brazil, PNA and MX) The company outsourced the CC operation to outside vendor based in CR 2010: 900 employees / +400 000 locations worldwide: Processes: - 24/7 customer care - Global IT network and systems support - Global telecom support - Fraud detection & prevention - Software writing - F&A, risk mgmt., compliance 2011-2013 The Global Service Center providing services to the Americas, Europe, Middle East and Africa. - Total of FTEs: 1,000 approx.. Current objectives: Deliver worldwide end-to-end services from CR - Total of FTEs: 1,150 - Implementing a long-term training program - Languages: English, Spanish, German, French, Portuguese, Italian, Mandarin, Cantonese, Russian, and Persian Current processes: - F&A SSC - Global Telecom Networking - Software Development - Contact Center - Technical Support - Agent Service Support - Talent management

1. 2. 3. 4. Companies that have been successful in Costa Rica have experienced a valueadded evolution, in terms of processes and talented people. Local Shared Services Centers aim to meet the company s corporate objectives and support its global growth by delivering high end services from a near shore location. Expansion to new markets and diversification to new languages were crucial phases of the SSC s growth in Costa Rica. Each company implemented different growth models, according to the maturity of its business and SSC operations in the country.

5. 6. 7. In terms of recruitment, soft skills have become a key factor for HR managers. Companies goals of evolution require employees with solid communication skills, leadership attitude and job proactivity. The attraction of new talented people became a major challenge. Companies have implemented strong training programs in order to promote a culture of innovation. A win-win relationship: companies have created new jobs and impacted directly the Costa Rican educational system, reinforcing a strong pipeline of expertise, knowledge and skills.

Sophistication of Services Tourism Local industry and academic instruction Internet comes into being Submarine cable redundancy Telecommunications market opening: more than 100 authorized operators Until 1980 1981-1990 1991-2000 2001-2010 2011-2020 Tourism is the most important sector in the service exports The Costa Rican Tourism Board (ICT) was founded in 1955 IT majors offered at higher education (universities) Local industry development Use of internet is consolidated among service providers and businesses First contact center MNC, customer service Shared services center companies, software, design and engineering Multilingualism Academic sector oriented towards innovation and hightechnology services Sophistication of activities and service development R&D+i services MegaLab / Prototypes Embedded software (commercial aircraft avionics) Financial analysis for investment banks in the U.S and Europe Source: CINDE, 2014

The country has increased its participation in the offshore services value chain. The services provided from Costa Rica have increased in sophistication and value added. The services sector in Costa Rica has become a multifunctional and multilingual sector. Today MNC s are providing services globally in more than 10 different languages, 24/7 365 days a week. This has given companies the possibilities to grow into different sub sectors such as: Contact Centers, Shared Services, Digital Technologies, Engineering and Design, Entertainment and Media and Regional Offices and R&D.

1995 1997 1998 1999 2000 2003 2004 2005 2008 2010 2011 2012 2013

Source: CINDE based on data from BCCR, 2014 100% 80% 60% 40% 20% 0% Costa Rica: Exports of Services by sector IT & IT enabled services Business services Others (tourism, transportation) 13% 2000 2005 2010 2013 Total 1,952 2,621 4,320 5,852 US$ millions 49% Total services exports have grown three fold since 2000 Value-added service exports have increased its participation between 2000 and 2013: from 13% to 49% IT & IT enabled services, and other business services exports represented 5.8% of the GDP in 2013; in 2000 only 1.6%

US$ millions Source: CINDE based on data from BCCR, 2014 Costa Rica: FDI inflows in IT & Business Services and Tourism IT and Business Services Tourism 250 200 Between 2000-2013 FDI in IT and Business Services have grown at an annual average rate of 23% 150 Total FDI grew 16% in the same period. 100 50 0 2000 2005 2010 2011 2012 2013 Since 2011, the participation of IT and Business Services in total FDI represented more than tourism investment.

Best educational system in Latin America (WEF, 2014-15) Second in Latin America and 16 th worldwide in talent retention (WEF, 2014-15) Highest English Proficiency in Latin America First in both TOIEC and TOEFL tests (ETS, 2013) Best MBA in the region - INCAE: #2 Business School in Latin America (America Economia, 2014) Impressive 400% increase in university graduates between 1992 and 2012 (CONARE, 2013) In Costa Rica the accounting processes follow the IFRS - The Public Accountants College and the Costa Rican Chamber of Industries offers IFRS actualization programs Enrollment has undergone a twofold increase in 7 year - Between 2005-2012 the enrollment rate increased 21.1 percentage points (WEF, 2014-2015) Government investment of US$450 million in human capital initiatives (IADB, WB) High number of people certified in SAP, PMI, Six-Sigma, Oracle, Cisco Certifications 26 new majors and technical programs in Servicerelated fields since 2005 (CINDE, 2014)

Joint collaboration with multinational companies, the government and academia to improve the business climate and competitiveness of the country. Main areas covered by academic programs: Services Sector Technical and University levels Accounting Finance Marketing Human Resources Specialized English for Service Centers IT (Networking, Soft. Develop., Tech. Support) Web Interaction and Design Digital Design, Development, Animation Quality Logistics Telecomm Mechatronics Electronics Graphic Design Analytical Thinking Telematics Business Administration Post Graduate - Specialization programs Computer and Informatics Bioinformatics Industrial Engineering Electric Electronics Project Management EHS Logistics and Supply Chain Database Technologies Business Administration Statistics Human Resources Marketing Economics Telematics and Networks

Costa Rica ranks 1 st in Innovation and Business Sophistication in Latin America (GCR 2014-2015, WEF) Safety: Safest Country in Latin America (Latin Business Chronicle, 2014) Solid Utilities Infrastructure: 100% redundancy through three fiber optic submarine cables Immigration Procedures: Streamlined immigration applications and visa granting, and no limitation on number of foreigners working on companies Tax incentives offered by the Free Trade Zone Regime Exemption on corporate income tax. Exemption on withholding tax, royalties, fees and dividends with no time limit; & local sales tax. Attrition rate of 9.2% in Global In-House Centers (F&A) (CINDE@Research- Deloitte, 2013)

Democracy Index Latin American Ranking Political Stability Latin American Ranking Uruguay Costa Rica Chile Brazil Panama Mexico Argentina Dominican Republic Colombia Peru El Salvador Paraguay Ecuador Honduras Guatemala Bolivia 13 14 15 16 12 9 10 11 8 7 6 4 5 3 2 1 Army abolished in 1948 Over 120 years of democracy Presidential system 3 independent powers 4 year-term with possibility of reelection Uruguay Costa Rica Chile Dominican Republic El Salvador Argentina Brazil Panama Nicaragua Honduras Bolivia Ecuador Guatemala Mexico Paraguay Peru 15 16 12 13 14 11 9 10 8 6 7 5 4 3 2 1 Nicaragua 17 Venezuela 17 Venezuela 18 Colombia 18 Source: The Economist. Democracy Index, 2013. Source: World Bank. The Worldwide Governance Indicators, 2013.

Costa Rica is geographically well-located in the middle of the Americas and can be reached easily from most cities in North America Less travel time from Costa Rica to major US cities vis-à-vis east to west coasts in the US. Availability of direct flights from cities such as: Chicago (5 hours) New York (less than 5 hours) Houston and Atlanta (4 hours) Three Florida cities (within 3 hours) Cultural affinity with the United States. The culture of Costa Rica is largely in tune with the United States. Ease of logistics & communication: The time-zone of the country coincides with the U.S. Central Standard Time Zone (GMT-6) and aligns well with most schedules in North America Ocean freight is supported by two ports at the Caribbean and the Pacific coasts Sources: INEC, BCCR, IMF, United Nations and PROCOMER, 2014.

Services challenges Costa Rica s offer A corporate environment where change and innovation are embraced Support the company s global goals Drive results through effective performance metrics Major productivity and soft skills Delivering end-to-end processes Language diversification A culture of continuous evolution: Lean/Six Sigma/PMI focused on process improvement Expansion to new geographies Strong and actionable KPIs according to the different audience members +40% in growth in output/employee - from US$35K in 2005 to US$50k in 2013 (+40%) SSC becoming Global Centers of Excellence: global finance and non finance processes MNCs delivering 75 processes in more tan 10 different languages

Costa Rica Success Stories September 2014