Cebu Presentation 2010 Final

8/2/2019 Cebu Presentation 2010 Final

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2009. Copyright Tholons Inc. All rights reserved.

Advisory Investments Research

From BPO to KPOCebu City, Philippines

Jonathan De LuzuriagaManaging Director

June 2010

Version 1.0


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Trends in Services Globalization


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Trends in Outsourcing: By Geography

North AmericaOn shore

Central and Latin AmericaOffshore/Near shore

Eastern Europe and ChinaOff shore/Near shore

South AsiaOff shore

Southeast AsiaOff shore

Current offshore market is estimated at US$70 billion. From 20 countriesconcentrating in the industry in2006, to 50 countries in 2008, with over 200 cities being tracked.

US IT/BPO Offshoreexpenses:

US$40B - US$50B

Source: NASSCOM 2009

EU IT/BPO Offshoreexpenses:

US$12B - US$16B


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Trends in Outsourcing: Increased Complexity

Product DevelopmentEngineering Services

ADM

R&D

Legal Services

North America

USA

Canada

Multilingual ContactCenter

Product Development

ADM

Central & SouthAmerica

Brazil

Chile

Mexico

Argentina

Costa Rica

Eastern Europe &China

China

Russia

Poland

Czech Republic

HROProduct Development

R&D and ESO

Business Analytics

Product Development

Engineering Services

Finance & Accounting

Business Analytics

Contact Centers

South Asia

India

Sri Lanka

Unique Value Proposition

Highly complex services with the lowest possible

costs.

Southeast Asia

Philippines

Malaysia

Vietnam

English ContactCenter



Medical Transcription


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Employed people with excellent languageskills, capabilities and qualification

(Graduate and Post-Graduate Level)

Employed people with excellent domainknowledge and qualification,

(Graduate, Post Graduate, PhDs)

Employed people with good languagecapabilities and qualification

(Graduates Level)

Employed people with limited languagecapabilities and skills

(Under graduate to Graduate Level)

Trends in Outsourcing: Moving into higher value services

Mid90s

Early 2000

onwards2000

onwards

Early-Mid 2000onwards

Rule Based Processing (BPO)e.g. Data Entry, Transcription, Help Desk, etc.

Problem Solving (High end BPO)e.g. Inbound Voice, Claims Processing,

A/P, A/R, Payroll etc.

Problem Solving (High end BPO)e.g. Outbound Voice, HR, Procurement,G/L, Trading, Technical Support etc.

Knowledge Driven (KPO)e.g. Analytics, Equity Research, R&D,Engineering Services, Clinical Trials

Management etc.

High value KPO is a result of the success of process driven BPO.The evolution has happened over a period of 10-15 years


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The KPO Segment in Detail

Sample KPOSegments

Services Being Offshored Skill Sets Required

Legal services Research Services Due diligence services background checks Contract services drafting

Knowledge in US/UK laws Adept in legal application Ability to reason & research

Market research &analytics

Secondary & primary research Business research Customer Analytics CRM Analytics

Use of statistical tools, researchtechniques

Report writing & presentations Database research

Writing & contentdevelopment

Editorial, content delivery and data enrichment English communication skills Journalism Experience in writing

Pharma R&D Drug discovery Clinical research and trials

Doctors, Master's degree in Scienceand PhDs

Healthcare services Diagnostic Medical coding Genetic profiling

Medical degrees (specialized subjectknowledge)

Education &training

Private tutors (e-training) Curriculum design Content development

Teaching methods/techniques Cultural sensitivity Online teaching methods

Financial Services

Equity Research Financial Modeling Valuations and Investment research Actuarial services

CAs, MBAs Certified Finance professionals

Note: The list of KPO segments and services above is not comprehensive and represents only a subset of the KPO market


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Where is the Opportunity? Growth in the KPOSegment

% indicates CAGR

Source: Tholons & Evalueserve

Data Search, Integration and Management, Biotech and Pharma will be the two biggest growth sectors

Engineering Design, R&D, Remote Education and Publishing will also fuel the growth

Equity and Financial Research is also witnessing an upsurge in demand


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Cebu City Venturing into the KPO segment

A Level-Up for Cebu Citys Outsourcing Industry


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415,000

400-500

550-650 2 - 3

440,000

900

1,520

6,300

Philippines: Center of Excellence in voice-basedEnglish language BPO services

STRENGTHS

Competitive cost structure compared to other top offshore nations: at par ITO salary (US$600-700 per month) andBPO salary (US$400-500 per month) with India

English language as a primary medium of communication (in education, radio and television) to contribute well inEnglish proficiency of the people

Dynamic business incentives for O&O industry through economic zones: 217 operating economic zones, 103

economic zones being developed with more than 60% of the total recognized as IT Parks/Centers Manila NCR as Tier-I outsourcing destination city, and other major cities considered as excellent emerging

outsourcing destination, like Cebu City

Philippines Snap Shot

CATALYSTS

Government support through PPP framework (e.g. TESDA's "Training for Work Scholarships" for near-hires)

Initiatives of government bodies such as CICT and PEZA to evolve "next wave cities" as Tier-II and Tier-IIIdestinations and to tap these as possible sources for greater labor pool

BPAP as the umbrella organization to support the outsourcing industry in the country

Annual GraduateOutput

OutsourcingWorkforce

BPO Entry LevelSalary (US$)

ITO Entry Level

Salary (US$)

Revenue ITO (US$million)

Revenue BPO (US$million)

FDI 2008 (US$million)

Real Estate Cost

(US$/ SqFt)

Source: Tholons Research 2009


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Talent Pool in the country is abundant but is bound to see saturation at some point, which would lead to cost,

attrition and scalability issues. There is a need to search for new cities and for moving up in the value chain.

Emerged Outsourcing Destination

Increasing Resource Pool Saturation

Increasing cost of Resource Pool

Increasing cost of real estate

Increasing stress on Infrastructure

Higher sociopolitical Risk factors

Emerging outsourcing

Destination Untapped Resource Pool

Low-cost Resource Pool

availability

Lower real estate cost

Developing Infrastructure

Low sociopolitical Risk factors

Paradigm Shift: From Emerged to Emerging


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Competitive Outsourcing in Cebu City

Cebu City, Philippines Rank 1

Shanghai, China Rank 2

Beijing, China Rank 3

Krakw, Poland Rank 4

Ho Chi Minh City, Vietnam Rank 5

Cebu City Outsourcing Value Proposition:

A scalable, low cost and low riskoutsourcing destination city in the Philippines

Established and Expanding in Cebu Tholons 2009 Global Rank

Cebu City as the Top

Emerging Outsourcing

Destination for 2009

40,000 employed in

outsourcing industry

More than 23,000

graduates(15-20%

are IT graduates)

Approximately 100

established BPO

companies

Presence of SEZ

(e.g. Asiatown IT

Park)

With Cebu Citys inherent strengths and dynamic IT-BPO ecosystem, it is now moving from a Tier-IIdestination towards Tier-I status in terms of providing a robust ecosystem for IT-BPO providers/ buyers.


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Successful BPO to Competitive KPO: A Level-Upfor Cebus Outsourcing Industry

High-end service delivery capability with excellent English speaking capabilities bundled with low cost and

risk of business operations

Move from positioning availability and

abundance of labor pool supporting low-end

ICT services

Quality and delivery capability of talent pool

to support high-end ICT Services


Life Sciences

Administration & Back OfficeData Processing & Transcription

HR Services

Customer Support & Contact CenterServices

Legal Services

Publishing

Logistic/Procurement

BPO KPO

Research & Analytics


e-LearningAnimation

Research & Development

Equity / Financial / Insurance Research

Paralegal Content & Services

Medical content and services

Biotech & Pharmaceuticals

Moving Towards KPO IndustryCebu Citys BPO Industry


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Roadmap for Cebu Citys KPO industry


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Tholons Location Assessment Framework

Scale & Quality

Labor Pool Skills Availability Graduate Output Complexity

Cost Business Catalyst Infrastructure Risk Profile Quality of Life

Cost of Operations Cost of Training Cost of Real Estate Cost of Bandwidth Cost of Living Cost of other

Infrastructure

Connectivity Bandwidth Availability Transportation

Commercial Risk Political Risk Natural Risk Social Risk

Social Infrastructure likeEducation Institutions,hospitals etc.

Non Work Culture Availability of

Recreation/Leisurefacilities

GovernmentBenefits/Incentives

Competitive Landscape Untapped Labor Pool Currently Employed

Skills and

Scalability

SavingsBusiness

Environment

Operational

Environment

Risk to

Business

Non-Business

Environment

Each city has unique dynamics and capabilities to offer to the Services Globalization Industry, the

Tholons Location Assessment Framework acknowledges and helps identify that


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Focus Areas for the KPO Segment

Employability Business Environment Connectivity Risk Profile

Number of graduates andresource pool is notenough to judge a

location

Employability is a factorneglected but has a majorsay in deciding scalabilityfor a destination

It can be considerablyimproved by introducingspecialized trainingcourses andcertifications

Policy Makers are thecritical link in the process

of transformation

Business Catalyst Tax Incentives Land Allocation Government Support

Adequate public transportsystem

Physical connectivity is asimportant as internet &

telecom infrastructure Adequate and quality

bandwidth Submarine Line Satellite Uplink Leased Line

Adequate and qualitytelecommunication

infrastructure

Manage future risks toenhance presentattractiveness

Impact on Business dueto:

Natural Risk Political Risk Social Risk Commercial Risk

Emerging cities musthave lower risk to attractinvestments

Factors mentioned are fast becoming hygiene factors for emerging destinations and the real differentiators for

established destinations. Cebu City has to focus on developing its employability and business environment.


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Improving Employability:Comprehensive Skills Assessment

An Example: The Philippine Benchmarking and Evolution Strategy (BEST)

A two-phase study conducted by Tholons and the Board of Investments (BOI) under the Philippines

Department of Trade and Industry (DTI).

Objectives of the study:

Gather data on the competitiveness of various Philippines cities as locations for global Voice BPO, Non-Voice

BPO and ITO operations.

Establish a platform for dialogue between industry, government and the academe to maximize the growth of the

Philippine outsourcing industry.

Phase 1

Tholons LocationAssessment Framework

Identify Current BPODestinations in the

Country Manila NCR

and other locations onTholons radar

Phase 2

Partnership withMeritTrac:

Assess 5 distinct skillsets of candidates

Assess Specific Skill-Sets of Talent in the City

What skills that need to

be addressed?

Comparison of Different

local government units.

Aside from Metro

Manila, where else can

BPOs locate?

Aside from Contact

Center Industry, what

else can Philippine

Talent offer?

Resulting toKey Findings


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Philippine BEST : Initial Results & Future

SpokenEnglishTest

0%

10%

20%

30%

40%

50%

60%

70%

80%

Verbal Ability Analytical Ability Attention to Detail

53%

47%

45%

52%

51%

47%

73%

50%

55%

Low End (India) Philippines High End (India)

ThresholdA

nalysis

0

0.5

1

1.5

2

2.5

3

3.5

4

Voice Clarity Accent

Neutrality

Fluency Grammar

3.96

2.71

3.04

2.87

3.99

2.15

2.55

2.28

Philippines India Identify actual capabilities in terms of skillavailability, which would help streamline thepositioning of a location for specific clients andservice lines

Expansion of testing to hired employees, withthe help of Business Processing Association of

the Philippine (BPA/P) A comparison of theskill sets between:

Newly Hired Employees on the production floor Potential Future Pool

Working with BPA/P and various universities/ localgovernment units to achieve objectives

BenefitsofSkillsAssessment

CurrentResu

lts

Comparable hire-able rates between India andthe Philippines

Given an indication as to the basic skill sets thatthe Philippines excel in and the skill sets that itneeds to improve on

For the next phase: Indentifying employabletalentin particular Tier-2 and Tier-3 cities -enabling the Philippines to promote thecapabilities of these cities to the right investors.


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From the BEST results: Cebu City Identified

Identifying the skills gap of Cebuanos for the outsourcing industry is the first step to improve their employability.

The success of KPO in Cebu City will rely on the quality of services.

Phase 1

Particular to Cebu City

Phase 2Skills Assessment

Key Findings

How will KPO thrive in Cebu City?

City Mapping: gathering of pertinent

data for city-level comparisonCity Selection Index: mapping the

BPO readiness of Cebu City

Testing and Identifying Cebu

City Talents: Specific Skills

Assessment exam for

BPO/ ITO/ KPO segments

both for the Academe and

Service Providers


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Marketing Cebu City: Perception vs. Reality

Moving away from a Tier-2 touristdestination

to the perception that Cebu is anIT-based City

Cebu City is dubbed as the ICT center of the Philippines. Asiatown IT Park is an IT Special Economic Zone in

Cebu City, operating for almost seven years. It is home to BPO and IT companies. Asian iOffice Inc. has

announced to build an office building in Asiatown IT Park for local and multinational BPO companies.


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A Lead Organization for Cebu Citys Outsourcing

Industry

Aside from these organizations, a BPA/P-like structure in Cebu City is needed to sustain the growth of

outsourcing industry by being the middle man among key industry players, related associations and the local

government, ensuring a close cooperation.

Lead Organizationfor outsourcing industryin Cebu City

Concentrates on creating the

best possible businessenvironment for investors in

Cebu

Intervenes in the HR

development sector to increase

the quantity and improve thequality of professionals in ICT

and ITeS industries.

Concentrates on strengthening

the global competitiveness of

Cebus businesses and people

and influences the development

plans for Cebus industries


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Points to Consider


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Economies of Scale in KPO segment

KPO companies need only 50 employees to conduct its operations. The quality of services rendered for this

segment matters more than the number of employees.

*Source:NASSCOM, BPA/P & JETRO, 2008

KPO segment will serve as a competitive advantage of Cebu City over other outsourcing

destination cities in the country, even in other global cities.

KPO segment requires higher quality of services from the labor pool, which means a need for

enhancing employability of the people through better education and training.

Economies of scale can happen. Bulk hiring is required for BPO operations to achieve target

revenues. In KPO, smaller labor pools can generate substantial revenue.

Sample Case: Animation Industry in the Philippines

US$70 billion Global Industry*

Estimated US$105 million revenue for the Philippines in 2007 with only about 7,000 employed*

From every animator: Philippines generates US$15,000, while each Contact Center agent generates

US$16,000*

Animation is just one of the verticals of KPO segment. The larger the employable labor pool, the greater

the revenues in the KPO segment.

In order to achieve these, what is needed? What should be done?

Bulk hiring is required for BPO operations to

achieve target revenues.

In KPO, smaller labor pools can generate

substantial revenue.


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The Role of the Roadmap for Cebu Citys KPO

Guide

Target Focus

Milestone

Roadmap + Effective Implementation = Success in KPO

Roadmap


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Tholons advisors formed the Offshore Advisory

industry a decade back and continue to lead it

Tholons is a full service management consulting firm exclusively focused on advising clients on outsourcing ofservices

Tholons has advised on more than 250 offshore focused engagements with a combined value of more than $7 billion.

Tholons maintains and tracks 1000+ vendors in the BPO/ITO space worldwide and has excellent relationship withCXOs of leading vendors in outsourcing markets including India, Philippines, Sri Lanka, Vietnam, Latin America, etc.

Tholons works closely with Governments across the world to promote outsourcing of services. Tholons has worked withIndia, Philippines, Jordan, Sri Lanka, China, Vietnam, Brazil, Argentina, Chile, Uruguay etc.

Strong research capability facilitate initiatives such as e-Services 2008 (Philippines) Global Centers of Excellenceand annual editions of Top 50 Emerging Destinations the industry reference for location analysis

Relationships with key institutional groups include governments of both offshore and client markets, trade bodies suchas Nasscom and BPAP, industry regulators, other business partners such as HR consultants

On the ground presence in large markets such as US, UK, India, Singapore, Philippines, China and Sri Lanka


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Tholons advisors past experience have impacted deals

worth over $7 billion across an array of industries

Sample List

Manufacturing

Technology

Retail

FinancialServices

VC/PrivateEquity

IT/BP ServiceProviders

Media &Entertainment

Governments& Education

Health Care

Oil & Gas

Travel/Logistics
http://images.google.co.in/imgres?imgurl=http://www.vossenchocoladewerken.nl/afbeeldingen/logo/R-ABN-3.abn%20amro%20onderaan.jpg&imgrefurl=http://www.vossenchocoladewerken.nl/referenties.php&h=150&w=200&sz=4&tbnid=BvV0R2XthdkJ:&tbnh=74&tbnw=99&hl=en&start=1&prev=/images?q=abn+amro&svnum=10&hl=en&lr=&sa=G


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Governments and Trade Bodies across the globe havebenefitted from our advisory and consulting expertise

2007

Centers of Excellenceswere identified among the

Cities

2006

Cities identified asOutsourcing Destinations

instead of Countries

Tracking the worlds emerging outsourcing destinations

2008

Development of Centersof Excellence andRegional Analysis

2009

Detailed report onRegional Distribution ofCenters of Excellence

Progressively developed assessment framework which evolved over time

Relationship with stakeholders (investors, buyers, suppliers) across all the

regions

Relationship with Governments and Trade associations in over 30 majorOutsourcing Destinations, including NASSCOM, BPA/P, RUSSOFT, NAO, ICTA,

BRASSCOM, CESSI, PIKOM, VINASA etc.

Dedicated Research Team with over a decades experience, working on location

specific research and analysis

De facto rating of Established/Emerging Outsourcing Destinations in the

Industry, widely accepted and covered by Global Media and other stakeholders

Our clients - Government & Trade

Associations
http://www.bpap.org/bpap/index.asphttp://www.mapsofworld.com/images/world-countries-flags/jordan-flag.gif


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Contact

Jonathan De LuzuriagaManaging Director

[email protected]

Asia Offices

Europe OfficeAsmec Centre

Eagle House, Bracknell

Berkshire RG12 1HB, UK

Phone: +44-1628-566140

India Office2/10, 2nd Floor, 80 Ft Road

RMV Extension Stage II

Bangalore 560 094, India

Phone: +91-80-23519760

Philippines Office

Unit 803, Richmonde Plaza

21 San Miguel Ave., Ortigas Center

Pasig City, Philippines

Phone: +63-2-635-9236

North America Office5 Penn Plaza, 23rd FloorNew York, NY 10001

Phone: +1-646-290-9320

Fax: +1-646-349-3546

Cebu Presentation 2010 Final

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