NASSCOM

Crouching Tiger / Hidden Dragon

Is there an opportunity for the Indian IT-BPM Industry in China?

February 13th, 2014

2© 2014 KPMG Advisory (China) Limited, a wholly foreign owned enterprise in China and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in China.

Question

Is there an opportunity for Indian IT-BPM Industry in China?

3© 2014 KPMG Advisory (China) Limited, a wholly foreign owned enterprise in China and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in China.

The Economist

“But for many foreign companies, things are getting harder. That is partly because growth is flagging, while costs are rising. Talented young workers are getting harder to find, and pay is soaring”

“China is big, but it is hard . . . [Other] places are equally big, but they are not quite as hard.”

- Jeffrey Immelt GE

One China is over

Rising costs mean that bosses must shift from going for growth to enhancing productivity

Tighter control is another must

A One China policy no longer makes sense (localize marketing and perhaps product development)

January 25th, 2014 Edition

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China Outsourcing Outlook

2007 2008 2009 2010 2011 2012 2013 1H

0

5

10

15

20

25

30

35

40

45

50

5.9 913.8

19.919.7963999999999

26.12577

14.91126

4.8924

7.21835

3.74147

7.7112

13.22588

8.65727

ITO BPO KPO

US

D b

illi

on

ITO54.6%

BPO13.7%

KPO31.7%

Global services export market in China forecasted to grow by between 20-25 per cent each year until 2015

Global Locations Compass: China, published by the

Everest Group, May 2012

Service outsourcing industry has been one of the focus development areas in China’s 12th five-year plan. The effort to boost the SSO industry is evidenced by heavy investment in infrastructure, human resources and a series of favorable policies and government supports. The Ministry of Commerce (MOFCOM) is proactively working as a change agent to introduce foreign investments and promote Chinese vendors and services.

With strong government supports, large talent pool and fast developing infrastructures, China is expected to be one of the top choices of SSO destinations in ASPAC.

China Outlook in 2020

2011 2020 - "Base-Case" Scenerio

2020 - "Optimistic Scenario"

CA

GR

18%

CA

GR

25%

USD 143.7 bn

USD 32.4 bn

Source: KPMG Research

USD 241.4 bn

IT-BPO Industry - 2020

Industry Size

•Human Resource•Customer management•Finance & Accounting•Procurement

•Software development•IT software training •Software product support •Application management and equipment consignment •Application implementation•Integrated circuit design •Software testing •Other IT advisory•Hardware support•Others

Break up of IT-BPO by Service Line

Source: MOFCOM 2013

Source: MOFCOM 2013

CAGR 41.10% 32.4

46.6

27.3

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Opportunities in China

Information Technology

Cloud Computing

Big Data

e-Commerce

Business Process M

Human Resource

Finance Services

Call Centre

Supply Chain Management

KPO Opportunities

Research and Development

Industrial Design Outsourcing

Smart Cities154 currently600 to 800 projected

Cloud Computing3% current

16% annual growth

e-paymentExpected to reach 1.5 trillion rmb in

2013

China HRO is seeking value added “end to

end” solutions

2011 2012

0

5

10

15

20

25

30

35

40

45

50

7.713.2

4.9

7.2

19.8

26.1

China Service Outsourcing Market(USD billion)

KPO BPO ITO

US

D b

illio

n

KPO has seen a 70% yoy growth trajectory

6© 2014 KPMG Advisory (China) Limited, a wholly foreign owned enterprise in China and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in China.

Government Support in China

Fiscal &

Taxation

Service Trade Associations

IPR

Information Security

Globalization Initiative

Talent

Government Support

Various guidelines and policies available at multiple levels i.e. national, provincial and city, to attract, motivate and bolster investments to grow outsourcing industry in China

7© 2014 KPMG Advisory (China) Limited, a wholly foreign owned enterprise in China and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in China.

KPMG SSOA Summit Sept 2013

China moving forward

Global Business Services discussion

– Education

– Shorter trajectory to maturity

– Consistently Re-invent

Improve English skills

Need to innovate / Cheap China is gone

Data Privacy

Key themes

Innovation

Best Practice

Data Analytics

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Talent Requirements

• Operations and service delivery

• Transitions

• Performance management

• Service provider management

• Process engineering

• Industry expertise

• Technology integration

• Governance and change management

• Data analytics

Traditional Talent Requirements

Emerging Talent Requirements

How important are the following objectives to your team.... When you first started your outsourcing and/or shared services initiatives?

External Benchmarking

Raising the Bar for Existing SLAs

Improving Industry Acumen

Defining and Adding New In-Scope Processes

Improving Analytics

Adding Addition Volumes to Existing Services

Improving Service Provider Relationships

Driving Innovation

Defining Business Outcomes Beyond Cost Reduction and Efficiency

Managing Financial Business Cases

Contract Negotiation

Influencing Executives

Service Provider Selection

SLA Performance Management

Managing Transitions

Importance Rating

Not Important

SomewhatImportant Important

MissionCritical

Source: HfS Research 2013 , n = 282 Enterprise Buy-side Executives

Strategic Objectives

Tactical Objectives

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The Buyers’ Consideration on Service Providers

StrategyDoes the service provider

help to bring strategic direction, innovation and vision for my business?

TechnologyCan the service provider

integrate the technology part with an overall solution?

FinancialsIs the service provider’s

financial situation stable and capable enough to go through

long and voluminous outsourcing deal?

RelationshipCan the service provider

build up a relevant mindset and get it across to all the

levels of the buyer’s organization?

TalentIs the service provider’s talent base strong enough to offer

resources with strong industry experience, local knowledge, result oriented delivery, etc. ?

DeliveryIs the service provider

capable of handling complicated transition and

delivery?

CultureDoes the service provider

maintain a culture fit with the buyer’s organization and it

growth style?

10© 2014 KPMG Advisory (China) Limited, a wholly foreign owned enterprise in China and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in China.

Why Indian Service Providers . . . . .

Unique customer centricity & global experience

Trained talent in latest technology

Scalable and secure

Continued focus on optimal cost-efficiency

Gary P. Nowak•Director

KPMG Advisory+86 (21) 2212 3289

Gary.nowak@kpmg.com© 2014 KPMG Advisory (China) Limited, a wholly foreign owned enterprise in China and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in China.

The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International Cooperative (KPMG International).