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INTEGRATING GLOBAL PROCESSES THE PHILIPPINE OUTSOURCING ADVANTAGE

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Leading the Outsourcing Evolution

• Established leader for voice services

• 30% share of U.S. and 15-20% of APAC

• $5.70 billion revenues in 2010, higher than

India’s projected $5.58 billion

VOICE

• Credible 10% share that is rapidly growing

• Large industry-specific opportunity (e.g. BFSI, healthcare, media, HR, KPO

• Evolving value-propositions - tools, process improvement, end-to-end accountability

Non-voice

• Highly penetrated applications market

• Emerging opportunities to penetrate ASEAN, innovate for the U.S.

• Third largest pool of engineers after India and China in APAC

IT/ESO

Source: Everest analysis

Philippine IT-BPO industry size2006–2009; US$ billion

3.2

4.8

6.17.2

9.0

2006 2007 2008 2009 2010E

# FTEs

(~„000)240 300 370 440 530

Global

share15% 6% 6% 7% 8%

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

The Philippine IT & BPO Industry

~50% ~26%~19% ~25%

Courtesy of the Business Processing Association of the Philippines

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Cost competitive, almost as much as India, across service segments

One of the lowest cost destinations for English work, and for non-

voice and IT services work

Relatively minimal inflation and currency volatility indicate

continued cost competitiveness in future

Large, scalable talent

pool—next only to

India, China

Top-3 global location in

graduate pool size

Third-largest talent pool in

delivery of voice

BPO, F&A, and IT services

Amongst the largest

experienced talent pools

Primed for Leadership

Costs

Relatively minimal risk

perception, primarily directed

at geopolitical concerns

High-quality physical and

social infrastructure

Favorable investment

climate

Limited risks to talent

scalability

Natural disasters in certain

regions and sporadic

political incidents are key

albeit manageable

concernsSource: Everest experience

Courtesy of the Business Processing Association of the Philippines

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Next Wave of Growth for the Philippines

Voice BPO

Non-voice

BPO

IT-ESO

Market dynamics

Maturing market

Philippines a strong global leader

30% share in U.S.; 15%‒20% in UK/APAC

Near-shore competition for U.S., UK, EU

Large industry-specific opportunity

(e.g., banking, health care, media, KPO)

Credible Philippine share (~10%). Effective

alternative to India in several non-voice areas

Evolving value expectations: tools, process

improvement, end-to-end accountability

Highly penetrated applications market

Limited market share (~1%) in a large and

growing, yet highly competitive market

Emerging opportunities to penetrate

ASEAN, innovate for the U.S.

Growth Opportunities

Extend impact in the U.S. across services

Leverage credibility in healthcare, banking, teleco

m and media to drive rapid, non-voice growth

Capture select opportunities outside of the

U.S.

Voice and non-voice in the UK

IT-ESO and regional shared services for APAC

ASEAN = Association of Southeast Asian Nations, KPO = knowledge process outsourcing

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• 3rd largest English speaking country, 12th most populous country

• 90+ million population, 36+ million work force

• Goldman Sachs N-11

Scalable Talent Pool

• 400,000 college graduates per year (28% Business and Accountancy, 21% Engineering and IT)

• Western based legal and accounting curriculum and certification

• 93% Literacy Rate

Solid Western-based Educational System

• Only sizeable colony of the US, 1898-1946

• Western pop culture pervasive (“They get it”)

Cultural Affinity with the West

• Warm and patient (“They answer the phone with a smile”)

• Highly empathetic, eager to please and not to disappoint

• Cultural bias against conflict

Service Orientation

• Neutral accent, acceptable to American and British customers

• Familiar with Western slang and accents

• Natural rapport building skills

Excellent Communication Skills

Slide courtesy of Stream Global BPO

Hallmarks of Our Value Proposition

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• One of the lowest labor-cost providers, with total labor costs at a small percentage of the cost of equivalent jobs in the U.S. or U.K.

• All-in costs amongst lowest in the world

Cost Competitiveness

• Unlike India, few other growth sectors competing for talent

• Positive perception of BPO careers (not just for fresh graduates)

Relatively Low Attrition

• 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

Plentiful Quality Office Space

• 4 to 8 year Income Tax Holiday

• Approximately 15% tax rate after lapse of holiday

Attractive Investments packages

• Catching up with India rapidly; now #1 for voice BPO

• Outsourcing Destination of the Year – NOA UK

• Positive experiences of captives JPMorgan, Citigroup, P&G, Deutsche Bank, Nestle AOA, HSBC, Shell, etc.,

Global Reputation

Slide courtesy of Stream Global BPO

Hallmarks of Our Value Proposition

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• One of the lowest labor-cost providers, with total labor costs at a small percentage of the cost of equivalent jobs in the U.S. or U.K.

• All-in costs amongst lowest in the world

Strategic Location in Asia

• 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)

Excellent Telecom Infrastructure

• Privately-owned companies providing energy sources such as renewable, geothermal, hydro, solar and wind

• 9 international airports, 12 roll-on roll-off ports,

• Economic zones and IT parks

Reliable Infrastructure

Support

• Accessible and affordable luxuries – value-for-money housing, modern recreational facilities, first-rate educational institutions adopting international standards, business centers, hospitals, etc.

• Top ten in World Economic Forum‟s Gender Gap Index

Top Choice for Quality of Living

• Comprehensive Everest-O2P-BPAP (Business Processing Association of the Philippines) Roadmap 2016 to achieve $25+ Billion revenues, 1+ million employees

Strong Government –Private Sector

Partnership

Hallmarks of Our Value Proposition

Centers of

Excellence

Top 10

Next Wave

Cities

Cities in

WaitingAspirants

Manila-NCR

Cebu

Clark

Davao

Santa Rosa

Bacolod

Iloilo

Metro Cavite

Lipa

Cagayan de

Oro

Malolos

Baguio

Dumaguete

Cabanatuan

Cainta

Dagupan

General Santos

Legaspi

Naga

Rizal

South Bulacan

Subic

Tuguegarao

Urdaneta

Balanga

La Union

Tagbilaran

Tarlac

Absorptive Capacity

Potential IT-BPO support

Super cities >15,000

Large cities = 10,000–15,000

Mid-sized cities = 5,000–10,000

20+ cities = <5,000 each

Eases concerns on salary and rental costs, talent availability

About 15% of 442,000 FTEs and 22% of BPO in 2009 activities

were in NWCs (BPAP)

Development Path of IT / BPO Locations

Notes: National Capital Region (NCR) includes Makati , Fort Bonifacio, Pasig, Quezon City, Alabang, Manila, Mandaluyong

Increasing Location Attractiveness

Next Wave Cities

Centers of Excellence

Next Wave Cities

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Wide Range of Verticals

Supplier presence across industry verticals1

Wide range of industry-verticals serviced Captives of 60+ Fortune 1000 firms

# FTEs servicing (’000s)

75+

# Firms

50+

40+

40+

25+

15+

25+

Banking and financial services

MDR and healthcare

Telecom, travel, energy, and media

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

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Established Mature Tier-1 Destination

Mature Credible Emerging

Eastern Europe:

Established near-

shore destinationChina:

Domestic and APAC centric

scale and capabilities

Mexico, Brazil, Columbia,

Chile, and Argentina:

Evolving rapidly as near-

shore base to drive

penetration in North

America

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)

Egypt, Morocco, and

South Africa:

Significant government-

backed push to target

UK and Europe

Source: Everest analysis

Proprietary & Confidential. Copyright © 2010 BPAP, Everest Global, & Outsource2Philippines

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India Philippines Poland Malaysia Egypt Romania China Mexico

Relatively stable, though there are concerns around safety and labor pool sustainability

Skilled English-

speaking talent

availability

Safety and

security

Investment

climate

Risk Index for English BPO*

Physical and

social

infrastructur

e

1.75 1.871.811. 761.87

2.012.15 2.19

Proprietary & Confidential. Copyright © 2010 BPAP, Everest Global, & Outsource2Philippines

*(Higher Score Implies Higher Risk)

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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

Spoken English Test

Philippine Benchmarking and E-volution Study

(PhilBEST) - Tholons 2009

Courtesy of the Business Processing Association of the Philippines and Tholons Southeast Asia

Undisputed English Proficiency

Pearson Talent Assessment Versant

English (July 2010)

Philippines is #1 in English proficiencywith a score of 61.84

Latin America and East Europe follow

with a score of 58; India is at third

with 55.62 followed by Korea and

China

One of the most widely used tests for

spoken English competency

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Direct operating cost1 per FTE for F&A transactional work

2010; US$ ’000s a year per FTE

Lowest Cost Non-Voice BPO Location

64‒66

35‒37

22‒2419‒21 18‒20

15‒17

Dublin 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: 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

MARKET AVERAGES

FAO EXAMPLE

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47‒4944‒46

32‒3430‒32

23‒2520‒22

19‒21

Mexico City Krakow Kuala Lumpur Beijing Cairo Metro Manila Delhi/NCR

…and for IT services

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

MARKET AVERAGES

ADM EXAMPLE

Direct operating cost1 per FTE for IT Applications Development and Maintenance (ADM)

2010; US$ „000s per annum per FTE

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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, 2010Source: Everest analysis

Cost-Competitive Location – Voice BPO

70-72

14-1515-1616-17

19-20

24-2629-32

US Tier-2 Mexico City Krakow Kuala Lumpur Cairo Metro Manila Delhi/NCR

Reflective of market averages.

Range could vary depending upon

Tier-1 vs. Tier-2 cities

Suppliers vs. captives

Scaled operations vs. mid-size

operations

Direct operating cost1 per FTE for English voice work

2010; US$ ’000 per annum per FTE

MARKET AVERAGES

ENGLISH-LANGUAGE VOICE EXAMPLE

Proprietary & Confidential. Copyright © 2010 BPAP, Everest Global, & Outsource2Philippines

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Awards and Distinctions

Offshoring Destination of the Year (2007, 2009, 2010)

31 New Emerging Destinations: Davao & Iloilo

Top 10 Established Outsourcing Cities: #4 Manila & #9Cebu

Top Emerging Cities: Davao, Santa Rosa and Bacolod

Top 10 Outsourcing Cities in APAC: #3 Manila

World leader for voice-based customer support and sales

Top ranking destination by estimated jobs in business support

services (October 2010)

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“It is clear by our continued growth in the country that Convergys employees in

the Philippines share our steadfast commitment to provide our clients with the

highest level of customer service in the industry,”

- Jeff Fox, Convergys Corporation President and CEO

Client Testimonials

“To me Philippines is not a threat, it is a treat, because it is a great delivery

destination, customers like it and we are very much present there. There is an

economic advantage that comes to us as an enterprise”

- Aparup Sengupta, Global CEO, AEGIS BPO

“With the growth of our business in Asia Pacific, it makes sense for us to open

an operations hub in the Philippines. It is one of the world’s leading business

processing destinations and builds on our existing presence in the Philippines.

“The Manila hub will allow us to tap into Manila’s large, well-educated workforce

to help support our continuing growth in the region. It will also provide greater

geographic diversity for our operation support functions.”

- Alex Thursby, CEO of ANZ Asia Pacific, Europe and America

"Many centres in Metro Manila and Cebu City are experiencing growth of over

40% in sales and headcount. HSBC, JP Morgan, Accenture and IBM, all large

firms, are witnessing tremendous growth."

- Nikhil Rajpal, Principal, Everest Research Institute

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Client Testimonials

“Our new BPO center in the Philippines strengthens our Global Network

Delivery Model and allows us to enhance our delivery capability to our clients

across Asia Pacific and the rest of the world. We’re very excited about the

talent pool available in the Philippines for our new BPO centre and look

forward to leveraging our best practices and technology excellence from

around the world to further develop talent in the region.”

-Vish Iyer, TCS Head, Asia Pacific

"US-based clients ask for the Philippines as a destination. However, the

processes that get outsourced to the Philippines are now not just limited to

voice but other high-end processes spread across domain-specific back

office, medical, legal and financial accounting work."

- Rohit Kapoor, President and CEO, EXL Service

“Currently, we offer only customer services in the Philippines, which we are

planning to expand into areas like legal, financial and accounting

outsourcing. Philippines offers a market of quality talent pool in these areas”

- Ritesh Idnani, CEO, Infosys,

(from The Financial Express, September 2010)

“Work ethic here is just phenomenal. When [typhoon] Ondoy hit, we

registered no missed calls despite the heavy impact of that storm on Metro

Manila and our personnel. This dedication to the job and the Filipino’s natural

warmth triggered generosity from our clients and our employees at other

sites.”

- Mike Ettling, CEO, NorthgateArinso

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Voice – Based Services Suppliers Homegrown Suppliers

Banking, Financial Services and Insurance IT and Software Services

NASSCOM’S Top BPOsShared Service Centers / Captives

Who Are With Us

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Maintenance, Repair, Overhaul ServicesClinical Research Outsourcing

HR Outsourcing Legal Process Outsourcing

Engineering Services OutsourcingCreative Services Outsourcing

Medical Services Outsourcing

Who Are With Us

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Contact Information :

Assistant Secretary FELICITAS AGONCILLO-REYES

Investments Promotion Group

Board of Investments

385 Gil Puyat Avenue, Makati City 1200

Philippines

Tel: (632) 896 9212

Fax: (632) 897-2181

Email: FAgoncilloReyes@boi.gov.ph

Website: www.boi.gov.ph