Sina Wohlfarth Christopher Berg Johannes Preis Manuel Siekmann

1. Sina Wohlfarth Christopher Berg Johannes Preis Manuel Siekmann

2. Establishing a strategy for a global footprint Management Summary • vCustomer is facing the need for global expansion in order to maintain growth in operations due to problematic issues in India and changing customer demands. • The expansion strategy focuses on emerging verticals, value-added services, the assembly of a “one-stop-shop” possibility for customers and global presence for “near-shore” services. • Eastern European countries, offering low-cost, multilingual and qualified employees represent possibilities to enter the growing European BPO industry. • An analysis using political, economic, socio-cultural and technological factors identified Poland and Romania as market entry opportunities. BPSW recommends entering these markets with an acquisition (Poland) and a greenfield investment (Romania). • Further aspects including market expansion to Japan or organizational change are provided in a roadmap outlining the next 3 years.

3. Agenda The Growth Strategy of vCustomer Selection & Analysis of Potential Locations Market Entry Strategies Future Challenges

4. Important Facts about vCustomer vCustomer – Status quo • Practices: • CRM (85% revenues) • BPO (15% revenues) • Industries: • Retail • Technology • Telecom • Hospitality • Health Care (new) • Clients: • 20 marquee clients, mostly large diversified MNCs • Employees: • 4,500 employees (4,200 in CRM, 300 in BPO) • Seat utilization • 1.2-1.3 • Reputation through different rankings: • Corporate Values: • Partnership • Quality • Excellence • Integrity • Respect • Exceeding customer expectations • Financial Situation: • Revenues 2006: > $ 50 mil • No external finance since 2001 • $ 25 mil “war chest” Sources: www.vcustomer.com, Case Study

5. vCustomer’s internal and external position… SWOT Analysis • Strengths: • Focus on quality and employees • Innovative & courageous entrepreneur • Excellence in Technology (1st mover) • Strong and satisfied customer base • Customized & knowledge-based solutions • Positive cash flows in the last 6 years • Call centers as secure foundations • Weaknesses: • Sheer size compared to big players • Limited global presence • Limited service portfolio • Inability to offer complete solutions for MNCs SWOT • Opportunities: • Increasing demand for BPO services • Delayed European BPO development • Growth potential of value-added services • New industries adopting offshore services e.g. health care • Clients looking for a “one-stop shop” • Threats: • Problems in India: • Rising wages, high turnover, less availability of experienced talent, increased competition • Increasing multilingual demand by clients • Increasing demand for near-shoring/global presence • Falling margins due to higher competition Sources: www.vcustomer.com, Case Study, Gartner 2006

6. … and the derivation of an expansion sketch Growth strategy Investments in India are less reasonable for vCustomer Market and client requirements have changed Aspire international growth to maintain operations, meet changed customer requirements and gain new customers… … to benefit from the opportunities and avert the given threats! • 3 main actions… • Investment in different countries • Expansion of service portfolio and offering of customized solutions based on superior technology and quality, especially in BPO practice • Investment in growing verticals, especially in health care • … to reach 3 strategic goals: • global presence • multilingualism • broad services

7. Agenda The Growth Strategy of vCustomer Selection & Analysis of Potential Locations Market Entry Strategies Future Challenges

8. Expansion needed for global presence Visionary long-term strategic goal HQ in Seattle 5 locations in India so far Global presence requires serving the entire triad USA, Europe and Japan

9. Primary focus on Eastern European countries Potential new locations Eastern Europe Philippines Mexico We recommend focusing first of all on Eastern European countries as offshore location for three reasons: Higher expected growth rates in the European BPO market European companies require near-shore locations Higher multilingual capacities provided in Eastern Europe China Argentina

10. Single European Market as cutting edge Advantages of EU members in Eastern Europe • Out of all possible Eastern European countries concentrating on the 12 new EU members is reasonable because of the advantages of the “Single European Market”: • Free capital movements • Free trade in services • Free movement of goods • Free movement of labor

11. Romania, Poland and Estonia identified Quantitative analysis of Eastern European EU members • Consistent with the growth strategy of vCustomer, we performed a quantitative analysis of the Eastern European EU members with special regard to: • Foreign language skills • Labor costs • Availability of educated workforce Estonia Result: Poland More detailed analysis of the 3 best placed countries Romania

12. Countries can score up to 100 points Country Profile Template • Political Stability (max. 10 points) • Taxes (2) • Corruption (3) Political Factors • GDP (3) • Labor costs (15) • Currency (2) • Economic freedom (10) • Market Competitiveness (5) • Inflation (2) Economic Factors PEST Analysis max. 15 points max. 37 points max. 38 points max. 10 points • Population (5) • Educational level (15) • Language skills (15) • Living conditions for expatriates,e.g. quality of life or health care system (3) • Infrastructure,e.g. VPN provider (10) Socio-Cultural Factors Technological Factors Final Score: max. 100 out of 100 points Sources: Capgemini Study 2004, Heritage Found, Transparency International, Worldbank

13. Small market with sophisticated democracy Country Profile: Estonia • EU-Member since 2004 • Stable political environment • Corporate taxes: 15% • Moderate to low corruption Political Factors • GDP: $19,600 per capita /9.8% growth rate • Labor costs: $ 4.24 per hour • Currency: Estonian kroon (EUR from 2008) • Economic freedom: 12th world rank • No competitive market • High inflation Economic Factors Estonia 13/15 points 21/37 points 25/38 points 8/10 points • Population: 1.3 mil • Science & Tech graduates: 11,712 • Language skills: 92.3% English, 30.2% German, 3.7% French • Good living conditions • Good infrastructure provided Socio-Cultural Factors Technological Factors Final Score for Estonia: 67 out of 100 points Sources: Capgemini Study 2004, Heritage Found, Transparency International, Worldbank

14. Low labor costs and high French language skills Country Profile: Romania • EU-Member since 2007 • Reasonable political stability (increasing) • Corporate taxes: 12% • Noticeable corruption Political Factors • GDP: $8,800 per capita /6.4% growth rate • Labor costs: EUR 1.76 per hour • Currency: Leu (EUR from 2014) • Economic freedom: 67th world rank • Existing call centers • High inflation Economic Factors Romania 7/15 points 24/37 points 30/38 points 7/10 points • Infrastructure (e.g. VPN provider):Bukarest ranked 8th in infrastructural study • Population: 22.3 mil • Science & Tech graduates: 218,305 • Language skills: 91.7 % English, 11.3% German, 86% French • Living conditions for expatriates: Bukarest ranked 23rd in recent study Socio-Cultural Factors Technological Factors Final Score for Romania: 68 out of 100 points Sources: Capgemini Study 2004, Heritage Found, Transparency International, Worldbank

15. Best developed market in Eastern Europe Country Profile: Poland • EU-Member since 2004 • Stable political environment • Corporate taxes: 12% • Noticeable corruption Political Factors • GDP: $14,100 per capita/ 5.3% growth rate • Labor costs: EUR 4.74 per hour • Currency: Zloty (EUR from 2013) • Economic freedom: 87th world rank • Competitive BPO market • Low inflation Economic Factors Poland 10/15 points 17/37 points 33/38 points 10/10 points • Infrastructure (e.g. VPN provider):Warschau ranked 2nd, Krakau ranked 7th and Breslau ranked 12th in infrastructural study • Population: 38.1 mil • Science & Tech graduates: 362,071 • Language skills: 79.6% English, 46% German, 5.8% French • Living conditions for expatriates: Krakau ranked 6th, Warschau ranked 7th, and Breslau ranked 12th in recent study Socio-Cultural Factors Technological Factors Final Score for Poland: 70 out of 100 points Sources: Capgemini Study 2004, Heritage Found, Transparency International, Worldbank

16. Different approaches for target countries Results of the PEST analysis Poland Romania 1 Estonia 2 3 • Recommendation for a low-cost call center location, mainly because of • Considerably low labor cost • High supply in French language • Recommendation for a BPO location, mainly because of • Existing BPO competence and market • Geographical proximity to Western Europe • No direct investment recommended, mainly because of • Missing market • More resources needed • No knowledge gain possible

17. Agenda The Growth Strategy of vCustomer Selection & Analysis of Potential Locations Market Entry Strategies Future Challenges

18. Poland and Romania on different strategies Entry strategies for both European locations • Acquisition of a BPO business as a possible entry strategy for Poland because: • Quick market share increase possible • Acquisition of knowledge and business relations in BPO sector Acquisition Acquisition Joint-Venture • Greenfield investment in a call center as entry strategy for Romania because: • Structures perfectly adjustable to corporate culture and needs • Experience and reputation will facilitate launch of operations Greenfield Investment Greenfield Investment Merger

19. Acquisitions of companies with sales up to $18.5m Possibility to purchase a company with approx. $9.3m sales (100%) or with approx. $18.5m sales (majority stake of 50.1%). Example: Market entry in Poland (BPO) • Notes: • Lower multiples might be more reliable in Eastern Europe. • Use of median more accurate due to statistical outlier Joint-Venture Acquisition Mean = 2.29 Median = 2.67 Greenfield Investment Merger Comparable transaction multiples analysis Financial constraints (no external financing, “war chest” up to $ 25m) Example company: Sources: www.factiva.com

20. Agenda The Growth Strategy of vCustomer Selection & Analysis of Potential Locations Market Entry Strategies Future Challenges

21. Further expansion and globalising recruiting process Issues to keep in mind within the next 3 years • In order to achieve a global footprint, further expansions are necessary. • Japan as third element of the triad • Latin America for Hispanic American customers • Market analysis • Evaluate entry models • Identify potential business partners • Financial data • Long-term strategic planning Further Expansion • Urgent need of non-English speaking recruiters to be able to hire non-English speaking staff. • Identify HR outsourcing opportunities • Find local recruiting agencies • Data concerning recruiting process International Recruiting Issue BPWS Service Offerings Information needed

22. Organizational challenges and Financing Options Issues to keep in mind within the next 3 years • The growing size and complexity of the company requires a change in organizational & management structure (e.g. CEO calling clients 6 hours a day hardly possible). • Restructuring Services • Implement Performance Management Systems • Implement Customer Relationship Management • Organizational/process structure • Client information Organizational Challenges • At the moment no external financing is used as part of the company’s financing strategy. Possible problems for future growth investments. • Alternative financing strategies in line with the companies strategy (see back-up) • Detailed financial data • Readiness of management Financing Options/Strategy Issue BPWS Service Offerings Information needed

23. Grow step by step to establish a Global Footprint Roadmap: Agenda 2010 A global footprint to satisfy old and new customers 2010: Enter Japanese market through partnership 2008: Entry in Eastern Europe with BPO services and call centers 2007: Start todeveloporganizationalchangeprogramandrecruitingnetwork Today Customer demands Global presence Multilingual capabilities Nearshorepossibilities

24. Back-Up

25. Health-care as fast growing vertical market

26. Quantitative analysis of Eastern European EU members

27. New EU members from 2005 are all stable Backup – Political Stability Romania’s PSI change: 1996 = -0,04 2005 = 0,36

28. Entry-modes Joint-Venture Acquisition Merger GreenfieldInvestment • An entity formed between two or more parties to undertake economic activity together • Spread costs and risks • Build on strengths of the other company • Make use of EoS • Very high failure rate (~60%) • Slow reaction on changes of environment • One entity acquires another entity either using a share or an asset deal (potential problem with change in ownership) • Acquire in between 50.1%-100% to receive an controlling stake • Make use of EoS • Quickly increase market share • Target company (if private) can block acquisition • Two entities swap their shares or exchange cash (if one company is larger than the other) • Use one of the existing entities or create new entity • Advantages and disadvantages see comments on acquisition • Build up new operations from scratch • Structures perfectly adjustable to corporate culture and needs • Lengthy process until operations are finally profitable • Potential problems of recruiting qualified staff

29. M&A process – Target perspective

30. Valuation – Comparable Transactions Example: Valuation based on comparable transactions Joint-Venture Acquisition Greenfield Investment Merger Use of median more accurate due to statistical outlier

31. Potential acquisition targets Sources: company homepages

32. Potential Merger/JV partners Sources: company homepages

33. Further services Building up an international HR department Internationalization Language problems, increasing costs of hiring talentedpersonnel, need to professionalize international recruiting Build up international HR department! Need for experienced, external advice (benefit from our international relations)! Benefit from talented people all over the world! Lower cost for personnelas people don’t have to speak English. Significantly improve quality of services! Improve coordination ofinternational operations! Benefit of this project You’ll be able to improve the quality and the sophisticationof your services to further improve their quality!

34. Financing of growth plans Limitation: No external financing Fast growth through acquisitions seems to be impossible Therefore we could think about some sort of external financing Examples of interesting financing opportunities are Issuing Euro-Equity (Paris or Frankfurt) Publicity associated with equity offering will facilitate growth Issuing Euro-Bonds (Paris or Frankfurt) Less publicity than equity However, no disturbance of management due to reporting Project-Financing for Joint Venture Low risk for sponsors (have to contribute equity part), CF generated by project used to pay loan (need to form new legal entity) Not very commonly used in Service Joint-Ventures US domestic equity/debt offering offering Large, sophisticated market Allows to offer hybrid securities (puts, calls, convertibles) Obtain bank financing Also floating rates possible which can be an advantage depending on business model Further growth financing trough PE/Venture Capital companies Sources: Note on Project Financing, Sapp; International Financial Management, Eun & Resnick

35. CF Assumptions – Past Analysing the basis of financial power

36. Sales/CF projections Sources and prospects for financial position