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  2. AGENDA • Executive Summary • Call Center Business • Market Overview • CC Customer Segmentation • In-house users • Outsourcers • Demand • Customer • Economics • Competition • Recommendations • Success business model • Partnering strategy • E-Commerce Market Overview TCI Tianjin • Current Situation Analysis • Recommendations

  3. AGENDA • Executive Summary • Call Center Business • Market Overview • CC Customer Segmentation • In-house users • Outsourcers • Demand • Customer • Economics • Competition • Recommendations • Success business model • Partnering strategy • E-Commerce Market Overview TCI Tianjin • Current Situation Analysis • Recommendations

  4. CHINA IS BECOMING A HIGHLY DYNAMIC CC MARKET • China’s call center market took off since 1998 with an annual growth rate over 100% • Non-paging market size reached 54,000 seats in 2000 • However past growth was largely driven by demands from administrative driven sector • Over 60% of the new CC demand comes from four pillar industries: Banking, Post Services, Fixed-line Telecom, and Insurance • Distinctive purchasing behavior identified for these purchases • Future growth will be propelled by service oriented and outsourcing segments • Service oriented segment expected to be 50% of total CC market • Outsourcing market will grow at least 50% a year for the next few years • However large variance exists for outsourcing segment growth • Overall, China CC market is expected to reach over 130,000 seats in 2004 and 340,000 seats in 2010

  5. CC OURSOURCERS ARE EMERGING BUT STILL EXPLORING (I) • Currently, CC outsourcing business is brand new in China • No more than 30 companies providing merely about 3,200 seats in service • Over 70-80% supply concentrated in 4 major cities • Future outsourcing development is highly dependent on current player’s performance and strategies • Potential customers concerned about quality, confidentiality, information processing ability, HR, and price • Growth will fluctuate widely according to the industry’s ability to satisfy customer concerns and requirements now • In short term, competition will be minimum due to highly differentiated positions and large number of unexploited potential outsourcing customers • In medium term, paging companies can be powerful and desperate competitors in the low-end outsourcing market • That might distort the industry profitability and trigger vicious competition • However high-end outsourcing market might be intact

  6. CC OURSOURCERS ARE EMERGING BUT STILL EXPLORING (II) • Currently, only low-price/standard service vendors are profitable • Utilization, and therefore, long-term customers, is the key for profitability • However, high-priced outsourcing solutions not widely accepted by the market But in the long-run, we believe high-end services will be valued by customers • We are encouraged by recent positive news on clients’ long-term commitments to high-end outsourcers • With China’s pending WTO Entry and continued economic growth, we believe it’s the direction • High-end outsourcers can win the game by aggressively establishing long-term client base, and targeting various outsourcing opportunities along the value chain • Five successful strategies identified for new customer development • Telemarketing and value-added information service most likely to be outsourced

  7. TCI SHOULD PARTNER WITH RIGHT LOCAL CC OUTSOURCERS • A partnering strategy is essential for TCI to capture the great opportunities in China • TCI lacks a bunch of local capabilities, while time is contingent • TCI should target both money making, and money losing tech advanced outsourcers during negotiation process, based on two plausible partnership strategies • Money making ones: share profits and leverage local strength • Money losing ones: control and negotiate for a bargain deal Considering the limited number of candidates in China and TCI’s tight schedule, a broader search can strengthen TCI’s negotiation position Five promising outsourcers identified during the interview process • Money making ones: China Motion, 800 Teleservices, and Compaq-Star • Money losing ones: TCY, ITS Shanghai

  8. EC: ONLY SOFTWARE FIRMS AND SIs WORTH PURSUING • Although under booming, China E-Commerce market are experiencing bottlenecks • Online population and revenues grew 10 times in the past 3 years • However, macro-environment and infrastructure are problematic… • … and only few ICP/ISPs are making money • ICP, ISP and technology companies, as a sector, are not worth TCI’s pursuit • ICP: Market is down while most China ICPs are still at their early stage development • ISP: Highly fragmented and regulated, which suffocate both foreign participation and profitability • Tech companies: Superior ones can hardly survive in China • However, several top ventures in the above sectors are quite interesting, which are identified and illustrated in detail for TCI’s further interest • ICP:;;; • ISP: 263Net; Eastnet

  9. TCI-TJ: RSTRUCTURING AND BUILDING STRATEGIC ALLIANCES • TCI-TJ experienced difficulties due to both promotion and management issues • Though improving, the firm is intrinsically uncompetitive in China market • It should restructure for better performance… • Redefine corporate missions and strategies • Restructure project arrangement, reporting, measurement and incentive systems • Refocus its sales on Japanese companies in China and in Japan • … and find strategic alliance for TCI’s China expansion • TCI should only partner with prestigious local software company or system integrators • Wiseway screened all the potential candidates lists and funneled down 5 most promising companies for TCI’s further contact • Longshine; Global eForce; eBIS; Modern Computer; Huateng Software

  10. AGENDA • Executive Summary • Call Center Business • Market Overview • CC Customer Segmentation • In-house users • Outsourcers • Demand • Customer • Economics • Competition • Recommendations • Success business model • Partnering strategy • E-Commerce Market Overview TCI Tianjin • Current Situation Analysis • Recommendations

  11. CC MERELY A BUSINESS PRACTICE BEFORE 1997 High telecom charge Low phone penetration Phone call charge (cents per minute) Phone penetration (%) 1997 # of phones(1) (million) China US 82 53 99 229 Weak service attitude Widespread industry monopoly • National monopoly • Banking • Telecom • Insurance • Utilitity • Regional protected • Steel • Auto • Petrochemical • Tobacco • ... Automotive Example: Expert Survey 1997 Competition focus (%) Monopolized industry estimated 55% of industrial output Price Quality Service Style Commercial CC less than 10,000 seats in 1997(2) (1) Fixed line + mobile (2) Excluding about 50,000 seats in paging company Source: World Development Report 1999/2000; China Auto Market 1997; Jarding Fleming Research; interviews

  12. >800 km <800 km COMMERCIAL CC TOOK OFF SINCE 1998Especially in Non-Paging Service Sector Higher telecom penetration Penetration (%) CAGR Fixed line Mobile 37% 83% Gradually reduced telecom fee Growing awareness of technology Year Long distance (RMB/min) Internet users (mio) E-Commerce revenue (US$M) Non-paging CC seats (’000) CAGR = 129% (1.2) (1.0) (0.8) (0.7) Year Intensified competition • Most industries capacity over production • Declining retail prices Index GDP index Retail price index Source: Jarding Fleming Research; China Statistics Yearbook; interviews; OECD; China Telecom Year

  13. CC INDUSTRY WILL REACH 330-370 K SEATS IN 2010 • 2004 projection(1) • (’000 seats) • 2010 projection(1) • (’000 seats) • Identify major driving factors to CC adoption • - market competition and service awareness • - telecom charges and phone penetration • Quantify relationships between drivers and CC adoption • here we used US benchmark • Project CC development by forecasting development of drivers • Project CC penetration in major user’s industries • - banking, telecom, insurance … • Add up numbers of each industry to give a CC market overview • Interview industry experts or knowledgeable industry practitioners for their opinion of CC market growth • - system integrators and experts 158 132 145 368 337 N.A. Driving factor analysis • Illustration Bottom-up analysis Experts opinions (1) Without paging company

  14. TOP-DOWN APPROACH REVEALS A PROMISING END GAME US benchmark CC agents per 1000 people Non-paging CC seats (‘000) Y = 0.00146X + 4.79 Phone line per 1000 people China phone line Phone line per 1000 people 1998 99 2000 01 04 10 Year Deflated telecom fee index Source: US Telephone Statistics; Datamonitor; MII data; China Statistics Yearbook

  15. Backup REDUCING TELECOM CHARGES WILL BOOST FIXED-LINE ADOPTION Competition pushes further telecom reduction • Most alternatives at least 50% cheaper • IP, internet phone call, “call back” services … • Ministry determined to further reduce telecom charges • “Current telecom charge still does not reach its optimum stage yet” • - Minister of MII Phone line per 1000 people Telecom reduction projection Phone penetration per 1000 Year Deflated price index(1) (1) Price deflated by GDP index Source: China Telecom Charges Policy Book; BCG analysis

  16. TELECOM IS THE MOST SIGNIFICANT CC USER NOWBottom-up Analysis Industry Projected seats CAGR 2000 25,000 7,667 4,545 2,000 1,600 1,501 800 594 257 240 240 300 6,675 51,419 2004 35,714 22,857 11,100 3,760 6,000 7,519 5,250 4,100 4,158 1,000 2,460 1,000 26,669 131,588 2010 41,667 50,000 47,000 9,850 20,833 25,184 14,000 9,600 32,600 3,333 8,800 2,000 71,965 336,832 2000-04 9% 31 % 25 % 17 % 39 % 50 % 60 % 62 % 101 % 43 % 79 % 35 % 41 % 26 % 2004-10 3% 14 % 27 % 17 % 23 % 22 % 18 % 15 % 41 % 22 % 24 % 12 % 18 % 17 % Telecom Mobile Banking Insurance Post service Manufacturing Computer Airline Security Courier Home appliance TV selling Others Overall Source: interviews; online research; experts opinions; BCG analysis

  17. EXPERT OPINIONS REVEAL A MARKET OF 145,000 IN 2004 • “Fast development is expected to continue in the next five years. I believe that call centers seats will grow at 30% a year for the next five years (which means 145,000 in 2004)” • Director, CTI Forum • “Compared to 1999, in 2000 call center seats increased by 142%, or 16,000 seats” • China Computer News • “In the next three years, we project that call center seats will double. It’s our conservative estimate.” • Manager of Business Development Dept, Huawei Source: BCG interviews

  18. AGENDA • Executive Summary • Call Center Business • Market Overview • CC Customer Segmentation • In-house users • Outsourcers • Demand • Customer • Economics • Competition • Recommendations • Success business model • Partnering strategy • E-Commerce Market Overview TCI Tianjin • Current Situation Analysis • Recommendations

  19. CHINA CC USER BASE VERY DIFFERENT FROM U.S. Others Outsourcing Others Outsourcing Transport Healthcare Utilities Remote shopping Securities Security TV selling News & media Airline Computer/Tech • Telecom • China telecom call center investment is still quite government driven. To promote “189” service line, MII demand call center at each city/county level • Manufacturing • Manufacturing CC usage still not widely adopted yet. Most state-owned companies are unwilling and unable to invest in service • Remote shopping • Although remote shopping is the biggest CC user in the US, it’s merely the case here because of inconvenient payment, credit and delivery system. Also, shopping convenience in metropolitan area and general poor consumption power make remote shopping economically unsound • Selected industry explanation Manufacturing Post service Insurance Banking Mobile Fixed-line Telecom Airline Technology Manufacturing Insurance Banking Telecom China US Our 1.5 months interviews have well covered the above industries Source: Datamonitor; Interviews; online research; expert opinions; BCG analysis

  20. CC MARKET ROUGHLY SEGMENTED INTO FOUR CATEGORIESAccording to Area of CC Usage, and Willingness to Outsource Generic service • Selected industry examples High Outsourcing TV selling Service-oriented Travel Messaging Simple order taking Willingness to outsource Publication Securities Paging Home appliance Admin-driven Computer/technology Courier service Telecom Low Community service Insurance Post service Bank Utility Core area Non-core area Area of CC usage

  21. Backup THREE CRITERIA TO DISTINGUISH CORE AND NON-CORE AREA • Call Center’s impact to overall business • - Core: When CC function is critical to the performance of the industry • Confidentiality requirement • - Core: If the industry/functionality commands strict confidentiality • Call Center operational complexity • - Core: If operating CC in this industry requires great sophistication Criteria Core Area “Grey Area” Non-core Area (generic) Industry • Securities • Courier service • Computer/technology • Home appliance • Banking • Insurance • Publication • Telecom • Traveling • Paging service • Messaging • TV selling • Utilities Functionality • Technical assistance • Aftersales service • Customer complaint settlement • Sourcing/supplier coordination • Customer inquiry settlement • Telemarketing • Message delivering • Simple order taking Many industries have both core and non-core areas

  22. Backup MANAGEMENT AND OWNERSHIP STRUCTURE AFFECT WILLINGNESS TO OUTSOURCE Considerations Reasons Less willing More willing Ownership structure Company size Competition Management sophistication SOE(1) Large Monopolized industry Poorly managed Privately owned foreign invested Small-to-medium Market-driven, competing industry Well managed • SOEs consider economics less and “management authority” more • - Prefer to build in-house in order to increase management power and assets • Call Center investment is less significant to large companies. Also, their agents’ needs can justify a sizable in-house operation • Monopolized industry tends to be admin-driven, or to disregard CC solution totally • Poorly managed companies/industries see much less value of call centers to their business improvement (1) SOE = State-owned enterprise

  23. AGENDA • Executive Summary • Call Center Business • Market Overview • CC Customer Segmentation • In-house users • Outsourcers • Demand • Customer • Economics • Competition • Recommendations • Success business model • Partnering strategy • E-Commerce Market Overview TCI Tianjin • Current Situation Analysis • Recommendations

  24. Admin-driven ADMIN-DRIVEN SEGMENT: MOST IMPORTANT FOR NOW High % in total new CC demand Driven by “Pillar industries” • Demand surged in a group of China’s important industries since 1999, aiming to improve service level • Bank • Post service • Fixed-line telecom • Insurance • Required mostly mid-to-high end call center solutions (Nortel, Lucent, IBM, Huawei…) • Big, monopolized, profitable corporations • High cost of failure • Budget approval from above • Often in conjunction with structural reform # of new CC seats (’000) Total new demand Admin-driven 29.5 11.2 62% 4.9 76% 66% Year Source: BCG modeling

  25. Admin-driven HOWEVER DEMAND EXPECTED TO FLUCTUATE IN THE FUTURE Underlying Reasons # of new call center seats (’000) Banking example • Admin-driven segment orders come in batches • Call center construction proposal often initiated by government-controlled corporate headquarters, or even ministries • Branch companies required to complete call center construction within similar period of time • Admin-driven corporations tend to over-invest • Branch offices incentivized to use up the budget advised by headquarter • However few admin-driven industries are expected to invest in call centers for the following years • Only two industries expected: utility and rail transportation Year Source: BCG modeling; interviews, literature research

  26. Admin-driven UNIQUE THREE-TIER DECISION MAKING PROCESSSystem Integrators Should Put Efforts to All Top-down initiatives • Advocate improving service standard • Make “service facilities” an evaluation criteria • May suggest call center as an option • Determine rolling out call centers in the corporation • Raise a list of recommended system integrators • Present the list to branch companies • Set a budget for different branch companies • Decide call center size and sophistication based on corporate budget • Negotiate and select a system integrator mostly suitable to the branch’s requirements SI should pay attention to Ministry’s recent service improvement incentive Ministry SI should approach promising corporate headquarters in advance to get the name on the list Corporate headquarter SI should put most efforts to influence branch company’s selection Provincial/regional branches

  27. Admin-driven OUTSOURCING ALMOST NEVER AN OPTION FOR ADMIN-DRIVEN COMPANIES • Outsourcing is not considered an option for CC adoption at corporate level • Worried about unforeseeable consequences • Money saving is not a priority for these big, monopolized SOEs • Unable to distinguish different conditions in different geography • some areas don’t have satisfactory outsourcers • Politically risky for branch managers to be “creative” • If using outsourcers, branch managers have to bear all responsibilities • potential for failure is considerable • CC construction budget would be in vain if not used up • while outsourcing budget needs to be reported for upper approval • And … the money is not mine • Only exception is Guangzhou Mobile Company’s outsourcing of its “Mobile Secretary” service • By nature a paging service: Ideal to be done by a paging company • “Mobile Secretary” service is not planned and budgeted from the corporation (China Mobile) • Guangzhou’s business practice is more liberal than rest of China

  28. Service-oriented SERVICE-ORIENTED SEGMENT: A DRIVER FOR LONG-TERM CC PENETRATION Rapid growth in the long-term Widespread adoption expected in market-driven industries • Heated competition will stimulate CC usage in mass-market industries • WTO will not only lift various local protectionism, but also introduce global competition • Current over-capacity situation won’t alleviate for the next several years • Therefore, service will be more and more important to create differentiation • With better market environment, consumers are educated to appreciate service • WTO will introduce world-level service concepts, including call center, to China Total non-paging CC seats (’000) Total CC seats Service-oriented 337 132 50% 50 42% 10 24% 26% Year Source: Interviews; online research; expert opinions; BCG analysis

  29. Service-oriented MORE INDUSTRIES ARE LIKELY TO ADOPT CC OVERTIME CC Adoption Area High Home appliance Horizontal will extend overtime Automotive Retailing Computer Petrochemical FMCG(1) Mobile Distribution Taxi Textile Securities Competition intensity General Technology Machinery Broadcasting/TV Aviation Entertainment Publication Chemical Government Health care Moderate Low High Importance of service Horizontal will extend overtime (1) Fast-moving consumer goods Source: Interviews; literature research summaries; BCG analysis

  30. Service-oriented COMPANIES QUITE SELECTIVE ON CC USAGE Not blindly chasing after high-end solutions Integrating call centers with its core business practice Interviews summary Interviews summary % % Investment per seat (’000 RMB) Aftersales service Order taking Information service Telemarketing 10-70 Source: Interviews

  31. Service-oriented VERY CAUTIONS ON CC OUTSOURCING Price • “The price for outsourcing is too high now, for example, 95Info charges 15,000RMB/month (180,000RMB/year) per seat, most companies can not undertake it.” • Sales Manager, SIEMENS Information processing Quality Major concerns about outsourcing • “Our call center is mainly used to provide cross-department information for management, outsourcing call center might make the information processing losing control.” • Executive Officer Beijing, Guangdong Macro • “Chinese call center outsourcers have inadequate service mentality, we mostly worried about their service quality.” • Hot Line Supervisor, EPSON China Human resources Confidentiality • “Ordinary outsourcer’s agents can only handle simple questions. It requires experienced engineers to deal with complex problems.” • Hot Line Supervisor, EPSON China • “We once wanted to outsource management to 95Info, but sales data are secret to the company, so we gave up the outsourcing option.” • Call Center Vice -Manager, Founder Computer Their outsourcing possibility highly depends on outsourcers’ ability to satisfy their concerns Source: Interviews

  32. Generic service GENERIC SERVICE: A GENERALLY DECLINING SEGMENTConsists Mainly of Paging Services Declining paging service segment... … Because of strong substitution • Paging service market has been gradually eroded by widespread mobile and internet communication services • fulfilled pager’s message function, but being either more economical (internet communication), or more versatile (mobile phone) • paging customers will decline from 50 million in 1998 to 20 million in 2010 • Small-to-medium, non-scaleable paging companies are being squeezed out of business # of paging seats (’000) 1998 2000 2000 1736 2004 500 2010 200 Year # of companies Source: Interviews

  33. Backup Generic service GENERIC SERVICE DEFINED AS A CROSS OF INDUSTRIES AND FUNCTIONS Functionality • Message taking and delivering • Simple order taking • Standard telemarketing • Standard customer question answering • Standard value-added information service • Paging industry • TV/catalogue selling • Utilities collection Industry • “Secretary” services

  34. Generic service GENERIC CC USERS HAVE STRONG INCENTIVES TO OUTSOURCE Cost-effective for small CC users Resolved concerns • Satisfactory quality • Standard practice and trained agents • Trusted human resources • Professional agents, central recruited and trained, familiar with their jobs • No need for information processing • Little requirement on confidentiality TV selling example Cost (’000 RMB) per month per agent 10-12 Self-build(1) Outsourced (1) Assume 10 seats, and utilization 100% Source: CTI forum; BCG modeling

  35. AGENDA • Executive Summary • Call Center Business • Market Overview • CC Customer Segmentation • In-house users • Outsourcers • Demand • Customer • Economics • Competition • Recommendations • Success business model • Partnering strategy • E-Commerce Market Overview • TCI Tianjin • Current Situation Analysis • Recommendations

  36. Outsourcer Overview FOUR DISTINCTIVE TRAITS FOR CHINA’S CC OUTSOURCERSTraits for An Emerging Segment Just emerging High Geographic concentration # of outsourcers # of seats (’000) % Focus on generic services Many are losing money Interviews Summary Interviews Summary (%) (% of outsourcers) Source: Interviews; CTI forum; China Statistics Yearbook

  37. Outsourcer Demand DEMAND PROJECTION DEPENDENT ON A CYCLE OF FACTORS Wide variance in projection... …dependent on a group of factors Virtuous or vicious cycle? # of outsourcing seats (’000) Outsourcer’s Price Outsourcer’s professionalism 51.2 # of new customer trial Outsourcer’s service sophistication Customer satisfaction CAGR = 100% CAGR = 20% Outsourcing industry reputation Education effect to potential customers 6.6 CAGR = 20% It’s hard to tell whether the industry can establish its reputation or go underdeveloped, at the very beginning of its emergence

  38. Outsourcer Demand POSITIVE CUSTOMER EVOLUTION OBSERVED IN CHINA’S OUTSOURCING BUSINESS Outsourcing service sophistication Positive projections for future High • Historical trends showed increasing penetration into high-end business • China’s massive small-to-medium business constitutes good potential customer base • Massive un-exploited geography: outside top 3 cities • Good outsourcer will emerge with increased business, which will generate more business for the outsourcing industry After-sales service Order taking Simple telemarketing Negative projections for future • Customer’s negative thoughts about outsourcer’s quality haven’t changed • Professionalism will continue to be a headache for China service industry, including outsourcing • Low-end entry (paging companies) will ruin outsourcing industry’s pricing structure and make good outsourcer’s unprofitable “Secretary” service Paging service outsourcing for Hong Kong Low Time Before Recent 2 years We believe in the positive argument and project demand to grow at least 50% a year for the next 4 years

  39. Outsourcer Customers BALANCE BETWEEN LONG-TERM CLIENTS AND PERIODIC ASSIGNMENTS IS CRITICAL Long-term clients Periodic assignments • “Secretary” service • Order-taking • After-sales service • Value-added information • Others • Trust between company and customer • Training to agents • Good understanding of clients’ business • Smooth communication and feedback of important information • A monthly payment per agent seat • Telemarketing • Campaign/activity phone reception • Brand name in outsourcing industry • Trained agents and effective management • Information feedback • Reasonable price • Payment per call Job nature Customer requirement Compensation Long-term clients are most important to the profitability of an outsourcer

  40. Backup INTERVIEWED OUTSOURCER’S LONG-TERM CUSTOMER LIST Outsourcer Long-term client Outsourced business type Location Profitable? TCY Pfizer Pharmacy China After sales Beijing, Shanghai Deficit CCID Call Center China InfoWorld (Newspaper) Inbound service Beijing Deficit Channel Beyond Guangzhou Mobile After sales “Secretary” service Fee collection call out Guangzhou Profitable Highway & Bridge Fee collection call out Guangzhou Compaq Star COMPAQ After sales Shanghai Profitable NEC Mobile China After sales Shanghai China Motion China Mobile Management outsourcing N.A. Profitable Sun Micro Systems Simple question handling N.A. Vanke Community service Guangzhou Beijing Hongfan Beijing Telecom Messaging service Beijing Deficit 95 info Nokia After sales (mobile) Beijing Deficit 800 teleservice Motorola After sales (mobile) Shanghai N.A. ITS Pharmacy companies N.A. Shanghai Deficit

  41. Outsourcer Customers MULTINATIONALS NOT FULLY READY FOR OUTSOURCING There are little established outsourcers in the market to use • Multinationals need customer information to assist decision making • Especially important in info-scarce China • Confidentiality is also a big concern • Many multinationals don’t resort to outsourcers at parent company • Hard for China subsidiary to outsource Only a few multinationals outsourced their call center operations • A number of multinationals outsource their sales and service functions to focus on core capability • No need for call center

  42. Outsourcer Backup Customers OUTSOURCING SALES AND SERVICE HELPS MULTINATIONALS TO FOCUS ON CORE CAPABILITIES Sourcing Manufacturing Sales Service • Advanced product design • Technology • Financial muscle • Operational management • Manufacturing • Distribution network • Customer relationships • Local marketing • Facilities (land, house…) • Regulatory knowhow Multinational’s strengths • X • X • X • X • X • X • X • X • X • X • X • X • X • X • X • X • X • X • X Local company’s strengths • Example of multinationals outsourcing sales and service • Panasonic • Shanghai Volkswagen

  43. HIGH-END OUTSOURCERS ARE GENERALLY LOSING MONEY Profitability Outsourcer China Motion Hi profits Low profits Breakeven Low deficits Hi deficits Economics Cheng Bo Shenghua Compaq-Star Price/seat (RMB/month) CCID Hong Fan 95Info TCY ITS The key determinant: Utilization Source: Interviews; BCG analysis

  44. Outsourcer Economics UTILIZATION IS CRITICAL TO CC OUTSOURCER’S PROFITABILITYSimplified Model For a 100-seat call center High-end outsourcers Mid-end outsourcers Low-end outsourcers Money (‘000 RMB) Money (‘000 RMB) Money (‘000 RMB) (100%, 2340) (100%, 3120) (100%, 1560) (100%, 1954) (100%, 1424) (100%, 933) (0%, 1414) (0%, 884) (0%, 573) 55% 100% 50% 100% 48% 100% Utilization (%) Utilization (%) Utilization (%) Price RMB 80/hour RMB 60/hour RMB 40/hour Source: Interviews; literature research; expert inputs; BCG analysis

  45. Outsourcer Backup Economics A SUBTLE BALANCE AROUND UTILIZATION P&L Categories High-end Low-end Revenue Price per seat Cost Equipment investment Service level Human resources Training • RMB25,000/month or higher RMB200,000/seat Customized service • Customized software • Specially trained staff • Individual service line • Additional equipment High caliber agents • Multi-language • High education • RMB3000 above monthly salary Intensive training • Often take months before actual work RMB10,000/month RMB10,000~70,000/seat Standard service • Using existing facilities • No additional agent training Normal agents • No college education • RMB2,000 monthly salary Quick training • At most weeks How much are customers willing to pay? How much should outsourcers invest to obtain customer satisfaction? Game around utilization

  46. Outsourcer Competition LITTLE COMPETITION AMONG CURRENT CC OUTSOURCERS • Our interviews revealed that competition among current outsourcers are not significant • Only a limited number of players, each satisfied with several key customer accounts • A highly relationship-driven business, high barrier to make competitor’s clients switch • There are many promising opportunities not yet explored • Service requirements and industry specialties well differentiated • Entry barrier to non-CC operators is relatively high • Significant up-front investment • Scarce high-quality agents: training investment inevitable • Clients are hard to develop in a short time Current battlefield: How to make CC outsourcing accepted by companies

  47. Outsourcer Competition BUT HUGE AND DESPERATE POTENTIAL COMPETITORS AWAITING Paging industry shakeout inevitable CC considered a plausible transition A recent survey of 62 big paging Co. # of paging companies Plan to launch call center service in 2001 Plan to launch CC after 2001 No plan Already equipped for call center service Source: ChinaInfoBank; literature research; BCG analysis

  48. Outsourcer Competition PAGING COMPANIES ONLY SUITABLE TO TARGET LOW-END CC OUTSOURCING MARKET Paging’s Advantages Paging’s Disadvantages Implications Equipment • Able to leverage • trunk line • electronic transmission • Low-end computers and information processing systems • PBX may not have call-out function Paging companies, if transitioned to CC outsourcers, would be only suitable to target low-end market Agents • Already very experienced for standard call-in taking • Only trained and experienced for standard call-in taking • Usually lower-than-college level education Management • Management process highly streamlined for message delivering service • No flexibility and experience for other call center service Brand name • Well known brands among the public • Brand name associated to routine telephone service

  49. AGENDA • Executive Summary • Call Center Business • Market Overview • CC Customer Segmentation • In-house users • Outsourcers • Demand • Customer • Economics • Competition • Recommendations • Success business model • Partnering strategy • E-Commerce Market Overview • TCI Tianjin • Current Situation Analysis • Recommendations

  50. Not technically feasible Possible to be successful, too? Doomed failure Several successful examples observed ONLY LOW-PRICE/STANDARD SERVICE MODEL PROVED SUCCESSFULCurrent Situation, Takeaway from Interviews • High-end outsourcers hard to achieve breakeven • Difficult to persuade clients to accept a high price point • Little trust to these new names • Business not fully streamlined • software and high-end customer support not available • Most assignment periodic • Well-positioned, efficient low-end outsourcers can be very profitable • 70% or above business from long-term clients • Both equipment and human resources are easy and cheap to source Customize/High-end Service Level Standard/low-end High Low Price