1. Experience Excellence,Experience Philippines The Philippine IT-BPO Industry Jonathan Defensor De Luzuriaga Executive Director Industry Affairs Business Processing AssociationPhilippines

2.

Business Process Outsourcing

Voice

Non-Voice (F&A, , HR)

IT Services Outsourcing

Software Development

IT and Data Center Operations

IT Infrastructure

www.bpap.org

Engineering and Design

Services Outsourcing

Engineering Design

Architecture Design

3. O&O market USD billions Source: Team analysis~45 2005 ~130 2010 CAGR +24% Addressable market Actual penetrated market ~450 10% ~30% 30 4. Philippine IT-BPO industry currently has overUSD 6 billion in revenues Source: Team analysis1.5 2004 6.1 2008 42% 299,168 2004 371,965 2008 39% 285 Direct employmentFTEs RevenuesUSD billions

• Strong intrinsic skills

• • English language

• • Cultural affinity to US

• • GAAP familiarity

• Competitive factor costs

• • Labor

• • Real estate

• • Telecom

• Best in class incentives

5. Philippine IT-BPO: Growing All SectorsSource: Joint BPAP/BOI/PEZA/CICT Task Force Sector 2007 Revenues ($000,000) Past 3 years Ave growth Contact Centre 3,600 52 Back Office (non-voice BPO) 398 46 Transcription (non-voice BPO) 197 24 Animation 105 38 Software 423 35 Engineering/Design Process 152 55 TOTAL Philippine IT-BPO(export only) 4,875 50 6. * Contains multiple countries Source:Duke University/Booz Allen Offshoring Research Network 2006 survey Percentage of firms citing offshore location of choice China EasternEurope* OtherAsia* 18 Others* 21 India 19 Philippines 14 LatinAmerica* ITO ESO 13 45 12 49 13 45 19 12 BPO Back office Call center 5 2007Outsourcing Destination of the Year National Outsourcing Assoc, UK# 2 # 2 7. 8. Cost to employer index across average of 7 occupations, 2005/06, Index, US = 100 IndiaPhilip-pinesChinaMala-ysiaMexicoChilePolandHun-garyBrazilCzech Repu-blic RussiaCan-adaUS JapanIrelandUK Ger-many

• Labor index was created based on average cost to employer on an hourly basis relative to the US for 7 occupations

• Cost to employer includes wage, bonus, and benefits

• Despite many changes, the top 5 low cost countries remain the same

Source: McKinsey Global Institute; Watson Wyatt 2005/06 report 9. Source:www.infodev.org/en/Publication.170.html (copyright: World Bank)/ZDNet Asia 2007 The Philippine Talent Value Proposition:Cost CompetitivenessBPO Sector Average Entry-Level Salaries (in $/year) South Africa 19,764 Mexico 18,653 China 5,680 Egypt 4,237 India 3,911 Philippines 3,858 IT Professionals Annual Average Salary (US$) Hong Kong 51,964 Singapore 41,601 Malaysia 16,696 India 14,702 Indonesia 11,231 Philippines 10,730 10. Of 100 graduates with the correct degree, how many would you employ if you had demand for all? Per cent Engineer Countries* Mexico is the only country where interview results (higher number) were adjusted ex-post since interview base was thinnerSource: Interviews with HR managers; HR agencies and Heads of Global Resourcing centers; McKinsey Global Institute Asia Latin AmericaEastern EuropeSuitability rates are empirically based on a total of >80 interviews with HR professionals working in each country 42* 35* Finance/accountingGeneralistChina Philippines India Malaysia Brazil Mexico Russia Czech Republic Poland Hungary 11. Source:Phils Comon Higher Education : CIA World Factbook 2007; *China data for unemp and literacy is major Cities only Suitability rates are empirically based on a total of >80 interviews with HR professionals working in each country

Abundant labor force of 36 million

Over 400,000 college graduates per year

Large pool of accounting and business graduates

English proficiency

Affinity with Western culture

Customer service orientation

Highly trainable

Cost effective

High level of commitment and loyalty

Number of college degree graduates2007 Annual growth Business & Accountancy 128,000 Engineering & Tech 55,752 IT-related courses 42,047 Architecture 3,100 Medical Sciences 31,400 Fine Arts/Humanities 7,660 TOTAL Tertiary level454,818 3.8% Pop Labour force Unemp rate Literacy World 6,602M 3,400M 6.3% 82.0% India 1,130M 509M 7.8% 61.0% China 1,322M 798M 4.2%* 90.9%* Brazil 190M 96M 9.6% 88.6% Philippines 90M 36M 7.9% 92.6% 12.

• Voice services

• Data transcription

• Simple back-office processes

• Customer care surrounding voice

• Higher-value processes, e.g., F&A, HR

• Pharma, Healthcare

• New service lines (e.g., design, tactical CRM)

• Joint-service companies

• IT-BPO bundling

Build reputation for operational excellence, business model innovation Consolidate position in voice, develop position in adjacencies,natural affinitiesLeverage intrinsic strengths, establish capabilities Building blocks Talent Cost BusinessEnvironment RiskManagement Infrastructure 13. Presence of Dedicated IT Parks Right in the Center of Business Districts McKinley Hill Taguig The Philippine Workplace Infrastructure Proposition:IT-BPO designed, reliable infrastructure Northgate Cyberzone Muntinlupa City RCBC Plaza, Makati City Bonifacio Technology Center, Taguig City Eastwood City Cyberpark Quezon City PBCom Tower Makati City METRO MANILA 14.

Friendly people

Value-for-money housing

Modern recreational facilities

First-rate educational institutions

• Presence of International schools Presence of International schools (e.g. Brent School, International School Manila, British School)

A growing favorite tourist destination

• 8.7% increase in tourist arrivals (3.09 million)

• 41% increase in tourist spending

Expatriatestop choice for quality of life HOSPITABLE LIFESTYLE 15.

Frost & Sullivan , August 2007: Philippines among top 10 shared services andoutsourcing locations in the world

• The Philippines has a significant and growing position in the technology vertical; it has an emerging presence in finance and insurance and in entertainment ; it has a stable no. 6 position in transportation and logistics ; and is 9 thin the world in the healthcare industry. The Philippines is one of the 3 most-preferred locations for SSO operations for the energy vertical where it is ranked as the most cost-efficient in the world; the country has a high standard of infrastructure quality at a lower cost due to its liberalized telecommunications industry

IMF , March 2007: The Philippines has established a strong presence in voice-based BPO sectors such as call centers, and there are also signs of growth potential in other offshore services, such as medical transcription and animation.

• The Philippines is an attractive outsourcing destination. According to some business attractiveness surveys, the country is highly ranked as an outsourcing location, compared with other key destinations.

ADB , March 2007: The Philippines is comparable to or even fares better than other emerging BPO providers in areas such as quality and cost of labor and certain infrastructure costs

• The Philippine BPO sector is expected to experience high growth because it has been marked by a steady flow of investments, especially in the contact centers.

Nomura Securities , November 2007: We think that the Philippines has grown into theNo. 2 outsourcing base after India in call centerbased BPO fields.

The Philippines is viewed as a Favorable Location for IT-BPO Services 16. Philippine IT-BPO: Prospects for Growth

Frontier Strategy Group , September 2007: The Philippines is among seven key markets that are above the rest and are the most critical to achieving corporate growth and outperforming the competition in 2008 and beyond

• Survey of 100 MNC executives in emerging markets: 85% say that the Philippines is among the top 4 emerging markets in the Asia-Pacific region that they are most interested in expanding into

National Outsourcing Association (UK),October 2007: Philippines awarded Offshoring Destination for 2007

FBR Research , October 2007: Philippines Poised for Several More Years of Hyper Growth

Diamond Consultants , December 2007: The Philippines ranked # 3 behind India and the US in the current location strategy of BPO providers

FBR Capital Markets2008: We believe that the Philippines has been validated as the location of choice for B-to-C contact centre work

2007 Offshoring Destination of the Year -Philippines 17. Our Goals MARKET SHARE HEADCOUNT REVENUES 18. The Challenge

• Funding

• Ownership

• Authorship

• Leadership and follow-through

19. The Action

• Thought Leaders - meeting of the minds

• Major stakeholders raising the ante

• Creating the work team

• Creating the strawman and signing up the rest of the stakeholders

• Getting to work

20. Note: GDP estimates are at 2005 prices and PHP 46.30 (May 07) forex. Source: NSCB Economic Accounts; NEDA-MTDP; team analysis Exports USD billions Employment creation Million jobs 98% 2% 117.0 2005 92% 8% 163.0 2010 100% = 95% 5% 47.5 2005 85% 15% 84.3 2010 100% = GDP USD billions BPO estimated tocontribute 8% of total Philippine GDP by 2010, higher than the current share of finance, real estate, or transportation and communication Industrys five year 40% CAGR to outstrip 12% average for exports Industry to provide one of every ten jobs created in the Philippines in the next 3-4 years 94% 6% 2.4 2005-06 90% 10% 6.8 2007-10 100% = PRELIMINARY 10 Others IT-BPO 21. Source: Team analysisKey issues Suitable and abundant talent Operational performance Quality infrastructure Conducivebusinessenvironment

• Need to recruit over one million new people into the industry to reach 10% market share

• High percent of top talent in emerging areas outbound to other markets (e.g., nurses, engineering, accountants)

• Mismatch in location density between providers and labor. Smaller labor pools not tapped

• Wage pressures emerging, reflecting accelerating growth and lack of transparency on wages

• Competitiveness relative to established players (e.g., India) and emerging players (e.g., Vietnam) at-risk

• Wage appear to be growing faster than billing rates, creating imperatives for operational excellence, scale and migration to high value services

• Availability emerging as major issue

• • NCR rental space only available to reach 68% of revenue target

• • Given market uncertainty, facilities being built only on commitment, slowing time-to-market

• Rental rates rising sharply in Makati Central Business District

• Need to ensure that current incentive regime continues to sustain competitiveness

• Most locators concentrated in NCR; other cities may not be O&O-ready

• Under resourced industry association

• Good investor support in pre-investment phase; potential to improve in execution phase

• Persistent issues around critical risk factors that affect outsourcing decision (e.g., IP protection, data privacy)

Risk management NEXT WAVECITIES BUSINESS ENVIRONMENT TALENT TEAM2010 22. Potential Labor Pool TALENT 23. * Non-traditional pools include college drop-outs with less that two years tertiary education, high school graduates who do not enroll In college, housewives, and retirees ** PPS: Percentage points Source: CHED; MGI; BPAP; NSCB; ADB Statistical Database; interviews; team analysis ESTIMATES Estimated impact (2007-10) Thousand FTEs Thematic program Develop comprehensive assessment and training program

• Tertiary degree graduates

• Drop-outs with minimum two years tertiary education

Affected talent pools Improve awarenessof career opportunities in IT-BPO

• Tertiary degree graduates

• Drop-outs with minimum 2 years tertiary education

• Career shifters

Tap alternative talent pools

• Non-traditional pools*

• Non-NCR graduates

Improve ability to fund

• Drop-outs with less than 2 years tertiary education

• High school graduates who do not enroll in college

Focus on responsive curriculum changes

• High school graduates

• Total

Short-term Low-end FTE impact High-end FTE impact Long-term 30 100 210 10 30 150 20 40 10 30 560 290 TALENT 24. Source: Team analysis Information Services BPAP Inventory BPAP city scorecard Case studies NEXT WAVECITIES

City readiness

• Which cities are ready?

• What are the gaps?

• Where is specific expertise?

• Penetration

• Who is operating here today?

• What activities do they undertake?

• Where are they located?

• How many FTEs?

Segment readiness

• How have various slivers fared in the Philippines?

• Which slivers have natural fit for the Philippines, i.e., growth prospects?

Topics

• Investors/locators

• Real estate developers

• Utility providers

• Colleges and universities

• National government

• LGU's

• Others

Information demands 25. Davao Metro Cebu Iloilo Metro Manila Naga Baguio Bacoor Bacolod Cagayan de Oro Santa Rosa Legazpi Zamboanga Tacloban *Super cities have >15,000 IT-BPO workers; large cities have a potential capacity of 10,000 15,000, mid-sized cities 5,000 10,000; another 20-plus cities offer a potential capacity of