1. Copyright © 2006 Accenture All Rights Reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture. C. Todd Withers, Vice President Accenture Greater China Global Outsourcing Trends & Current China Status

2. 2 Copyright © 2006 Accenture All Rights Reserved. Table of Content Global Outsourcing & Current China Status 1.Global Outsourcing Market Size & Trends 2.Global Industry Drivers 3.Increased Importance of Offshore Outsourcing 4.Current China Status 5.What Needs to be Done? 6.Where to From Here?

3. 3 Copyright © 2006 Accenture All Rights Reserved. Global Outsourcing Market Size & Trends –Global Companies are seeking Virtualisation of their core business support functions. Global Companies that have set up their own Shared Services will look to transfer the service delivery to a third party to realise next order sustainable benefits. –Indian Off shore pure plays, such as Infosys, Satyam and Wipro are now under great threat from MNC’s such as Accenture who have rapidly built scale and capability in low costs delivery locations. –Off shore Outsourcing deals are becoming more complex involving not only Applications Development and Maintenance, but also Business Process and Technology enabled Transformation. –The demand for business process knowledge is stretching the capabilities of the Indian Pure Plays, providing competitive advantage to MNC’s like Accenture who are industry leaders in BPO. –The absence of sustainable infrastructure, education levels and language skills outside the Indian Tier 1 cities are inhibiting Indian Pure Plays from satisfying the clients demands for “More for Less” –Clients are becoming increasingly concerned about the quality of service being provided by Off shore providers. The level of dissatisfaction increased between 2003 and 2005. The Global Market size for IS & BP Outsourcing will grow to $280 billion USD by 2010, but not all the current participants will survive.

4. 4 Copyright © 2006 Accenture All Rights Reserved. The inter relationship between IS & BP Outsourcing will become critical. Strategic Value Tactical Value Conventional Delivery Custom Solutions 1:1 Client-specific Delivery Netsourcing Delivery Standard Solutions 1:N Remote Delivery Service Lines Industries Business Transformation Outsourcing Business Process Outsourcing Business Service Provider Business Processes Application Service Provider Application Management Business Applications Information Technology Outsourcing Managed Hosting Technology Infrastructure Only services providers with scale, presence and capability in both domains will experience sustainable success.

5. 5 Copyright © 2006 Accenture All Rights Reserved. Global Industry Drivers –Use of Sourcing advisory firms such as TPI, Everest, Gartner and EquaTerra has increased in the last 3 years – Outsourcing Deal constructs are becoming more complex and increasingly focus on Strategic outcomes –Best of Breed Deal structures will become more commonplace –Clients are only wanting to engage with Vendors that have a demonstrable track record –Clients are expecting Transformational capability as part of the delivery mix –Clients view Global Sourcing as a “the norm” for successful large scale Outsourcing arrangements –Clients are seeking robust and mature industrialised service models and methods from Vendors –Flexibility in Outsourcing arrangements is becoming increasingly important –Clients want to exploit 1 to Many service platforms so that they can exploit scale advantages. Customers are becoming more sophisticated everyday in developing their Sourcing Strategies

6. 6 Copyright © 2006 Accenture All Rights Reserved. Increased Importance Of Off Shore Outsourcing –Organisations, particularly Multi Nationals (MNC’s) are engaging Strategic Sourcing Advisors to assist them to: Develop Global Sourcing Strategies Exploit the Off Shore Outsourcing benefits of labor arbitrage and labor competition Manage the On Shore employment issues Develop Contract and Global Resource Management skills Evolve Sourcing Strategies from a focus on costs to a focus on value –Global Companies see Off Shore Outsourcing as a key strategic initiative as it will secure: Access to World’s Best Practice Reduce demands of Capital Allow scarce leadership talent to focus on the Core Business Reduce product time to market Increase the Company’s business agility Enhance business support certainty and reduce Business Continuity Risks. Off Shore Outsourcing will becoming an even more significant component of Organisations IT and Business Process capabilities over the next 5 years

7. 7 Copyright © 2006 Accenture All Rights Reserved. Current China Status China has the potential to be the Prime Global Outsourcing Location in the next 5 – 10 Years. However, there is mixed views across the analyst community. For China to emerge as a leading player it must address some fundamental issues. –Encourage the growth of the domestic Outsourcing market as a sustainable base for China Outsourcing businesses –Aggressively drive the Action Plan on IPR Protection 2006, this is a critical issue for MNC’s –Stabilise Entity Ownership in the Services Sector of the economy –Develop a greater understanding of Western Legal frameworks, constructs and behaviours –Recognise that Scale will be an increasingly important factor in being selected to provide Global Outsourcing services. India has Outsourcing firms that have 35,000 employees and China does not have any Outsourcing firms that are close to that scale. –Robust Processes and Quality have become the mainstay of Indian and MNC Services firms, most of who are CMM certified. China has only a few firms that are certified. –The development and retention of experienced middle managers is a vulnerability that plagues most Off shore Outsourcing locations, this is a particular issue for China. Clients insist on Vendors having stable and capable leadership.

8. 8 Copyright © 2006 Accenture All Rights Reserved. The growth in the BPO market will be driven by strong demand for ‘customer care’ services. Projected Market size China’s BPO Forecast US$M Source: IDC Asia Pacific BPO 2005-2009 Forecast and Analysis China’s customer care market is forecast to grow at 36.5% CAGR. This is much higher than the 26.5% growth rate for the entire region HR BPO covers payroll, benefits and staffing. Training BPO covers both technical training (eg engineering skill training) and soft skills training (eg leadership development). F&A BPO covers accounts payable and receivables, accounting, cash mgmt, auditing tax and finance. Customer care BPO covers the outsourcing of functions such as call centres, customer analytics, fulfilment and technical support related to running a call centre within a company. $539 $675 $877 $1174 $1599 $2229 Chinese Business are starting to recognise the importance of World Class Back Office capability

9. 9 Copyright © 2006 Accenture All Rights Reserved. What Needs to be Done? China must develop an Agenda that exploits its inherent competitive advantages and mitigates its vulnerabilities. –Develop a workforce with English language skills if it is to service Multi National Companies. Today, India has a clear advantage in this area –Stable Entity Ownership is fundamental to ensuring that MNC’s can have confidence in the level of investment likely to occur and will reduce the risk of Service Contract termination due to change of Ownership. –Encourage Service Industry collaboration and consolidation to drive scale and capability growth –Exploit the significant investment made over the last 10 years in infrastructure in China by continuing to promote Tier 2 cities such as Xi-an & Chengdu as Off Shore location. This will also assist to reduce the impact of high resource attrition levels as they are typically lower in Tier 2 cities. This is significant competitive advantage for China. China invests 20% of GDP in Infrastructure while India only invests 6%. –Encourage Local Outsourcing participants & aspirants to collaborate with MNC organisations to enhance their capability offerings and differentiate them from the India Pure Plays. This will prove to be a major competitive advantage for China. India Outsourcing Pure Plays are experiencing strong competition in their core business and are struggling to move up the value chain

10. 10 Copyright © 2006 Accenture All Rights Reserved. Where to from here? China needs to develop and follow a Strategic agenda of rapid change if it is to realise it’s potential in the Global Outsourcing market place. –The Strategy should ensure that it recognises and defines tactical initiatives to address the following important facts: China’s Global Outsourcing Vendors & aspirants need to secure China to China outsourcing deals to develop scale & credentials China’s Global Outsourcing aspirants need a knowledge of regulatory and compliance requirements such as, Sarbanes Oxley and GAAP practices employed in US & other Western Countries Quality and Capability Certification has to become an industry wide initiative Global Outsourcing Vendors and aspirants must acquire an appreciation of Western Sourcing and Contracting frameworks Global Outsourcing Vendors and aspirant must have the capacity to evolve their Offerings from a single vertical, such as IT outsourcing to multi tower such as Human Resource Management, Finance & Accounting and Procurement.