IT Outsourcing Opportunities in US and China Shui Yee Lee, PhD., AT&T Fellow Chairman & CEO of YES Retired AT&T Vice President Commissioner of NJ Science & Technology Member of District Export Council May 18, 2006

IT Outsourcing Opportunities: Company Perception on Outsourcing Advantages and problems Outsourcing Business Opportunities Worldwide and US Industry Outsourcing Market Share Leaders Countries Example How to Position China be the Market Share Leader Improve Skill Sets Eliminate Language Barriers Job Opportunities in US and China

Company Perceptions On Outsourcing Perceived advantages Critical success factors Perceived problems Skills Staffing Quality level Cost reduction technical education Systems may not meet requirement Depth of skilled resources in most technology areas Language and communication barriers Level 5 CCM ratings Security and control Higher productivity, 24-hour global projects Concerns about potential social turmoil Work Environment High support and phone costs > 50% savings

Worldwide IT Outsourcing Revenues by Region, 2003 - 2008 ($M) IDC forecasts continued growth in the worldwide market for IT outsourcing, with a five-year CAGR from 2003 to 2008 of 6.8%. Regionally, EMEA shows the strongest growth, at 8% for the five-year forecast period, though it will be trailed closely by Asia/Pacific with a 7.7% growth rate for this same period. Essentially, all regions of the world are providing ample opportunities for outsourcers.

U. S. IT Outsourcing Revenues, 2003 - 2008 The United States remains the most mature market in the world for IT outsourcing spending, garnering approximately 43% of the worldwide market in 2003. As Table 4 highlights, IDC estimates that the five-year CAGR for the U.S. IT outsourcing market will be 5.3%.

U.S. IT Outsourcing Spending Share by Vertical Industry, 2003 This chart highlights the fact that discrete manufacturing, banking, and government collectively held more than 45% of the total U.S. IT outsourcing market in 2003. As the forecast shows, these same industries will continue to dominate over the next five years. Source: IDC, 2004

Outsourcing Market Share Leaders by Countries India Brazil, Ireland, Canada, Israel Germany, Russia, China, Vietnam, Malaysia India hope to earn $50 billion from IT outsourcing alone by 2008

Example: Wipro’s Outsourcing development model (Revenue US $1 Example: Wipro’s Outsourcing development model (Revenue US $1.2B, Growth of employee : 500 – 55,000 < 10 years) Quality CMM Level 5, Six Sigma, ISO 9001, PCMM level 5 15,000+ employees trained in Six Sigma methodologies Processes Veloci-Q, iPat, K-Net, Cocoon People 66% university graduates, 29% hold masters, 5% Doctorates 4,000 consultants spread across North America, Europe and Japan 4,500 consultants continuously on the move Infrastructure 2,350,000+ sq. ft. of development facilities in 21 locations in India 8 near shore development centers Certified in BS 7799 (2002) security standards Offshore centers declared 'restricted access' Alliances 100+ alliances across products and services

Growth of China’s software and IT service market far outpaced the growth of global market CAGR Unit: $billion 03-07 Global IT Market Forecast 1122 Total 6.5% 1055 987 871 923 Hardware 5.3% Software 7.6% Service 7.1% CAGR Unit: $billion 03-07 China IT Market Forecast 44.4 Total 15.5% 39.2 34.1 29.4 Hardware 11% 25 Software 23.5% Service 26.3% Data source: IDC

China is well poised to be the next outsourcing center after India 95-02 China’s GDP grows at 7.9% annually vs. 5.5% for India 95-01 China’s IT investment is more than 3 times of India’s 95-02 China’s total scientists and engineers are more than 3 times of India’s In 2002 China’s IT infrastructure coverage far outpaced India’s Additional facts: China has over 350,000 science and engineers graduating each year, versus about 190,000 for India and 70,000 for the US. China’s software developer and engineer’s cost is about 1/8 of those in the US, and 15-20% less of those in India.

China’s outsourcing market share is small but it grows at much faster rate Global Outsourcing Market Share Global outsourcing market is growing at 29.2% Japan 10% Europe & rest 45% US In 2003, China gets 60% of its outsourcing revenue from Japan China’s outsourcing revenue will grow at 44.2% annually in the next 5 years China Outsourcing Revenue Break-down Rest 15% Japan 60% Europe 10% US Data source: IDC

How to Position China to be the Outsourcing Market Leader Improve Software Development Skill Project Management Requirement Engineering Project Estimation and CMMI process Large Systems Development & Systems Integration Practical Training Eliminate Language Barriers Control Customer Interfaces with Only Excellent English Speaking Resources Use Excellent English Speaking Resources to Perform Project Management Increase Number of English Speaking Employees on Projects Improve Communication Skill

‘Anyshore’ Delivery Solutions – Global Delivery Model – An Example US Client’s Staff 10% YES Offshore 60% Program Project Mgmt Architecture & Planning Software Development Systems Design Testing Production Support Maintenance 7 x 24 Coverage Help Desk User Specs. RFP Review Mgmt Funding Decisions Client’s Projects Feedback Status Change Requests Planning Report Review Meeting Document YES Onshore 30% Client Dev. Project Mgmt System Requirement Systems Migration & Planning Resource Planning VISA Admin. Training

IT Job Opportunities in US and China User Specifications, RFP and Review Program Management Architecture and Planning Systems Requirement Systems Migration and Planning System Integration and User Acceptance Testing Release Management In China Project Management Software Development and Design Testing Production Support and Help Desk Maintenance

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