1. January 27, 2009 Session VI: Information Technology and the IT-Enabled Services Industry: Relevance to Emerging Markets Johan Gott, A.T. Kearney johan.gott@atkearney.com

2. 2 Agenda What continuing opportunities for developing countries to increase incomes, expand employment and participate in the knowledge economy are offered by the global nature of the IT and IT-ES industries? What does this industry mean at the macro level for a nation, and how can developing countries benefit from the opportunities in this sector to achieve sustainable and inclusive growth? Does every developing country have an equal opportunity to develop an IT/ITES cluster? Or is this phenomenon confined to BRICs? To MICs? Given that the BRIC countries themselves represent different stages and different paths to creating an IT/ITES industry, what lessons can be learned from their examples, to develop policy and investment advice? What type of support does the private sector need to develop and thrive in the ITES, and what types of policies will create the necessary enabling environment? Key questions to guide the session

3. 3 The offshoring industry can have a dramatic effect on employment in developing countries Source:NASSCOM, A.T. Kearney Indian IT/BPO industry, employment contribution by sector, 1,000 jobs

4. 4 The export potential of the offshoring industry is significant Egypt export revenue growth 2005-2010, compounded annual growth rate * Note: 2010 numbers are estimates Source:Economist Intelligence Unit, IMF, A.T. Kearney

5. 5 Some of the factors benefitting economic development are obvious, others less Boost to national export revenues Growing government tax receipts from corporate profits and employee salaries Increase in employment levels Rise in secondary employment International best practice knowledge transfer Focus on education quality and reform Incentives to improve business environment Increased visibility for countries among MNCs Heightened focus and investment in ICT for broader population Facilitates transition to services based economy Rise of income levels Implementation of international standards and certifications Creation of downstream employment Education premium is pushed upwards Opportunities for diaspora to return to home country Immediate benefitsLong term benefitsMedium term benefits Societal benefits from ITES export industry Illustrative Source:A.T. Kearney

6. 6 Not every country has an equal opportunity, but every country has an opportunity Source:A.T. Kearney Global Services Location Index 2007 A.T. Kearney Global Services Location Index 2007 Ranks 1-25Ranks 26-50 EnvironmentFinancialPeopleCountry score:

7. 7 The industry playing field is global and in constant development Increasingly, American companies focus on Latin America. Mexico, Chile and Argentina are starting to compete with India for offshore work. Advantages are similar time zones and easier management Americas Near shoring to Latin America EMEA A shift to the east and south Asia New countries compete Canada South America South Africa East Europe & Middle East Czech, Hungary & Poland Ireland & Scotland India Philippines China has become a base for companies’ Asian contact center needs, including Chinese and Japanese language. Singapore is establishing itself as a disaster recovery site for critical functions. Established players Poland, Czech Republic and Hungary are increasingly getting competition from lower cost competitors in Eastern Europe and Middle East Mexico & Central America Emerging offshore locations Established offshore locations Singapore Vietnam China Source:A.T. Kearney

8. 8 Using the experience of the so-called BRIC countries as an example, the success factors that drives the industry can be studied CountryStrengthsWeaknessesValue proposition Brazil Strong indigenous IT sector Large labor force Strong universities Relatively high costs Lack of relevant language skills Good choice for outsourced IT services, relying on domestic supplier base Russia Pockets of world class science and engineering talent Unpredictable business environment Deteriorating education system High costs Demographic crisis Competitive in high end KPO, e.g. aerospace engineering India Unique combination of low costs and English speaking talent pool High quality education Strong domestic supplier base Unprecedented experience Adoption of certifications High employee turnover Rapid wage inflation Geopolitical instability Corporate governance? Best all-round location without any serious competition. Competitive throughout the entire scale, from the full spectrum of IT, to low end BPO, to contact centers, to high value add KPO services China Massive and growing pool of graduates Low cost Large and growing domestic market Lack of foreign language capabilities Intellectual property rights Shortage of skilled managers Today competitive in IT, or BPO for Asia-Pacific region. Great potential as a competitor to India but lack of language skills and experience is holding it back Source:A.T. Kearney

9. 9 It is imperative that the government meets a few conditions to enable an offshoring industry to develop Essential conditions for industry Education Like in any service industry, skilled people is the most important commodity A good quality education system is essential A relevant curriculum is important as well as development of soft skills In all countries with a healthy industry, the industry cannot get enough talented people Infrastructure The revolution in the telecom infrastructure enabled the offshore industry Affordability and bandwidth are key concerns The reliability of the system is equally important Air and road infrastructure is important, not for goods, but for movement of people Business environment For MNC and export customers, stability is key Government needs to ensure that the operating environment is safe and conducive for companies to operate Offshoring operations are especially sensitive to business continuity concerns and thus the environment must be stable Source:A.T. Kearney

10. 10 Sector investment promotion Marketing of country offering Providing relevant information Investor support and care Ensure availability of real estate Incentives Etc… Sector export promotion Start-up assistance Marketing of domestic industry Provide shared services Encourage industry cooperation Training to effectively compete Etc… Common policies Listen to industry Clear regulatory hurdles Labor force training to develop soft skills and managerial talent Etc… To proactively support a national ITES export sector, a mix of investment and export promotion policies can be employed Objective: government support of ITES export industry Goal: a strong and viable ITES export industry Proactive industry development Illustrative Source:A.T. Kearney

11. 11 In summary, the ITES export sector is a positive force for development and open to a broad range of countries The ITES export industry is a positive force for economic growth and sustainable development Offshoring is not only for large emerging markets or already developed economies – most countries can find its niche in the global industry Each country is unique and has its own particular assets that it can leverage to be successful in the international competition. However, each country also has its own challenges that it needs to address To support an ITES export industry, policy makers need to focus on education, connectivity, and business environment and then apply a mix of investment promotion and export promotion policies Summary