ENTRY FOR PROFIT TRANS-COSMOS INC. CHINA ENTRY STRATEGY PRESENTATION

1
ENTRY FOR PROFITTRANS-COSMOS INC. CHINA ENTRY
STRATEGY PRESENTATION

• February 8, 2001

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

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

4
CHINA IS BECOMING A HIGHLY DYNAMIC CC MARKET

• Chinas 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 players performance and
  strategies
• Potential customers concerned about quality,
  confidentiality, information processing ability,
  HR, and price
• Growth will fluctuate widely according to the
  industrys 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 Chinas pending WTO Entry and continued
  economic growth, we believe its 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 TCIs tight schedule, a broader search
  can strengthen TCIs 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 TCIs 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 TCIs
  further interest
• ICP 51job.com Stockstar.com Alibaba.com
  Dangdang.com
• 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 TCIs 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 TCIs 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

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
COMMERCIAL CC TOOK OFF SINCE 1998Especially in
Non-Paging Service Sector
Higher telecom penetration
Penetration ()
CAGR
Fixed line Mobile
37 83
Growing awareness of technology
Gradually reduced telecom fee
Year
Long distance (RMB/min)
Internet users (mio)
E-Commerce revenue (USM)
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)

• Illustration

• 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 users 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
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
Year
1998
99
2000
01
04
10
Deflated telecom fee index
Source US Telephone Statistics Datamonitor
MII data China Statistics Yearbook
15
REDUCING TELECOM CHARGES WILL BOOST FIXED-LINE
ADOPTION
Backup
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 Co
urier 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. Its 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

19
CHINA CC USER BASE VERY DIFFERENT FROM U.S.
Others Outsourcing

• Selected industry explanation

Others Outsourcing Transport Healthcare Utili
ties 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, its 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

Manufacturing Post service
Insurance Banking Mobile Fixed-l
ine 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

• Selected industry examples

Generic service
High
Outsourcing
TV selling
Service-oriented
Messaging
Travel
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
THREE CRITERIA TO DISTINGUISH CORE AND NON-CORE
AREA
Backup
Call Centers 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
MANAGEMENT AND OWNERSHIP STRUCTURE AFFECT
WILLINGNESS TO OUTSOURCE
Backup
Considerations
Reasons
Less willing
More willing
Ownership structure Company
size Competition Management
sophistication

• 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

SOE(1) Large Monopolized
industry Poorly managed
Privately owned foreign invested Small-to-med
ium Market-driven, competing industry Well
managed
(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

24
ADMIN-DRIVEN SEGMENT MOST IMPORTANT FOR NOW
Admin-driven
High in total new CC demand
Driven by Pillar industries

• Demand surged in a group of Chinas 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
HOWEVER DEMAND EXPECTED TO FLUCTUATE IN THE FUTURE
Admin-driven
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
UNIQUE THREE-TIER DECISION MAKING PROCESSSystem
Integrators Should Put Efforts to All
Admin-driven
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 branchs requirements

SI should pay attention to Ministrys 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
companys selection
Provincial/regional branches
27
OUTSOURCING ALMOST NEVER AN OPTION FOR
ADMIN-DRIVEN COMPANIES
Admin-driven

• 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 dont 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 Companys
  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)
• Guangzhous business practice is more liberal
  than rest of China

28
SERVICE-ORIENTED SEGMENT A DRIVER FOR LONG-TERM
CC PENETRATION
Service-oriented
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 wont 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
MORE INDUSTRIES ARE LIKELY TO ADOPT CC OVERTIME
Service-oriented
CC Adoption Area
High
Home appliance
Automotive
Horizontal will extend overtime
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
COMPANIES QUITE SELECTIVE ON CC USAGE
Service-oriented
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
VERY CAUTIONS ON CC OUTSOURCING
Service-oriented
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 outsourcers 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 A GENERALLY DECLINING
SEGMENTConsists Mainly of Paging Services
Generic service
Declining paging service segment...
Because of strong substitution

• Paging service market has been gradually eroded
  by widespread mobile and internet communication
  services
• fulfilled pagers 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)
Year
1998 2000
2000 1736
2004 500
2010 200
of companies
Source Interviews
33
GENERIC SERVICE DEFINED AS A CROSS OF INDUSTRIES
AND FUNCTIONS
Generic service
Backup
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 CC USERS HAVE STRONG INCENTIVES TO
OUTSOURCE
Generic service
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

36
FOUR DISTINCTIVE TRAITS FOR CHINAS CC
OUTSOURCERSTraits for An Emerging Segment
Outsourcer
Overview
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
DEMAND PROJECTION DEPENDENT ON A CYCLE OF FACTORS
Outsourcer
Demand
Wide variance in projection...
dependent on a group of factors
Virtuous or vicious cycle?
of outsourcing seats (000)
Outsourcers Price
Outsourcers professionalism
51.2
Customer satisfaction
Outsourcers service sophistication
of new customer trial
CAGR 100
CAGR 20
Outsourcing industry reputation
Education effect to potential customers
6.6
CAGR 20
Its hard to tell whether the industry can
establish its reputation or go underdeveloped, at
the very beginning of its emergence
38
POSITIVE CUSTOMER EVOLUTION OBSERVED IN CHINAS
OUTSOURCING BUSINESS
Outsourcer
Demand
Outsourcing service sophistication
Positive projections for future
High

• Historical trends showed increasing penetration
  into high-end business
• Chinas 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

• Customers negative thoughts about outsourcers
  quality havent changed
• Professionalism will continue to be a headache
  for China service industry, including outsourcing
• Low-end entry (paging companies) will ruin
  outsourcing industrys pricing structure and make
  good outsourcers 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
BALANCE BETWEEN LONG-TERM CLIENTS AND PERIODIC
ASSIGNMENTS IS CRITICAL
Outsourcer
Customers
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
INTERVIEWED OUTSOURCERS LONG-TERM CUSTOMER LIST
Backup
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
Guangzhou Mobile
Channel Beyond
Profitable
After sales Secretary service Fee collection
call out
Guangzhou
Highway Bridge
Fee collection call out
Guangzhou
COMPAQ
After sales
Shanghai
Compaq Star
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
MULTINATIONALS NOT FULLY READY FOR OUTSOURCING
Outsourcer
Customers
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 dont 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
OUTSOURCING SALES AND SERVICE HELPS
MULTINATIONALS TO FOCUS ON CORE CAPABILITIES
Outsourcer
Backup
Customers
Service
Sourcing
Manufacturing
Sales
Multinationals strengths

• Advanced product design
• Technology
• Financial muscle
• Operational management
• Manufacturing
• Distribution network
• Customer relationships
• Local marketing
• Facilities (land, house)
• Regulatory knowhow

• X
• X
• X

• X
• X
• X
• X
• X
• X
• X

• X
• X
• X
• X
• X

• X
• X
• X
• X

Local companys 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
UTILIZATION IS CRITICAL TO CC OUTSOURCERS
PROFITABILITYSimplified Model
Outsourcer
Economics
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 ()
RMB 80/hour
RMB 60/hour
RMB 40/hour
Price
Source Interviews literature research expert
inputs BCG analysis
45
A SUBTLE BALANCE AROUND UTILIZATION
Outsourcer
Backup
Economics
PL 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
• RMB10,00070,000/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
LITTLE COMPETITION AMONG CURRENT CC OUTSOURCERS
Outsourcer
Competition

• 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 competitors 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
BUT HUGE AND DESPERATE POTENTIAL COMPETITORS
AWAITING
Outsourcer
Competition
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
PAGING COMPANIES ONLY SUITABLE TO TARGET LOW-END
CC OUTSOURCING MARKET
Outsourcer
Competition
Pagings Advantages
Pagings Disadvantages
Implications

• Able to leverage
• trunk line
• electronic transmission

• Low-end computers and information processing
  systems
• PBX may not have call-out function

Equipment
Paging companies, if transitioned to CC
outsourcers, would be only suitable to target
low-end market

• Already very experienced for standard call-in
  taking

• Only trained and experienced for standard call-in
  taking
• Usually lower-than-college level education

Agents

• Management process highly streamlined for message
  delivering service

• No flexibility and experience for other call
  center service

Management

• Well known brands among the public

• Brand name associated to routine telephone service

Brand name
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

50
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
51
SUCCESSFUL HIGH-END MODEL WILL EMERGE IN A FEW
YEARSWiseways Belief

• Long-term clients are most important for high-end
  CC outsourcers success
• Periodic assignment demand is inherently
  unstable, and demand fluctuation will worsen
  utility rate
• Current high-end CC outsourcers lack long-term
  clients
• Strong long-term client commitments give
  outsourcers credibility for other call center
  assignments
• Prestigious long-term clients are beginning to
  commit to high-end outsourcers
• 95Infos deal with Nokia in Beijing
• 800 Teleservicess deal with Motorola in Shanghai
• There are clear directions for high-end
  outsourcers to be profitable
• Establish long-term client base
• for a medium-sized call center, 12 long-term
  clients can turn it into profits
• Identify potential areas for CC outsourcing

52
HIGH-END OUTSOURCERS CAN DEVELOP BUSINESS ALONG
TWO DIMENSIONS
Since its a new industry, there are plenty rooms
for expansion
Establish long-term client base Build
relationship through periodic assignments Invite
clients equity investment Provide one-stop
shopping Serve overseas market Leverage existing
relationship
1
2
Customer penetration
3
4
Target various outsourcing opportunities along
the value chain Breakdown value chains to find
out promising outsourcing opportunities
5
5
Business penetration
53
FIVE SUCCESSFUL STRATEGIES TO WIN LONG-TERM
CLIENTS...
Building relationship through periodic
assignments
1

• Outsourcers contact clients first for periodic
  assignments, such as telemarketing or promotion
  call reception, and sell long-term assignments
  when trust and relationships are built
• Example Guangzhou China Motion vs PG

Invite clients equity investment
Provide one-stop shopping
2
3

• Outsourcers ask an important client to make
  equity investment, in order to lock in the
  relationship and establish needed trust
• Example Compaq-Star

• Outsourcers also provide, or have alliances to
  provide, other services that are compatible to
  call center service. So customers can get all
  they need from one company
• Example Guangzhou Channel Beyond

Strategies proved successful
Leverage existing relationship
Serve overseas market
4
5

• Outsourcers develop domestic multinationals
  clients leveraging overseas relationship
• Example 800Teleservice v.s. Motorola

• Outsourcers provide low-cost services to Hong
  Kong, Taiwan or other overseas clients by
  leveraging low-cost agents and language ability
  in China
• Example Guangzhou Shenghua

54
EACH WITH ITS UNIQUE ADVANTAGES AND
DISADVANTAGES
Cons
Pros

• Lowered entry barrier into potential clients
• Easier to build relationship and mutual trust

• Time consuming
• Periodic assignments might not necessarily turn
  to long-term commitment
• example Good telemarketing work for marketing
  dept. might not grant outsourcers opportunity at
  after sales service area

Building relationship through periodic assignments
1

• Lock-in relationships
• Shared risks

• Controlled by clients
• Limited opportunities for other clients
• restrained growth

Invite clients equity investment
2

• Increased customer satisfaction
• Stronger advantages against all competitors at
  one-stop area

• Strengths restrained in one particular area
• Difficult to extend business to other areas

Provide one-stop shopping
3

• Profitable business
• Stable client relationship once obtained

• Competition
• Generally low-end services
• clients only pursue low-cost
• Difficult to acquire overseas clients

Serve overseas market
4

• Monopolized client base
• Familiar service standard
• Leverageable software and management

• Not a lot
• Bad service in China might deteriorate
  corporates relationship to the outsourcer

Leverage existing relationship
5
55
OUTSOURCING MOST PROMISING FOR TELEMARKETING AND
VALUE-ADDED INFORMATION SERVICES
Potential Call Center Adoption Areas
Manu- facturing
After-sales service
Sales
Sourcing
Supplier mgmt.
Value-added information service
Trouble-shooting
Complaint handling
Inquiry handling
Order taking
Ordering
Tele- marketing
Concerns
Service quality
Industry knowledge
Information processing
Confidentiality
Most promising
Most promising
56
OUTSOURCING OPPORTUNITIES FOR SELECTED INDUSTRIES
(I)Value Chain Breakdown for Sales and Services
Backup
Telecom
Mobile service

• Complaint reception
• Customer satisfaction survey

• Complaint reception

• Phone-line problem calling
• General trouble - shooting

• Mobile problem calling (lost,
  disconnected)

• Call dialing helpdesk
• Phone number inquiry (114)
• Phone bill information, etc.

• Secretary service
• Phone bill inquiry

• Fixed-line service application
• Other value-added service application

• Mobile service application
• Value-added service application

• Potential customer call-in reception

• Potential customer call-in reception

• Long-distance service promotion
• General information of new products/services

• New service/products promotion

57
OUTSOURCING OPPORTUNITIES FOR SELECTED INDUSTRIES
(II)Value Chain Breakdown for Sales and Services
Backup
Banking
Securities
Insurance

• General complaint handling

• General complaint handling

• General complaint handling

• General trouble-shooting

• General trouble-shooting

• General trouble-shooting

• Telephone banking
• Personal financial consulting

• Investment analysis, suggestion,etc
• General market information

N.A.

• Deposit or other orders

• Telephone transaction

• Telephone transaction

• General question handling

• General question handling

• General question handling

• New service promotion
• Corporate client relationship building

N.A.

• Promotion of insurance policies

58
OUTSOURCING OPPORTUNITIES FOR SELECTED INDUSTRIES
(III)Value Chain Breakdown for Sales and Services
Backup
Technology
Home appliance
Fast-moving consumer goods

• Technology guidance
• Consulting

N.A.
N.A.
59
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

60
ONLY PARTNERSHIP FITS INTO TCIS SPECIFICATION
Self-construct a call center
?

• No China experience in call center
• No enough human resources to commit
• Little local client knowledge
• Time consuming
• Complement TCIs local capabilities
• Satisfy time stringency concerns
• Commit little TCI resources
• Serve TCIs potential clients well with existing
  capacity
• Fit into TCIs strengths well
• Demand less TCIs commitment
• However
• Need to establish local facilities and assign
  knowledgeable people to China
• Profits will not be big

Partner with local CC outsourcers
?
Provide CC outsourcing training, management and
consulting
Maybe an opportunity
61
TCI SHOULD ALLY WITH A LOCAL PARTNER TO ENTER
INTO THE MARKET
Now is good to enter...
But should ally with a local outsourcer

• Nevertheless, China CC outsourcing segment is a
  fast growing market
• There are few high-profile CC outsourcing
  companies in China
• Competition at high-end is not severe
• And, TCI is in discussion with two possible
  long-term clients

• TCI lacks a lot of local capacities
• Local market understanding
• Local clients relationship
• Experienced agents
• Language
• And time is tight
• A decision should be made very soon

A local partner with complementary capabilities
is ideal for TCIs fast rollout in China
62
DIFFICULT TO FIND A PARTNER SATISFYING ALL
CRITERIA
Provide TCI with most needed capabilities
Be profitable
Demand not too much TCIs involvement
Allow TCI to develop own brand and share client
base
2
1
3
4

• Strong local market understanding
• Good local client relationship

• Mature, professional operations
• Experienced agents
• Sufficient long-term client base

• Strong, mature operations already

• Probably not strong self-brand and customer base
• Eagerly in need of TCIs client, money,
  management

Partners profile

• Command very high valuation for its shares
• TCI probably have to pay more under time pressure
• Stick to its right of control
• might agree in appearance, but suffocate in
  action TCIs brand building efforts
• Persist on its own business practice
• TCI might feel difficult to configure to
  Japanese standard

• The outsourcer might be very bad
• no local client base
• losing money
• low morale
• TCI has to invest a lot
• money
• human resources

What TCI might face
63
TWO POTENTIAL PARTNERSHIP STRATEGY
SUGGESTEDReflecting Different Entry Focus
Partnership Strategy
Advantages
Disadvantage
Entry Focus
Partner with strong, money-making local
outsourcers

• Leverage partners capabilities to expand
  business
• Demand less TCI investment
• Create synergy more easily

• Expensive
• Hard to control
• Potential conflict with TCIs practice

• Profit sharing
• Fast rollout
• Synergy creation

Partner with money-losing, but high-end equipped
local outsourcers

• Leverage partners advanced facilities
• Easy to control and develop TCIs own brand
• Might be cheap

• TCI might not benefit too much from local partner
• TCI has to invest a lot
• High risk is entailed

• Control
• TCI brand and practice development
• A bargain deal

64
FIVE POTENTIAL TARGETS IDENTIFIED THROUGH
INTERVIEWS
Money making
Money losing

• China Motion
• 800 Teleservice
• Compaq-Star
• Cooperativeness
• Understanding of each others business
• Local outsourcers valuation
• of shares participated
• Profit sharing theme
• TCI brand and practice development plan
• Shared vision and willingness to cooperate
• A good price

• TCY
• ITS Shanghai
• Technology and equipment advancement
• Controlling shareholding
• Local outsourcers valuation
• negotiate for a bargaining price
• TCIs needed commitment to the new venture
• A bargaining price
• Total control

Names
Negotiation priorities
When to decide
TCI should proceed both options simultaneously,
and choose a best option in the end
65
POTENTIAL PARTNERS PROFILE (I) CHINA MOTION
Background
Key strengths and weakness

• Established in 1992 in Shenzhen, strategic aligns
  with China Motion HK
• China Motion HK IPOed in Singapore in 1996 and in
  Hong Kong in 1997
• 1.8 million subscribers-currently 2.5 million
  paging, 0.1 million mobile, 0.4 million Internet,
  1 million e-mail users
• 7000 employees
• Wide coverage of service in telecom Internet
  service

• Strength
• Already profitable
• National network in Beijing (100 seats),
  Shanghai (50 seats), Shenzhen (100 seats),
  Guangzhou (100 seats)
• Good infrastructure
• Good local customer base
• Multi-lingual (Mandarin, Cantonese and English)
• Weakness
• - Appear to be a bit low-end

Operational and financial data
Attitude towards partnership

• Outsourcing call center in 1997
• Telecare Company in June 2001 with multi-sites
• Revenue 20 million RMB in 2000, will be 40
  million in 2001
• 800 staff

• Willing to align with international Co.
• Looking for expertise customer sources
• - Might not give up major stake
• - Will also keep branding (co-branding might be
  acceptable)

66
POTENTIAL PARTNERS PROFILE (II) COMPAQ-STAR
(EFOTEC)
Background
Key strengths and weakness

• Established in April 2000 by Compaq Star (local
  computer producer)
• Four major business fields
• Efo 800-Call Center outsourcing
• Efo Web-Web solution
• Efo Consulting-E-solution CC consulting
• Efo Systems- System Integration
• One site in Shanghai 120 seats, building another
  site in Fujian

Strength Highly professional Technologically
high-support Compaq brand High-quality
HR/good management Have Compaq as the steady
customer Weakness - No other major customer
except Compaq NEC - The Compaq brand-name might
be excluding other IT companies
Operational and financial data
Attitude towards partnership

• Staff 60 in total, 30 part-time
• Major operation in Shanghai for Compaq (about 30
  seats)
• Revenue 8 million USD in 2000, 2 million USD
  from Call Center
• Targeting MNCs and Fortune 500
• Client also include NEC Mobile Phone

Active for alignment with TCI Willing to
discuss equity cooperation Look for Japanese
clients
67
POTENTIAL PARTNERS PROFILE (III) 800
TELESERVICES
Background
Key strengths and weakness

• Founded in 1997 in HK by US HK companies, now
  with shareholders from publicly-listed companies
  in US HK and Taiwan
• Three sites operations, 110 seats in HK, 50 seats
  in Taipei, 120 seats in Shanghai
• Shanghai CC Site opened in November 2000, and in
  operation in December 2000
• Mainly serving regional customers
• Have IPO plan in 2001

• Strength
• High-end service
• Operations multi-sites
• Already in profit at least operationally, so
  little risk
• Weakness
• - Less local experience and connections being a
  HK Company, so can provide less help on local
  market
• - Might be difficult to accept TCI branding

Operational and financial data
Attitude towards partnership

• Have just started operation in Shanghai, with
  customers obtained before operation
• Biggest client Motorola, others are telecom,
  banking and insurance
• Already in profit the first month of operation
• 40 of the capacity in operation, which means 50
  seats roughly
• Targeting mainly upper-high end customers
• Building local marketing sales capacity, and
  will have local customer within the next few
  months

Open to various investment possibilities
Might be interested in the customers TCI might
bring in - Unclear what they expect from TCI as
they have already shareholders of various
background Technology companies, VC etc. - might
need to pay a higher entry cost
68
POTENTIAL PARTNERS PROFILE (IV) ITS
Background
Key strengths and weakness

• Established in August, 1998
• 100 seats positioning, 50 in operation
• ATT network solution
• 15 shares by Mr. Rong (