1. ENTRY FOR PROFITTRANS-COSMOS INC. CHINA ENTRY STRATEGY PRESENTATION
February 8, 2001
2. AGENDAExecutive 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
Recommendations
3. AGENDAExecutive 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
Recommendations
4. CHINA IS BECOMING A HIGHLY DYNAMIC CC MARKETChina’s 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 player’s performance and strategies
Potential customers concerned about quality, confidentiality, information processing ability, HR, and price
Growth will fluctuate widely according to the industry’s 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. 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 China’s pending WTO Entry and continued economic growth, we believe it’s 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 outsourcedCC OURSOURCERS ARE EMERGING BUT STILL EXPLORING (II)
7. TCI SHOULD PARTNER WITH RIGHT LOCAL CC OUTSOURCERSA 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 TCI’s tight schedule, a broader search can strengthen TCI’s 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 PURSUINGAlthough 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 TCI’s 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 TCI’s further interest
ICP: 51job.com; Stockstar.com; Alibaba.com; Dangdang.com
ISP: 263Net; Eastnet
9. TCI-TJ: RSTRUCTURING AND BUILDING STRATEGIC ALLIANCESTCI-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 TCI’s 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 TCI’s further contact
Longshine; Global eForce; eBIS; Modern Computer; Huateng Software
10. AGENDAExecutive 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
Recommendations
11. CC MERELY A BUSINESS PRACTICE BEFORE 1997High telecom chargeLow phone penetrationWeak service attitudeWidespread industry monopolyCommercial CC less than 10,000 seats in 1997(2)Phone call charge
(cents per minute)ChinaUSPhone penetration (%)# of phones(1)
(million)1997825399229Automotive Example: Expert Survey
1997PriceCompetition focus (%)(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; interviewsQualityServiceStyleNational monopoly
Banking
Telecom
Insurance
Utilitity
Regional protected
Steel
Auto
Petrochemical
Tobacco
...Monopolized industry estimated 55% of industrial output
12. Higher telecom penetrationCOMMERCIAL CC TOOK OFF SINCE 1998Especially in Non-Paging Service SectorPenetration (%)YearCAGRFixed line
Mobile37%
83%Non-paging CC seats (’000)YearCAGR = 129%Intensified competitionMost industries capacity over production
Declining retail pricesYearGDP index
Retail price indexIndexGrowing awareness of technologyInternet users (mio)E-Commerce revenue (US$M)Gradually reduced telecom feeSource: Jarding Fleming Research; China
Statistics Yearbook; interviews; OECD;
China TelecomLong distance (RMB/min)(1.2)(0.8)(1.0)(0.7)>800 km
<800 km
13. CC INDUSTRY WILL REACH 330-370 K SEATS IN 2010IllustrationIdentify 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 user’s 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 experts2004 projection(1)
(’000 seats)158
132
1452010 projection(1)
(’000 seats)368
337
N.A.Driving factor analysisBottom-up analysisExperts opinions(1) Without paging company
14. TOP-DOWN APPROACH REVEALS A PROMISING END GAMEPhone line per 1000 peopleCC agents per 1000 peopleUS benchmarkY = 0.00146X + 4.79Deflated telecom fee indexPhone line per 1000 peopleChina phone lineYearNon-paging CC seats
(‘000)Source: US Telephone Statistics; Datamonitor;
MII data; China Statistics Yearbook1998992000010410
15. REDUCING TELECOM CHARGES WILL BOOST FIXED-LINE ADOPTIONBackupCompetition pushes further telecom reductionMost 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 MIITelecom reduction projectionPhone penetration per 1000Deflated price index(1)Phone line per 1000 peopleYear(1) Price deflated by GDP index
Source: China Telecom Charges Policy Book; 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. It’s our conservative estimate.”
Manager of Business Development Dept, HuaweiSource: BCG interviews
18. AGENDAExecutive 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
Recommendations
19. CHINA CC USER BASE VERY DIFFERENT FROM U.S.Selected industry explanationTelecom
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, it’s 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 unsoundOthers
OutsourcingSecurity
TV selling
News & media
Airline
Computer/TechManufacturing
Post serviceInsurance
Banking
Mobile
Fixed-line TelecomChinaUSOthers
Outsourcing
Transport
Healthcare
Utilities
Remote shopping
SecuritiesAirline
Technology
ManufacturingInsurance
Banking
TelecomOur 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 OutsourceSelected industry examplesWillingness to outsourceHighLowService-orientedOutsourcingGeneric serviceAdmin-drivenSecuritiesHome applianceComputer/technologyCourier servicePublicationTV sellingMessagingTravelSimple order takingPagingTelecomInsuranceBankPost serviceCommunity serviceUtilityCore areaNon-core areaArea of CC usage
21. THREE CRITERIA TO DISTINGUISH CORE AND NON-CORE AREAIndustryCore AreaSecurities
Courier service
Computer/technology“Grey Area”Home appliance
Banking
Insurance
Publication
Telecom
TravelingNon-core Area (generic)Paging service
Messaging
TV selling
UtilitiesFunctionalityTechnical assistance
Aftersales service
Customer complaint settlementSourcing/supplier coordination
Customer inquiry settlement
TelemarketingMessage delivering
Simple order taking
Call Center’s 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 sophisticationCriteriaMany industries have both core and non-core areasBackup
22. MANAGEMENT AND OWNERSHIP STRUCTURE AFFECT WILLINGNESS TO OUTSOURCEConsiderationsOwnership structure
Company size
Competition
Management sophistication
ReasonsSOEs 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 improvementSOE(1)
Large
Monopolized industry
Poorly managedPrivately owned foreign invested
Small-to-medium
Market-driven, competing industry
Well managedLess willingMore willing(1) SOE = State-owned enterpriseBackup
23. AGENDAExecutive 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
Recommendations
24. ADMIN-DRIVEN SEGMENT: MOST IMPORTANT FOR NOWHigh % in total new CC demandDriven by “Pillar industries”Demand surged in a group of China’s 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 reform4.9# of new CC seats (’000)YearAdmin-driven11.229.5Total new demand
Admin-driven66%76%62%Source: BCG modeling
25. HOWEVER DEMAND EXPECTED TO FLUCTUATE IN THE FUTUREUnderlying ReasonsAdmin-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# of new call center seats (’000)YearBanking exampleSource: BCG modeling; interviews, literature researchAdmin-driven
26. UNIQUE THREE-TIER DECISION MAKING PROCESSSystem Integrators Should Put Efforts to AllTop-down initiativesAdvocate 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 branch’s requirementsSI should pay attention to Ministry’s recent service improvement incentiveMinistrySI should approach promising corporate headquarters in advance to get the name on the listCorporate headquarterSI should put most efforts to influence branch company’s selectionProvincial/regional branchesAdmin-driven
27. OUTSOURCING ALMOST NEVER AN OPTION FOR ADMIN-DRIVEN COMPANIESOutsourcing 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 don’t 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 Company’s 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)
Guangzhou’s business practice is more liberal than rest of China Admin-driven
28. SERVICE-ORIENTED SEGMENT: A DRIVER FOR LONG-TERM CC PENETRATIONRapid growth in the long-termWidespread adoption expected in market-driven industriesHeated 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 won’t 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 ChinaTotal non-paging CC seats (’000)Service-oriented10Year50337Total CC seats
Service-oriented26%24%50%13242%Source: Interviews; online research; expert opinions; BCG analysis
29. MORE INDUSTRIES ARE LIKELY TO ADOPT CC OVERTIMECC Adoption
AreaHome applianceAutomotiveComputerMobileSecuritiesRetailingPetrochemicalDistributionFMCG(1)TaxiTextileMachineryChemicalPublicationHealth careGovernmentEntertainmentBroadcasting/TVAviationGeneral TechnologyHighModerateLowCompetition intensityHighHorizontal will
extend overtimeImportance of service(1) Fast-moving consumer goods
Source: Interviews; literature research summaries; BCG analysisHorizontal will
extend overtimeService-oriented
30. COMPANIES QUITE SELECTIVE ON CC USAGENot blindly chasing after high-end solutionsIntegrating call centers with its core business practiceInterviews summarySource: Interviews%Investment per seat (’000 RMB)Interviews summary%Aftersales serviceOrder takingInformation serviceTelemarketing10-70Service-oriented
31. VERY CAUTIONS ON CC OUTSOURCINGPrice “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
Quality “Chinese call center outsourcers have inadequate service mentality, we mostly worried about their service quality.”
Hot Line Supervisor, EPSON China
Human resources “Ordinary outsourcer’s agents can only handle simple questions. It requires experienced engineers to deal with complex problems.”
Hot Line Supervisor, EPSON ChinaConfidentiality “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 ComputerInformation processing “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 MacroMajor concerns about outsourcingTheir outsourcing possibility highly depends on outsourcers’ ability to satisfy their concernsSource: InterviewsService-oriented
32. GENERIC SERVICE: A GENERALLY DECLINING SEGMENTConsists Mainly of Paging Services Generic serviceDeclining paging service segment...… Because of strong substitution# of paging seats (’000)YearPaging service market has been gradually eroded by widespread mobile and internet communication services
fulfilled pager’s 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 companies1998
20002000
17362004
5002010
200Source: Interviews
33. GENERIC SERVICE DEFINED AS A CROSS OF INDUSTRIES AND FUNCTIONSGeneric serviceFunctionalityMessage taking and delivering
Simple order taking
Standard telemarketing
Standard customer question answering
Standard value-added information serviceIndustryPaging industry
TV/catalogue selling
Utilities collection“Secretary” servicesBackup
34. GENERIC CC USERS HAVE STRONG INCENTIVES TO OUTSOURCE Generic serviceCost-effective for small CC usersResolved concernsSatisfactory 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
(1) Assume 10 seats, and utilization 100%
Source: CTI forum; BCG modelingTV selling exampleCost (’000 RMB) per month per agent10-12Self-build(1)Outsourced
35. AGENDAExecutive 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
Recommendations
36. FOUR DISTINCTIVE TRAITS FOR CHINA’S CC OUTSOURCERSTraits for An Emerging SegmentOverviewOutsourcerJust emergingHigh Geographic concentrationFocus on generic servicesInterviews SummaryMany are losing money Interviews Summary# of outsourcers%(%)
Source: Interviews; CTI forum; China Statistics Yearbook# of seats (’000)(% of outsourcers)
37. DEMAND PROJECTION DEPENDENT ON A CYCLE OF FACTORSWide variance in projection...…dependent on a group of factors# of outsourcing seats (’000)Virtuous or vicious cycle?Outsourcer’s PriceOutsourcer’s professionalismCustomer satisfactionOutsourcer’s service sophistication# of new customer trialEducation effect to potential customersOutsourcing industry reputationIt’s hard to tell whether the industry can establish its reputation or go underdeveloped, at the very beginning of its emergenceDemandOutsourcer51.26.6CAGR = 100%CAGR = 20%CAGR = 20%
38. POSITIVE CUSTOMER EVOLUTION OBSERVED IN CHINA’S OUTSOURCING BUSINESSPositive projections for futureHistorical trends showed increasing penetration into high-end business
China’s 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
Outsourcing service sophisticationTimeLowHighBeforeRecent 2 yearsWe believe in the positive argument and project demand to grow at least 50% a year for the next 4 yearsPaging service outsourcing for Hong Kong“Secretary” serviceSimple telemarketingOrder takingAfter-sales serviceNegative projections for futureCustomer’s negative thoughts about outsourcer’s quality haven’t changed
Professionalism will continue to be a headache for China service industry, including outsourcing
Low-end entry (paging companies) will ruin outsourcing industry’s pricing structure and make good outsourcer’s unprofitableDemandOutsourcer
39. BALANCE BETWEEN LONG-TERM CLIENTS AND PERIODIC ASSIGNMENTS IS CRITICALCustomersOutsourcerLong-term clientsLong-term clients are most important to the profitability of an outsourcerJob natureCustomer requirementCompensation“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 seatTelemarketing
Campaign/activity phone reception
Brand name in outsourcing industry
Trained agents and effective management
Information feedback
Reasonable price
Payment per callPeriodic assignments
41. MULTINATIONALS NOT FULLY READY FOR OUTSOURCINGCustomersOutsourcerMultinationals need customer information to assist decision making
Especially important in info-scarce China
Confidentiality is also a big concernThere are little established outsourcers in the market to useMany multinationals don’t resort to outsourcers at parent company
Hard for China subsidiary to outsourceA number of multinationals outsource their sales and service functions to focus on core capability
No need for call centerOnly a few multinationals outsourced their call center operations
42. OUTSOURCING SALES AND SERVICE HELPS MULTINATIONALS TO FOCUS ON CORE CAPABILITIESAdvanced product design
Technology
Financial muscle
Operational management
Manufacturing
Distribution network
Customer relationships
Local marketing
Facilities (land, house…)
Regulatory knowhowServiceSourcingManufacturingSales
X
X
XMultinational’s strengthsLocal company’s strengthsX
X
X
X
X
X
XX
X
X
X
X
X
X
X
XExample of multinationals outsourcing sales and service
Panasonic
Shanghai VolkswagenCustomersOutsourcerBackup
43. HIGH-END OUTSOURCERS ARE GENERALLY LOSING MONEYThe key determinant: UtilizationProfitabilityEconomicsOutsourcerHi profits
Low profits
Breakeven
Low deficits
Hi deficitsPrice/seat (RMB/month)China MotionShenghuaCheng BoCompaq-StarCCIDHong FanTCYITS95InfoSource: Interviews; BCG analysis
44. High-end outsourcersMid-end outsourcersLow-end outsourcersUTILIZATION IS CRITICAL TO CC OUTSOURCER’S PROFITABILITYSimplified ModelEconomicsOutsourcerFor a 100-seat call centerMoney (‘000 RMB)55%Source: Interviews; literature research; expert inputs; BCG analysis(0%, 1414)(100%, 3120)(100%, 1954)100%Utilization (%)RMB 80/hourMoney (‘000 RMB)50%(0%, 884)(100%, 2340)(100%, 1424)100%RMB 60/hourMoney (‘000 RMB)48%(0%, 573)(100%, 1560)(100%, 933)100%RMB 40/hourUtilization (%)Utilization (%)Price
45. A SUBTLE BALANCE AROUND UTILIZATION Revenue
Price per seat
Cost
Equipment investment
Service level
Human resources
TrainingEconomicsOutsourcer
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
RMB10,000~70,000/seat
Standard service
Using existing facilities
No additional agent training
Normal agents
No college education
RMB2,000 monthly salary
Quick training
At most weeksP&L CategoriesHigh-endLow-endHow much are customers willing to pay?
How much should outsourcers invest to obtain customer satisfaction?Game around utilizationBackup
46. LITTLE COMPETITION AMONG CURRENT CC OUTSOURCERSOur 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 competitor’s 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 timeCompetitionOutsourcerCurrent battlefield: How to make CC outsourcing accepted by companies
47. BUT HUGE AND DESPERATE POTENTIAL COMPETITORS AWAITINGCompetitionOutsourcerPaging industry shakeout inevitableCC considered a plausible transition# of paging companiesA recent survey of 62 big paging Co.Plan to launch call center service in 2001Already equipped for call center serviceNo planPlan to launch CC after 2001Source: ChinaInfoBank; literature research; BCG analysis
48. PAGING COMPANIES ONLY SUITABLE TO TARGET LOW-END CC OUTSOURCING MARKETCompetitionOutsourcerPaging’s AdvantagesPaging’s DisadvantagesImplicationsAble to leverage
trunk line
electronic transmissionLow-end computers and information processing systems
PBX may not have call-out functionAlready very experienced for standard call-in takingManagement process highly streamlined for message delivering serviceWell known brands among the publicOnly trained and experienced for standard call-in taking
Usually lower-than-college level educationNo flexibility and experience for other call center serviceBrand name associated to routine telephone serviceEquipmentAgentsManagementBrand namePaging companies, if transitioned to CC outsourcers, would be only suitable to target low-end market
49. AGENDAExecutive 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
Recommendations
50. ONLY LOW-PRICE/STANDARD SERVICE MODEL PROVED SUCCESSFULCurrent Situation, Takeaway from Interviews Not technically feasibleDoomed failurePossible to be successful, too?Several successful examples observedCustomize/High-endStandard/low-endLowHighHigh-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 sourceService
LevelPrice
51. SUCCESSFUL HIGH-END MODEL WILL EMERGE IN A FEW YEARSWiseway’s BeliefLong-term clients are most important for high-end CC outsourcer’s 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
95Info’s deal with Nokia in Beijing
800 Teleservices’s 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, 1~2 long-term clients can turn it into profits
Identify potential areas for CC outsourcing
52. HIGH-END OUTSOURCERS CAN DEVELOP BUSINESS ALONG TWO DIMENSIONSCustomer penetrationBusiness penetrationEstablish long-term client base
Build relationship through periodic assignments
Invite client’s equity investment
Provide “one-stop shopping”
Serve overseas market
Leverage existing relationship12345Target various outsourcing opportunities along the value chain
Breakdown value chains to find out promising outsourcing opportunities5Since it’s a new industry, there are plenty rooms for expansion
53. FIVE SUCCESSFUL STRATEGIES TO WIN LONG-TERM CLIENTS...Building relationship through periodic
assignmentsOutsourcers 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 P&GProvide “one-stop shopping”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
Leverage existing relationshipOutsourcers develop domestic multinationals clients leveraging overseas relationship
Example: 800Teleservice v.s. MotorolaServe overseas marketOutsourcers provide low-cost services to Hong Kong, Taiwan or other overseas clients by leveraging low-cost agents and language ability in China
Example: Guangzhou ShenghuaInvite client’s equity investment Outsourcers ask an important client to make equity investment, in order to lock in the relationship and establish needed trust
Example: Compaq-StarStrategies proved successful12345
54. … EACH WITH ITS UNIQUE ADVANTAGES AND DISADVANTAGESConsLowered entry barrier into potential clients
Easier to build relationship and mutual trustTime 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 Lock-in relationships
Shared risksControlled by clients
Limited opportunities for other clients
restrained growthIncreased customer satisfaction
Stronger advantages against all competitors at “one-stop” areaStrengths restrained in one particular area
Difficult to extend business to other areasProfitable business
Stable client relationship once obtainedCompetition
Generally low-end services
clients only pursue “low-cost”
Difficult to acquire overseas clientsMonopolized client base
Familiar service standard
Leverageable software and managementNot a lot
Bad service in China might deteriorate corporate’s relationship to the outsourcerBuilding relationship through periodic assignmentsInvite client’s equity investmentProvide “one-stop shopping”Serve overseas market
Leverage existing relationship
12345Pros
55. OUTSOURCING MOST PROMISING FOR TELEMARKETING AND VALUE-ADDED INFORMATION SERVICESPotential Call Center Adoption AreasAfter-sales serviceValue-added
information
serviceTrouble-shootingComplaint handlingConcernsService
qualityIndustry
knowledgeInformation
processingConfidentialityManu-
facturingSourcingOrderingSupplier
mgmt.SalesTele-
marketingInquiry handlingOrder
takingMost
promisingMost
promisingNot a concern
Significant concerns
56. OUTSOURCING OPPORTUNITIES FOR SELECTED INDUSTRIES (I)Value Chain Breakdown for Sales and ServicesAftersales serviceTrouble-shootingComplaint handlingTele-
marketingCustomer inquiry handlingOrder
takingValue-added information serviceSalesIndustryTelecomComplaint reception
Customer satisfaction surveyMobile serviceComplaint receptionPhone-line problem calling
General trouble - shootingMobile problem calling (lost, disconnected)Call dialing helpdesk
Phone number inquiry (“114”)
Phone bill information, etc.“Secretary” service
Phone bill inquiryFixed-line service application
Other value-added service applicationMobile service application
Value-added service applicationPotential customer call-in receptionPotential customer call-in receptionLong-distance service promotion
General information of new products/servicesNew service/products promotionLikely
UnlikelyBackup
57. OUTSOURCING OPPORTUNITIES FOR SELECTED INDUSTRIES (II)Value Chain Breakdown for Sales and ServicesAftersales serviceTrouble-shootingComplaint handlingTele-
marketingCustomer inquiry handlingOrder
takingValue-added information serviceSalesIndustryBankingGeneral complaint handlingSecuritiesGeneral complaint handlingGeneral trouble-shootingGeneral trouble-shootingTelephone banking
Personal financial consultingInvestment analysis, suggestion,etc
General market informationDeposit or other ordersTelephone transactionGeneral question handlingGeneral question handlingNew service promotion
Corporate client relationship buildingN.A.InsuranceGeneral complaint handlingGeneral trouble-shootingN.A.Telephone transactionGeneral question handlingPromotion of insurance policiesLikely
UnlikelyBackup
58. OUTSOURCING OPPORTUNITIES FOR SELECTED INDUSTRIES (III)Value Chain Breakdown for Sales and ServicesAftersales serviceTrouble-shootingComplaint handlingTele-
marketingCustomer inquiry handlingOrder
takingValue-added information serviceSalesIndustryTechnologyHome applianceTechnology guidance
ConsultingN.A.Fast-moving consumer goodsN.A.Likely
UnlikelyBackup
59. AGENDAExecutive 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
Recommendations
60. ONLY PARTNERSHIP FITS INTO TCI’S SPECIFICATIONSelf-construct a call centerPartner with local CC outsourcersProvide CC outsourcing training, management and consultingNo China experience in call center
No enough human resources to commit
Little local client knowledge
Time consuming
Complement TCI’s local capabilities
Satisfy time stringency concerns
Commit little TCI resources
Serve TCI’s potential clients well with existing capacity
Fit into TCI’s strengths well
Demand less TCI’s commitment
However
Need to establish local facilities and assign knowledgeable people to China
Profits will not be bigMaybe an opportunity
61. TCI SHOULD ALLY WITH A LOCAL PARTNER TO ENTER INTO THE MARKETNow is good to enter...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… But should ally with a local outsourcerTCI 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 TCI’s fast rollout in China
62. DIFFICULT TO FIND A PARTNER SATISFYING ALL CRITERIAStrong local market understanding
Good local client relationship Provide TCI with most needed capabilities1Be profitableDemand not too much TCI’s involvementAllow TCI to develop own brand and share client base234Partner’s profileMature, professional operations
Experienced agents
Sufficient long-term client base Strong, mature operations alreadyProbably not strong self-brand and customer base
Eagerly in need of TCI’s client, money, management What TCI might faceCommand 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 TCI’s 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
63. Partnership StrategyPartner with strong, money-making local outsourcersPartner with money-losing, but high-end equipped local outsourcersLeverage partner’s capabilities to expand business
Demand less TCI investment
Create synergy more easilyLeverage partner’s advanced facilities
Easy to control and develop TCI’s own brand
Might be cheapTWO POTENTIAL PARTNERSHIP STRATEGY SUGGESTEDReflecting Different Entry FocusAdvantagesDisadvantageEntry FocusExpensive
Hard to control
Potential conflict with TCI’s practiceProfit sharing
Fast rollout
Synergy creationTCI might not benefit too much from local partner
TCI has to invest a lot
High risk is entailedControl
TCI brand and practice development
A bargain deal
64. FIVE POTENTIAL TARGETS IDENTIFIED THROUGH INTERVIEWSChina Motion
800 Teleservice
Compaq-Star
Cooperativeness
Understanding of each other’s business
Local outsourcer’s valuation
% of shares participated
Profit sharing theme
TCI brand and practice development plan
Shared vision and willingness to cooperate
A good priceMoney makingTCY
ITS Shanghai
Technology and equipment advancement
Controlling shareholding
Local outsourcer’s valuation
negotiate for a bargaining price
TCI’s needed commitment to the new venture
A bargaining price
Total controlMoney losingNamesNegotiation prioritiesWhen to decideTCI should proceed both options simultaneously, and choose a best option in the end
65. POTENTIAL PARTNERS’ PROFILE (I): CHINA MOTIONBackgroundEstablished 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
Key strengths and weaknessOperational and financial dataAttitude towards partnershipStrength
+ 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
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)BackgroundEstablished 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
Key strengths and weaknessOperational and financial dataAttitude towards partnershipStrength
+ 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 companiesStaff: 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. BackgroundFounded 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
Key strengths and weaknessOperational and financial dataAttitude towards partnershipStrength
+ 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
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 costPOTENTIAL PARTNERS’ PROFILE (III): 800 TELESERVICES
68. POTENTIAL PARTNERS’ PROFILE (IV): ITSBackgroundEstablished in August, 1998
100 seats positioning, 50 in operation
AT&T network solution
15% shares by Mr. Rong (GM) and 85% by Schmit ITS
Key strengths and weaknessOperational and financial dataAttitude towards partnershipStrength
+ Existing facilities and experience
+ Good connection in local MNCs
+ Sales promotion assistance
Weakness
- Still in red
- No long-term big contracts
- Lack of technology support
Staff: 40 fulltime, 120 part-time
Clients: 20, mostly MNCs, but not large contracts
80% inbound, 20 outbound
Strategy: assisting promotion efforts+ Willing to cooperate with TCI
+ Might be low in entry cost
69. POTENTIAL PARTNERS’ PROFILE (V): TCYBackgroundPrivate investors with lawyer background
May 2000 start in Beijing with 35 seats, Nov 2000 start in Shanghai with 30 seats
AT&T backup support (exclusive on management & outsourcing call center supply)
1.6 million USD investment for each center
Key strengths and weaknessOperational and financial dataAttitude towards partnershipStrength
+ Existing facility & experience
+ AT&T brand-name and support
+ High-end market orientation
+ Two-sites operations
Weakness
- Still in red
- No major business
- Comparatively small & young
- AT&T management might not be good for Chinese customers Targeting MNCs
Clients include Motorola, Pfizer
General Managers in Beijing & Shanghai are appointed by AT&T
Revenue in the past 6 months: 330,000RMB, expected to rise to 1 million USD
+ Willing to work with TCI as they are looking for 2nd-round investment
+ Might be low in entry cost
70. AGENDAExecutive 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
Recommendations
71. Growing on-line populationIncreasing E-commerce online revenueInternet usage dominated by young generationVersatile online spending patternsCHINA E-COMMERCE MARKET ARE BOOMINGPeople (million)Year>35
18-35
<18eCommerce revenue from “personal spending” (US$m)Source: IDC China Internet Report 2000; Online research; China Statistics Yearbook Intranet users
Internet users1.383.015.1710.4517.7128.441.656.1Revenue on WWW (mio $)Year100%Age group
72. BUT STILL A LONG WAY TO GOE-commerce not widely adopted in businessWebsite still focused on information providingHighly concentrated E-commerce marketAlmost all ICPs losing moneyThe only definite profitable online E-Commerce provider is 51job.com, an online job search portal
- No successful business model gets demonstrated yet%(%)Rest of China
Top 3 cities(1)A survey of 3800 enterprises(1) Shanghai, Beijing and Guangzhou# of sitesBy July, 199999001400320Online transaction
Technical service
Information service
73. BIG BOTTLENECKS TO HIGH TECH INDUSTRY DEVELOPMENT Environment bottleneck
Unpredicted government interference
Chinese companies unfamiliar with E-Commerce and new economy
Management vision and technology capabilities lagged behind
Credit system still primitive
Company’s E-Commerce initiatives suppressed by low overall internet penetration
Widespread piracyInfrastructure bottleneck
Complicated and restraint online payment system
Online security a big headache
Expensive and inconvenient physical delivery system
Very slow internet speed
High cost getting online
74. EMERGING LAYERS OF CHINA HIGH TECH INDUSTRYExamples
ICP
Sina/Sohoo/Netease
Alibaba/MeetChina/eGuo
Netease/Dangdang/51job
ISP/ASP
China Telecom/263.net/East.net.cn
Technology company
Few in China
Software company/system integrator
Hua Teng/Longshine/Orient Legend
ZhuiRi/Tong Guang-Nortel/Avaya
Hardware/system manufacturer
Huawei/Zhongxing
IBM/Lucent/Nortel/Cisco/HPClientsICPISP/ASPTechnology CompanySoftware company/ System integratorHardware/System manufacturer
75. BOTH ICP AND CHINA CONCEPT TUMBLED IN NASDAQIPO Cash-Out Extremely Difficult Under Current Market ConditionNASDAQ investors have driven B2B and B2C stocks to junk level
Cautious about profitability
Unfulfilled promise of entrepreneur
Venture capitalists ceased to invest in B2C and B2B in US
Afraid of closed door for cashing out
China concept is no longer sexy to western investors
Aware of all the bottlenecks for China ICP development
NasdaqStock index2001Source: Wall Street Journal; Smartmoney.comAmazonSina.com2000FMAMJJASONDJFICP
76. HONG KONG AND MAINLAND MARKET ALSO NOT A GOOD ALTERNATIVEHong Kong: a strict follower to New YorkHong Kong market plummets together with NASDAQ
Hong Kong’s market capitalization is only 5% of NYSE
Much more volatile and easier to be attacked
Most significant IPOs in Asia will list not only in Hong Kong, but also in New York
Expand capital pool
Use NY’s market mechanism to stable HK’s price
Mainland: highly regulatedICPChina stock market has a long tradition of manipulation
Problematic financial reporting integrity
Government subsidy
Irrational valuation
Foreign-owned enterprises are forbidden to list in China’s market
Government intention to focus domestic financial resources on state-owned enterprises
Easy to control and manipulate
China about-to-open tech stock market is depressed by global technology sector meltdown
77. FEW ICP MAKES MONEY NOW And Not Many Have Breakdown PotentialICPOver 27,000 ICPs in ChinaMoney makingWith short-term breakeven potentialWith long-term breakeven potential51 job.com
CareerFinancial services
Stockstar.com
Yestock.com
B2B portal
Alibaba.com
MeetChina.com
Job hunting
ChinaHR.com
Zhaopin.com
Online retailing
Dangdang.comPortal
Sina.com
China.com
Sohu.com
Healthcare
999.com.cn
Chinait.com
Education
Chinaedu.com
Online auction
Eachnet.com
Coolbid.com
Tourism
Ctn.com.cn
Ctrip.com
Online info service
Chinainfobank.comCurrently, only No. 1 in each industry/has
potential to win
78. MOST ICP COMPANIES STILL AT EARLY FINANCING STAGEB2B ExampleRMB 0.5-1 millionRMB 0.1-0.5 million> RMB 10 millionRMB 5-10 millionRMB 1-5 millionSource: Huicong IT Business NetworkICP
79. SIGNIFICANT TRANSITION AND SHAKEOUT EXPECTEDSmall-to-medium, generic information service portals will face bankruptcy in a year
Regional portals with similar business will seek merger to survive in the coming shakeout
B2B will focus more on providing proprietary, value-added services (online and offline) to small-to-medium corporate customers
Large corporations will extend it’s corporate web site into B2B or B2C area
Only the top two to three E-Commerce web sites in each area will surviveHuicong’s Projection100%Under current volatile market, Wiseway believe market situation can only go harsher than Huicong’s projectionSource: Huicong IT Business NetworkEnterprise
E-Commerce
website
Others
Technical service
Information serviceICP
80. SELECTED ICP PROFILE: 51JOB.COMCompany backgroundStrengths and weaknessesEstablished in 1998
No. 1 job search online site in China
Over 30,000 jobs posted
Registered users over 100,000
Potential to provide HR services for foreign-invested companies
Targeting white-collar workers and managerial level customersStrengths
No. 1 job hunting portal in China, established brand name and customer base
Synergies with “Career Weakly” magazine and a heal hunting firm
Weaknesses
Little information about job/career advisory
Still small: vulnerable to competitionRevenue source and financial dataAlliances1999 revenue reached US$ 1 million, 2000 revenue projected to be US$ 8 million, and 2001 revenue to be around 20-30 million
Current profitability 10-15%
1/3 advertisement income, 1/3 revenue from ASP service, and the rest from providing information of its HR databasePlanned Nasdaq IPO in 2001
Synergies created by building alliance with traditional HR functions
“Career Weekly” magazine
Career Head Hunting CompanyICP
81. SELECTED ICP PROFILE: STOCKSTAR.COMCompany backgroundStrengths and weaknessesEstablished in 1997
No. 1 stock trading portal in China
Business covered quote, information, advisory and online trading services
Registered users over 1.5 million
Positioned to provide not only trading but comprehensive investing servicesStrengths
Established customer base
Comprehensive services on trading, information and advisory
Good relationships with security firms
Weaknesses
No stock trading license
Projected competition in the futureRevenue source and financial dataAlliancesRevenues from securing companies advertisement, online trading commission, and data usage fees to institutions
Planned to expand revenue sources to construct online site for security companies
Only less than 10% cuts on promotion, 50% cash flow consumed on infrastructure and 15% on R&D Goldman Sachs second round financing of $ 10 million, based on $40-50 million valuation
Shanghai Alliance Investment Co. and Shanghai Telecom controls 20% stake, respectivelyICP
82. SELECTED ICP PROFILE: ALIBABA.COMCompany backgroundStrengths and weaknessesEstablished in 1997
No. 1 B2B portal in China, ranked the best Asia B2B portal in 2000 by Far East Economic Review
Registered members over 420,000, representing 220 countries
Daily trading involves 50,000 buyers and 12,000 sellers
Provide quotes, industry information and advisory through 27 industriesStrengths
First mover advantage
One stop shop especially convenient for international trading
Worldwide recognition
Strong VC tacking
Weaknesses
Scalability not demonstrated
B2B not hot concept anymoreRevenue source and financial dataAlliancesRevenue from trading information fee, registration, and advertisement
Still not breakeven, but analyst quite optimistic about its financials
New registration reaching 1000 members a dayFirst round financing of $5 million capital infusion by Goldman Sachs, Transpac, Singapore TDF, Investor AB and Fidelity Investment
October, 1999
Softbank invested $ 20 million in January 2000
Planned but postponed IPOICP
83. SELECTED ICP PROFILE: DANGDANG.COMCompany backgroundStrengths and weaknessesEstablished in 1996
No. 1 online bookstore in China
Book online storage over 200,000 types, accounting for 90% of all domestic published books
20% registered users are resided in foreign countries
Established transportation and inventory system
Strengths
Customer recognition and national reputation
Business already reached scale
Developed order to delivery system
Weaknesses
Severe competition: more than 300 online bookstores
Pending alliance with publishers and book storesRevenue source and financial dataAlliancesRevenues from book retail margin and publisher’s advertisement
Breakeven expected this year
A new, 10 K square metre warehouse is under construction in BeijingFirst round financing completed in 1997
Second round financing completed in November, 1999
Third round financing by IDG, LCHG and Softbanks completed by April, 2000ICP
84. ISP: A HIGHLY FRAGMENTED SECTOR WITH VOLATILE PROFITABILITYISP/ASPHighly fragmentedNot profitableOver 5001234 M5 nationwide
ISPs(1)
>500 regional/
local ISPsIn deficitProfitable
ISP an attractive local government investment area
Potential of high return
Able to create monopoly locally
Numerous agency costs
Equipment purchase
Appraisal of “New Economy Mindset” from the above
More budget/HR to manage and control
Significant upfront investment and fast upgrade
Demanding frequent capital expenditure
High marketing expenses and maintenance cost
Market still small
Only 16.9 million internet users (July 2000)
Much smaller if only focusing on local market(1) They are: ChinaNet; ChinaGBNet; UNInet; CSTNet; CERNet
Source: CIIC: China Info Bank
85. FOREIGN PARTICIPATION IN ISP ONLY ERECTED IN NEAR FUTURE ISP/ASPChina’s WTO entry signed20012002200320042005Post-entry conditionPre-entry conditionSource: EIU; China Info Bank ICPISPOfficially, no foreign ownership in internet services sector (both ICP and ISP) is allowed. Yet foreign investment is known to have entered the ICP business via alternative path
30% ownership allowed in Beijing, Shanghai & Guangzhou49% ownership allowed in other 17 cities50% ownership allowed nationwide49% ownership allowed nationwide25% ownership allowed in Beijing, Shanghai & Guangzhou35% ownership allowed in major cities
86. ISP SECTOR WILL CONSOLIDATE THROUGH BOTH VERTICAL AND HORIZONTAL INTEGRATIONSISP/ASPMany current ISPs are not profitable due to small subscriber base
I.e, a 2M bandwidth line needs to attract at least 1650 customers
Of all 28 inter-provincial ISPs, only 13 have more than 1000 subscribers after 2.5 years of service, let alone local ISPs, with even smaller base
Future competition will only worsen the situation
Only sizable ISPs can provide satisfactory services
Both domestic and foreign players will raise wars on price and serviceMerge with nationwide ISPs to become an affiliateExtend business to leverage ISP advantage
ASP (?)
ICP
Infrastructure
87. SELECTED ISP PROFILE: 263.NETCompany backgroundStrengths and weaknessesTop ISP Provider in China: 40% market share in Beijing, with another 40% by China Telecom, and the rest 20% by other 170 ISPs in Beijing;
Top ICP site with 6 million registered users and 25 million pageview each day;
263 IDC started in Beijing, and will also be in Shanghai, Guangzhou and 20 other cities;
Shareholders simple but diversified: corporate and personal; strong backing from China Telecom.Strengths
Big market share in Beijing
Good combination of ISP, ICP and IDC, maximizing the customer base;
Profitability;
Started in Beijing, but are also spreading to Shanghai, Guangzhou, Wuhan, Xi’An and 10 other Chinese cities
Weaknesses
Business scalability in other citiesRevenue source and financial dataAlliances15 million RMB profit the first year, and has been profitable in the past three years;
Internet connection fees collected from telephone bills;
IDC serving coporate customers, providing E-commerce solutions;
ICP (263.net) is also shifting to E-commerce business Good alliance with China Telecom (Beijing)
Alliance also with other international hardware suppliers
Have not heard of backing from international VC ISP/ASP
88. SELECTED ISP PROFILE: EASTNETCompany backgroundStrengths and weaknessesEstablished in 1996 by BJ Telecom, Bank of China, and Tsinghua University
Business covered dial-in connection, domain registration, and EC
Built www.east.net.cn as a general information portal
Also provided online and offline tech product sales, consulting and trainingStrengths
Big loyal customer base
Widely covered business scope
Widely established alliances
Profitable
Weaknesses
Localized: in Beijing areaRevenue source and financial dataAlliancesBoasted to be profitable for 3 years
Registered ISP users over 150,000, growing at 10,000 members per month
Homepage visited by 130,000 people per day
Helped 3,000 domestic companies to register a domainAlliancwe with a lot of prestigious ICPs and ISPs
Sina.com
China Television Network
Content sharing with major tourism, stock trading, entertainment and online book reading portals
Allying with China Yellowbook on database developmentISP/ASP
89. NON-GOVERNMENT BACKED TECH COMPANIES CAN HARDLY SURVIVE IN CHINATechnology companyLack of customers
Chinese companies accustomed to import tech/equipments
Incapable to commercialize high tech solutions
No big need for technologyProblematic legal environment
Patent rights inadequately reinforced
Widespread piracy
Strong local protectionism
Lack of intellectual property conceptsInaccessible financing channels
Domestic financial institutions hostile to startups
Foreign investors blocked from specific technology development due to national security
Very complicated formalities for non-SOE financingInsufficient human resources
Top-tier engineers and scientists finding their home in US or other more tech-friendly countries
Chinese educational institutions unable to catch up with best-of-breed technology developmentChina is not a playground
for high technology
research companies
90. CHINA REPRESENTS GOOD OPPORTUNITIES FOR EC SOLUTION PROVIDERSIncluding Software Developers and System IntegratorsChinese manufacturing and service enterprises are in desperate need of better information and control system to compete effectively
Many companies don’t have any MIS in place yet
WTI and strong competitive pressure will push the demand
There are demonstrated successful business models
Software companies are successful by either serving domestic clients or working on overseas assignments (Hua Teng)
System integrators establish themselves by getting recognized industry expertise and relationships
Resources are easily located
HR for software and SI doesn’t need to be top-tier world-class, and thus are easy to find
No need for big investmentSoftware/SI
91. SOFTWARE: GROWING INDUSTRY WITH HIGH-LEVEL CONCERNSMass Market Software ExampleSoftware/SIMarket still fragmentedPrice still too lowModerately growing software industryScale
(Bio RMB)689211213817612%25%63%System softwareSupporting softwareApplication softwareMkt share
Mkt share office software 1999Price (RMB)Source: China Info Bank Year
92. AGENDAExecutive 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
Recommendations
93. TCI-TJ EXPERIENCED TREMENDOUS DIFFICULTIES (I)Most projects not profitableOverhead out of controlRev.Profit rate16%-170%35%51%61%69%98%100%1999(’000 RMB)508997257517581990Gross profitSalaryManagement feeDepre.Misc.Source: TCI-TJ; BCG analysis
94. TCI-TJ EXPERIENCED TREMENDOUS DIFFICULTIES (II)Programmer’s turnover is worryingUtilization rate is lowHuman resource
From official statistics, on average about 1/3 of programmer’s working hours were not staffed, real situation can be worse
Real estate
The whole second floor was empty, while a depreciation of RMB 2.4 million, 60% of 1999 revenue, is counted each year as costProject schedule often out of controlLabelProgrammers turnover(7)(1)(20)(5)(4)17428155A 1997 projectPeople staffed(4)(1)Time3 months1 year2 yearsPlanned
ActualSource: TCI-TJ; BCG analysis
95. FIVE ROOT CAUSES IDENTIFIED FOR THESE PROBLEMSOverhead out of controlOver-investedProject out of controlInadequate programmer’s trainingMost projects not profitableIneffective and not disciplined sales effortsLow resources utilizationProgrammers not motivated properlyWorrying programmer’s turnoverCompensation and progression not enough to retain HR
96. TCI-TJ IS NOT COMPETITIVE IN DOMESTIC SOFTWARE MARKETHigh fixed costIneffective domestic sales forceNo sales department
Previous sales activities restrained in Tianjin
And mainly through Japanese invested companies
Targeting domestic customers means additional investment on HR and spending
With unforeseeable resultsAnnual cost (RMB ’000)945(1) With same actively-used office space, at a metropolitan location in TianjinOffice cost example83%10%7%2926DepreciationTaxLand(1)
97. AGENDAExecutive 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
Recommendations
98. TCI-TJ CAN DEVELOP ALONG TWO PATHSRestructure for better performanceQuestions are:
What are advantages and potential risks entailed in different path?
Which one to choose?New business developmentIntroduce TCI Japan’s best-of-breed technology to China through TCI-TJExisting business penetration and finance operationFind strategic alliance for TCI-TJ
99. RESTRUCTURING FOR BETTER PERFORMANCETransplant company’s vision to each employee’s mind
Create better culture through informal interactive channels
Mentor system
Company activities
“General Manager Day”Declare what should not be done
Policies and rules
Establish a scientific system to evaluate, incentivize, and promote staff
Staff, evaluation, compensation and promotionCustomer strategyFocus on Japanese market and Japanese companies around TianjinHR strategyRetain and promote the best people in the company
Create a programmer-centric organizationProduction strategyAdjust product and programming to satisfy Japanese client specifications
Aspire to efficient production
Improve HR utilization rateMission Turn into profitability in the next several years
Develop TCI-TJ’s capability in software programming and service
Retain best human resourcesBelief systemInteractive control systemBoundary systemDiagnostic systemControl and
measurement system
100. ESTABLISH A THREE-TIER HIERARCHY IN PROGRAMMER’S TEAMTechnology DirectorProject ManagerSenior programmerJunior programmerAfter 2-4 yearsAfter 1-3 yearsCollege undergraduateOutOutResponsibilitiesProject manager
Control the quality and time commitment of a project
Choose and motivate a programmer’ team to get the job done
Technology director
Provide technical guidance
Supervise project quality
Senior programmer
Be in charge of specific module in a project
Undertake on-job training roles to junior programmer
Junior programmer: probation position
Program under instruction and supervision of project managers
Learn fast to get promotionRightsFull rights to choose how many, and which programmer to get staffed on the team
Full right to control the project progress
Right to choose whether he would like to be put on a project
Right to request mentor on technical support
Right to choose whether to be staffed on a projectEvaluationWhether the project is completed under budget and time target
Whether subordinate programmers are satisfied with project management and learning
Whether clients are satisfied
Whether he has done an effective job in handling a module
Whether he coached junior programmers effectively
Whether he has done an effective job as a programmer
Whether he has learned fastBackup
101. HUGE BENEFITS OF BUILDING A THREE-TIER HIERARCHYProject managers are motivated to successfully compete the project as quickly as possible
evaluated by customer satisfaction and time/budget consumed
Project managers won’t abuse human resources
better-off to select a small but capable programmer’s team
Good programmers will be the king in the company: Strong incentive to be good
treasured by every project manager: Enough good project to do
compensated well and promoted fast
incapable programmers will feel not well and have to leave the company
Junior programmers will have enough training and opportunities to perform
Senior management is disciplined to their sales efforts
overly sold projects will be objected by project managersProject managementHR developmentSales effortsBackup
102. TCI-TJ MIGHT CONSIDER INTRODUCING NEW BUSINESSESProviding Best-of-Breed TCI Japan’s TechnologyLeverageable existing resources
HR
FacilitiesPromising market potentialLivepicture Flow image transmission
Teasy Company training and education
Call center software, system integration and knowhowHowever, there are potential risks considering this approach
TCI-TJ has insufficient sales capability
- whether it could successfully promote the new product?
New product introduction needs big investment
- potential risks entailed
TCI should establish a sophisticated aftersales service and system integration team
103. TWO TYPES OF STRATEGIC ALLIANCES PROPOSEDTCI-TJAdvantagesUse partner’s human resources
Benefit from partner’s brand name
Leverage partner’s client base
Introduce partner’s management skills
Retain huge potential upside
- IPO process will boost investment return
Achieve potential synergies between a software company and an E-commerce companyDisadvantagesVery difficult to find such a partner
- good companies probably will find TCI-TJ unattractive
Lost control
Potential risk of cultural conflict
Increasing risk of a satisfactory IPO
Partner’s experience of working with a software programmer
Morale at TCI-TJWiseway’s preferenceNot preferred
PreferredSell, or partner with a local esteemed software programmerPartner with a local system integrator, or E-commerce company with IPO potentialWe will discuss partnership list in detail in the next part
104. Software company or system integratorONLY PROMISING E-C INESTMENT AREA NOW: SOFTWARE AND SYSTEM INTEGRATORICPISPTechnology companyIPO is practically not an option for most ICPs currently
Consumption power for China Internet population is low
Infrastructure bottlenecks hinder ICP business development
Foreign invested ICP is forbidden to go public in domestic stock market
Government controlled, private invested companies are difficult to survive without government connection
Huge upfront investments needed, while severe competition generally drives payless ISP service
Widespread piracy suffocates technology company’s development in China
Overwhelmingly strong competition from the US
China enterprises desperately need E-Commerce assistance, and are willing to pay for it
Observed successful and profitable EC service providers/system integrators
Such businesses are compatible to TCI Japan’s strengthsXXMaybe X
105. ASSEMBLED CHINA’S TOP 50 SI/E-COMMERCE COMPANIES LIST THROUGH VARIOUS RESOURCES (I)
106. ASSEMBLED CHINA’S TOP 50 SI/E-COMMERCE COMPANIES LIST THROUGH VARIOUS RESOURCES (II)
107. WE ASSEMBLED CHINA’S TOP 50 SI/E-COMMERCE COMPANIES LIST THROUGH VARIOUS RESOURCES (III)
108. ASSEMBLED CHINA’S TOP 50 SI/E-COMMERCE COMPANIES LIST THROUGH VARIOUS RESOURCES (IV)
109. THE TOP 50 LIST COMES FROM VARIOUS RESOURCESRaw material
“Major venture capital investments in China, 2000”
35 companies planning to be listed in Shanghai Technology Stock Exchange
The best companies presented by the China Infobank
Best SI/E-Commerce companies from Sina.com and Sohu.com’s searchNot listed yet
either at overseas or at domestic market
Located in Beijing, Shanghai, Guangzhou, Shenzhen, Nanjin, Chengdu
six major Chinese citiesTop 50 listBackup
110. NARROWED TOP 50 DOWN TO 5In Two StepsFirst screening
Focused on clients in dynamic industries
telecom, utility, banking, security, technology …
Founded before 1998
Established long-term customer base
Possessed proprietary know-how and able to provide total customer solutions
Sized between 100-600 peopleTop 50eBIS Company Ltd.
Beijing Hollybridge System Integration Co. Ltd.
Putian System Integration Co. Ltd.
Brilliance Group
Lonshine Information Tech Co. Ltd.
Beijing Teamsun Tech. Co. Ltd.
Beijing Orient Legent Maker Software Co. Ltd.
Beijing Linkhead Information Technology Co. Ltd.
Shanghai Huateng Software Systems Co. Ltd.
Global eForce Crop. Ltd.
Modern Computer Manufacture Co.
Liming Network Co. Ltd.
Shenzhen Kingdom Tech. Stock Co. Ltd.
China Weal Business Machinery Co. Ltd.Second screening
Invested by prestigious Venture Capital Funds already (preferred)
Management team with high education and international experience
With no less than 5 subsidiariesTop 5
111. LONGSHINE INFORMATION TECHNOLOGY COMPANY LIMITEDBackground Established in 1996
Started from 5 people, RMB 200,000 invested capital
Business focused on high-tech technology development, system integration and services. Key target industries include Telecom and Electricity
According to Morgan Stanley report, Longshine is the biggest Linux solution provider in Greater China
Average age of the management around 36, mostly postgraduates from Chinese top universities, highly professional attitudes
Proven products based on Linux technology
Strength and weaknessStrengths:
Very good management team, young aged
Clearly and strategically positioned business
Very deep technology understanding, especially at Linux area
Good proven experience to serve big clients in Telecom and Electricity industries
Already received recognition by international venture capitalists
Weaknesses:
Company’s product line is a little too narrow
Financial/operational facts Developed from RMB 200,000 in 1996 to RMB 1 billion assets in 2000
Annual sales increase topped 100%
2000 revenue equals US$ 50 million
Branch offices around China: Shanghai, Guangzhou, Hong Kong and other 5 metropolitan locations
Received prestigious venture investment in 2000
Valuation and partnership In 2000, Intel, Goldman Sachs, PSINet, and Shenzhen Chuangxin collectively invested US$ 18 million into the firm
Company’s management expressed willingness to initiate IPO as soon as market permits
Intel not only invested in Longshine, but also co-developed some kind of E-Commerce solutions and market it in China
112. GLOBAL eFORCE CROP. LTD.Background Established in Shanghai in 1994
Currently, running with three subsidiaries: Icon Company Ltd., AJT International Inc., and Nanjing Wins Company Ltd.
98 Employees
Business focused on: strategic consulting services, e-business solution providing
Major customers include: Government (mainly Railroad Bureau), Foreign-invested enterprise (IBM, 3M), and domestic companeis (Dongfeng Auto)
Strength and weaknessStrengths:
Highly professional management team
CEO and vice-presidents all possessed postgraduate degree and worked at prestigious domestic and multinational firms
Successful, multi-year track record to provide system integration or E-business solutions for big enterprises
Proven good attitude towards cooperation or strategic alliances, effective in cooperating with others to jointly develop markets
Excellent R&D capability. Very good cooperative relationships with esteemed educational institutions such as Shanghai Chiao Tung Univ., Southeast Univ.
Financial/operational facts Revenue for 1998: RMB 15.86 million; for 1999: RMB 37.9 million; for 2000: RMB 70 million
Net profit for 1998: RMB –2.38 million; for 1999: RMB 2.39 million; for 2000: RMB 5 million (estimated)
Valuation and partnership IBM and as general solution provider
Sun Microsystems China as SME solution provider
China Academy of Science, software institute as technology cooperator
Shanghai Chiao Tung Univ. co-shared E-Commerce software development efforts
113. eBIS COMPANY LTD.Background Established in Beijing in 1994
Business focused on IT strategy and technical consulting, total E-Commerce solutions designing, developing, and system integrating
Customers mainly at Financial Services, Government, Telecom, Post Services, Entertainment, and Infrastructure industries
Company reorganized by PamSky, Senbell, Lixus, and TechSino in June, 2000
Strength and weakness Strengths:
Very strong customer base across various industries
High-caliber management team. High level managers have multinational management experience
Familiar with government norms in China and understanding their requests on information technology
Passed ISO 9001 certification
Investors possesses different capabilities that creates greater synergies to the firm
Financial/operational facts Developed from 28 people, to a company with 11 subsidiaries and over 700 employees
Prominent customer list includes China Agricultural Bank, China Construction Bank, China Central TV
Employees and International venture capitals mutually hold shares in the company, providing good incentives to create value
The company itself has invested a number of projects or ventures in China already. Besides, investments focused heavily on software industries
Valuation and partnership Cooperators: IBM, HP, Microsoft, Sun Microsystem, CISCO, Lotus, Compaq, SiBASE, Bea
Expanding using merger and acquisition
Planned IPO in 2000, however postponed
Investors: Morgan Stanley; Singapore Government Investment Fund; China Construction Bank --- All investments are through China International Commerce Corporation
114. MODERN COMPUTER MANUFACTURE COMPANYBackground Established in Shenzhen in 1990
Business includes intelligent security system, mobile technology, E-Commerce, Internet/Intranet construction, software development and etc.
Company’s business is divided according to its divisions. It has six divisions: System Integration; Intelligent System; Mobile Tech; E-Commerce; Electrical Technology Divisions
Employee in total about 500, Technical and managerial staff accounts for 90%. Doctors and postgraduates account for 35%, and average age is 28 years
Employees are also shareholders of the company
Major customers come from Telecom, Electricity and Petrochemical
Strength and weakness Strengths:
Multi-year software development and system integration experiences
High-level managerial and technology development team
Good environment in Shenzhen for technology development
Financial/operational facts The biggest system integrator in South China
Having 6 domestic subsidiaries, and 2 overseas offices
Passed ISO 9001 certification in 1998
Annual sales revenue in 2000 exceeds RMB 200 million, and profits is about RMB 40 million
The biggest shareholder is Shenzhen Investment Management Company
Valuation and partnershipCompany is currently under preparation for an IPO domestically
Cooperative partners: IBM, Sun Microsystems, Compaq, CISCO, HP
115. SHANGHAI HUATENG SOFTWARE SYSTEMS CO. LTD.Background Established in Shanghai in 1993, Offices also in Beijing, Guangzhou, and Singapore
Current employees are 400 people
Business focused on system integration for Financial Services, Post Service, E-Commerce, and Computer industries
Developed and launched China’s first Highly Secured Online Banking solutions in 1997
Shanghai Pudong Development Bank has signed an agreement to provide RMB 500 million line of credit to Huateng
Strength and weakness Strengths:
Ability to export softwares
Strategically positioned at Financial and E-Commerce area.
Fast development demonstrated
Very good customer base, extensive experience in providing services to big clients
Management all have US or international experience, and are good educated
Clear shareholding structure
Weaknesses
Severe competition in China’s software industry
Financial/operational facts Invested together by Scube Systems Ltd., Shanghai East China Computer Company, and Shanghai Information Tech Investment Company
Market share ranks No.1 in Financial Services sector
Possessed over 500 long-term clients, including Shanghai GM, Shell, CitiBank, Chase Manhattan,…
Revenue for exports in year 2000 equaled US$18 million
2000 revenue reaches RMB 100 million, ranking No.1 in domestic software industry
Currently patented over 10 software systems
Valuation and partnership Jointly develop China’s Financial Services market with Nortel
Work together with Motorola to promote Mobile business development in Financial area
Invested US$ 20 million by Warburg Pincus
Expressed desire to do an IPO at Nasdaq in 2001
Cooperators including Compaq, HP, IBM, Intel, Microsoft, Oracle