Building a Scalable Business and Investment Opportunities in China: Business Services

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Building a Scalable Business and Investment
Opportunities in China Business Services

• MONTE JADE SCIENCE AND TECHNOLOGY ASSOCIATION
• Rockville, MD
• August 8, 2007

S. Tien Wong Chairman CEO Opus8,
Inc. twong_at_opus8.com opus8.com (English) opus8.net
(Chinese)
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About Opus8

• Private Investment Firm, established in 2002
• Based in Washington, DC with Offices in Shanghai
• Mid-market Buyouts, Venture Capital
• Investment Focus - North America and China
• Business Process Outsourcing (BPO)
• Call Center, CRM
• Marketing Services (DM, DR, Database)
• Opus8 Differentiators - Value-adds
• People, Customer Acquisition Marketing,
  Customer Lifecycle Management/CRM, Business
  Process Engineering
• Entrepreneurs investing in Entrepreneurs
• Q4, 2007 - Raising Opus, L.P. China Fund - 50
  million

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Unitel/CyberRep

• Founded in 1992
• 3 friends and 50,000 in credit card debt
• Quality gap in industry (outsourced teleservices
  BPO)
• Customer Service, Billing, Tech Support,
  TeleSales
• Industries Telecom, Financial, Consumer Products
• Differentiators Professionalism, College Grads,
  Dress Codes, Health Insurance, 401(k), Code of
  Ethics and NDAs
• Fortune 500 Clients Microsoft, ADP, Merck,
  Nextel
• Allied Capital - 21 million mezz and equity for
  30
• Sold to Affiliated Computer Services 2003

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CyberRep Growth

• Inc. 500 Winner 4 consecutive years
• Top 50 Service Agency

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Elements of Scaling a Business

• People
• Culture
• Scalable Customers
• Process
• Capital

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Elements - PEOPLE

• Hire for the present with the future in mind
• Balance growth against profitability
• Balance burnout/stress against hiring too
  aggressively
• Two Critical Character Traits
• Flexible and resourceful
• Essential in Start-ups no support staff, no
  money
• Everyone is a Utility player
• Smaller companies can win with Speed
• Must know limitations
• Critical errors can be made
• TEAM concept supsersedes Egos

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Elements PEOPLE (2)

• The BIG 4 Musts for hiring A players
• Passion self-motivation, work ethic, infectious
• Energy The fuel for the journey
• Execution delivering accurate and timely
  reaults
• Enthusiasm ability to energize
• Assessment Rejuvenation
• Regular assessments
• Identify future leaders and development plans
• Rejuvenation of C Players is a win-win for all

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Elements - CULTURE

• Growth
• Attitude of Aggressiveness
• Thats why you are in Business to Grow
• Morale, winning culture
• Opportunistic WHY?
• Results are never as budgeted
• Marketing plans always vary
• Client requirements change
• Flexibility
• Client requirements
• Market conditions
• Competition

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Elements Scalable Customers

• What is a Scalable Customer?
• Partner mentality (vs. Vendor-Vendee mentality)
• They understand you need to make a profit
• They know that nobody is perfect there will be
  hiccups
• Growing Fast
• Examples telecom, deregulating utilities,
  financial
• If they grow, the rising tide can lift your boat
• Requires tremendous discipline
• Know when to say NO!!!
• Balance grabbing revenue vs. staying focused
  (one of the hardest things in business)

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Elements - PROCESS

• Do it, implement it, live it without Process,
  you cannot scale successfully for the long term
• Why do it?
• Brings Discipline, focus, analysis
• Downsides
• Takes time, costs money, people hate change
• Which Processes to map and engineer?
• All key functions (innovation, managing growth,
  business acceptance, hiring and retention,
  internal communication, etc.)

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Elements - CAPITAL

• Growth requires Money function of your industry
  and how fast you are growing
• Money is a commodity You have Choices!
• Raise money with Partners, not Investors
• Deep pockets
• Understand your space
• Track Record
• Operations experience, where can they add value
  for you?
• Raise more than you need but not too much
• Better to have No Investor than a Bad Partner

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Summary - Advice for Scaling

• Integrity
• Great people
• Focus on your customer
• Be flexible
• Build a culture early
• Be persistent
• Overcapitalize
• Have FUN!

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Why China?

• Tremendous Market Opportunity
• Tremendous Economic Growth
• 1 FDI
• Fastest growing economy
• Favorable government policies
• Worlds Largest Consumer Market
• Explosive Growth in Middle Class
• Huge Need for Business Services and Information
  Infrastructure
• Timing (We are early in a long-term horizon)

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Chinas development agenda

• Double per capita GDP in 2012 from 2000
• Decrease energy consumption per dollar of GDP by
  20 by 2010
• Develop domestic intellectual property and brands
• Develop technology industries
• Lower poverty level
• Establish basic social security system
• Further improve fiscal, tax and financial systems
• Improve energy efficiency, environmental
  protection and health-care system
• Etc. etc. etc.

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combined with social trends

• Rapid Urbanization (300m moving by 2015)
• Emergence of Middle Class
• Increased Disposable Income
• Dire Need for Improved Healthcare Delivery
• Increased Automobile Property Ownership
• Unprecedented Usage of Internet and Mobile Phones
• Etc. etc. etc.

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leads to opportunities in Services. (Examples)

• Consumer Lending (mortgages, credit card,
  consumer finance)
• Insurance
• Banking Investment Management
• Data processing
• Healthcare
• Value-added telecommunications
• Travel leisure
• New media
• Environmental Services
• Outsourced Information Services

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Emergence of Chinas Middle Class
1. Base Case forecast Q1 2006
Source McKinsey Quarterly 2006 Special Edition
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Urbanite Spending Power On the Rise
1.Some Figures do not sum to 100 due to
rounding 2. Base case forecast Q1 2006
Source McKinsey Quarterly 2006 Special Edition
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Middle Class Chinese Consumer Behavior
1. Base case forecast Q1 2006 2. Some Figures
do not sum to 100 due to rounding
Source McKinsey Quarterly 2006 Special Edition
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Outsourced Information Services

• B2B publishing, information aggregation/distributi
  on
• Marketing services
• Analytics and business intelligence, database mgt
• Credit scoring, collections, etc.
• Internet-related information distribution
• ITO (IT Outsourcing)
• BPO
• Call center technical support
• Customer Care
• Information processing, data entry
• Imaging services
• Finance Accounting, HR Outsourcing (HRO)
• Claims processing

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China BPO Market

• Excellent Labor Force
• Availability
• Education system
• Work Ethic
• Value (cost vs. quality)
• Technical Infrastructure
• FDI and MNC Attention
• Ambition and Attitude of Entrepreneurs and
  Managers
• Lots of Runway
• Still very early in the game
• Percentage growth vs. mature markets

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Global BPO Percentage Growth
China BPO exponential growth this year
Source 2005 Offshore Services Survey of BPO
services
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BPO Usages

• Customer Care
• Customer Order fulfillment services
• Business intelligence services
• FA
• General accounting
• Operational support services
• Procurement
• Sourcing
• Category management
• HR
• Records management
• Payroll and compensation planning

Source IDC U.S. BPO Survey, 2006
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• Call Centers in China
• ???????

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China Call Center Market ????????

• Continued Potential - Japanese, Korean etc. -
  ???? - ?????
• Huge Potential - Chinese Language services - ????
  - ??????
• Example Call Center ratios in US vs. China -
  ????????
• Today 2.5-3 in US 5m 0.01 in China
  100,000 ???? ?????
• Potential 250-300x growth, 50 larger than US
  (spend ) ????
• Industries - Follow Evolution in West - ????????
• Telecom - ??
• Financial Services - ????
• Healthcare - ????
• Consumer - ????
• Service Offerings Evolution - ???????
• Customer Acquisition - Sales Marketing, obvious
  value - ????
• Customer Care - Service support - ???????
• Billing and Collections - ????
• Customer Lifecycle Management - winback,
  cross-sell. - ????????

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Which Industries will use Call Centers????????????

• Telecommunications - ??
• Travel (eLong, Ctrip) - ??
• Banking consumer finance (credit cards, etc.) -
  ????????
• E-commerce (buying selling support) - ????
• Computer Hardware (technical support) - ?????
• Software (tech support) - ??
• Consumer Products - ?????
• Life insurance - ????
• Automotive (auto clubs, gasoline credit cards,
  dealer) - ??
• Government (database, benefits administration,
  help desk) - ????
• Healthcare - ????

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Which Companies will outsource Call Centers?
??????

• Companies facing fierce competition - ????
• Companies who compete on service- ???
• Companies who view CRM as a weapon and not a
  cost
• ?????????
• Public companies - measured by customer retention
  -????
• MNCs initially who have prior experience - ????
• Clients of cutting-edge consultants and ad
  agencies - ????
• Government Monopoly and SOEs will be final
  frontier ????

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What kind of work will be Outsourced???????

• Revenue Generation - Sales, Cross-selling, Lead
  Gen, etc. - ???
• Easily measured, tangible results - ????
• Easier to sell internally - ????
• Can be switched on and off easier - ???
• Winback - discrete campaigns (calling
  ex-customers) - ???
• Direct Response Sales (client more dependent) -
  ??
• Customer Service - higher degree of dependency -
  ??
• Technical Support - very high degree of
  dependency - ????
• Billing will be last (more sensitive information,
  privacy issues) ??
• The more intimate the service, the slower the
  client will be in outsourcing - ?????????

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Opus8 Call Center Strategy????????

• Mandarin Language serving China market -
  ?????????
• Start with MNC Clients we know - ??????
• Simple initial projects - ????
• Locate in good labor markets HZ - ???????
• Sales office in SH, closer to client base -
  ????????
• Seek Government sponsorship - ??????
• Seek management team with overseas talent-
  ???????
• Implement western processes and procedures -
  ??????
• Utilize areas where we can add Value - ??????
• Customer Relationships - ????
• US Contacts - ????
• CRM/BPO expertise - ??????/????????
• Operations - ??

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If you want to Invest in China

• Visit China
• Study the Culture and the History
• Make the Government your Partner - CHINA, Inc.
• Build your network friends 1st, business 2nd
• Be prepared to work long and hard
• Where can you add value? (customers, skill,
  network)
• Pick the right vehicle direct investment, JV,
  co-invest, Fund
• Understanding Time is Key
• Long Term Horizon - patience is key
• China is a High Barrier market - there is real
  value in longevity
• Go Slow

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Thank You Good Luck !

• twong_at_opus8.com
• 1-301/913-9500