A Dedication to Service

B PA / P O u t s o u r c i n g S u m m i t O c t o b e r 2 0 0 9 P a g e 1

Emerging Global BPO SectorsMoving up the Value Curve

Presented by: Larry Jones, CEO StarTek, Inc.

October 2009

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Discussion Topics

• Background

• Trends in BPO Industry

• Impact of Current Economy Downturn

• The Emerging KPO Sector

• Future BPO Mega-Trends

• How Can the Philippines Remain Competitive?

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Overview

Founded in 1987Headquarters in Denver, CO, USA

20 Delivery Centers in the U.S., Canada, Philippines, and Costa Rica

Employees: 9,000Publicly Traded since 1997 (NYSE: SRT)

2008 Revenue: $273 Million11% Revenue Growth in 2008 and 2009

Customer Care & BPO • Sales & Sales Support• Consumer & Business Care• Receivables Management• Technical & Field Support• Order Management &

Provisioning• Account Management

Industry Focus:Communications & Technology

• Telco & Wireless• Cable/Broadband/Satellite• Content Provider Services• Consumer Electronics• Software, Systems & Internet

Denver, ColoradoHeadquarters

A Dedication to Service

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Trends in the BPO Industry

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The Evolution of Outsourcing

Logistics & Fulfillment

Computing Services

Call Centers

IT Services

Back Office (BPO)

Knowledge Process (KPO)

1960s’ 1970’s 1980’s 1990’s 2000’s 2003 2009

Mainframe Computers

Low Cost TelcoPBX Switch

Software Platforms

Offshore LaborGlobal Connectivity

Outsourcing Enablers

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The Outsourcing “Value Stack”

Facilities

Labor

Technology

Facilities

Labor

Technology

Process

Facilities

Labor

Technology

Process

Facilities

Labor

Technology

Process

Intellectual

Facilities

Labor

Technology

Process

Intellectual

Logistics & Fulfillment

Computing Services

Call Centers

IT Services

Back Office (BPO)

Knowledge Process (KPO)

Facilities

Labor

Technology

Process

Intellectual

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Sector Comparisons

Onshore Call Center

OffshoreCall Center

OffshoreBPO

Offshore IT

OffshoreKPO

Functions Voice VoiceVoice and Non-Voice

Non-Voice Non-Voice

Work Time Day Night Day or Night Day Day

Source: Company Reports, Baird & Co.

KeyLocations

USCanada

PhilippinesLatin Am.

India

IndiaPhilippines

IndiaPhilippinesEast Europe

India

Wages ($US) $8-10 $3-4 $2-4 $5-7 $15+

Attrition 80-120% 50-60% 25-35% 15-20% 15-25%

Skills Required

ComputerConversational

Tech or Care

AccentGrammar

ConversationalTech or Care

IntuitiveProcess

TechnicalAnalytical

EngineeringProgrammer

Education High School College College College/MBA MBA

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BPO Trends - Client Perspective

In light of the economic downturn, we are observing:

1. Less transaction volume (sector specific)

2. Increasing % of outsourcing (for cost savings)

3. Accelerating migration to offshore (for cost savings)

4. Increased focus on revenue generation (selling skills)

5. Eliminating non-performing vendors

6. Slower decision cycles (risk averse)

7. Deploying technology to offset labor costs

8. Heightened concern about risk (disaster recovery)

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BPO Trends - Vendor Perspective

1. Chasing new labor markets– Less Canada and Europe; More use of at home agents in U.S.– Accelerating use of traditional offshore– Larger vendors expanding into emerging markets

2. Focused on profitability– Client retention– Selective price increases– Operating efficiencies– Use of Shared Services to reduce SG&A costs

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BPO Trends - Vendor Perspective

3. Focus on growing verticals sectors– Healthcare is new hot sector– Communications continues to grow– Financial Services needs cost savings

4. Moving up the value stack (improved margins)– Less labor and facilities focus– Better use of technology (client driven)– More process (BPO)– More intellectual (KPO)

A Dedication to Service

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Knowledge Process Outsourcing … The Hot Spot!

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What is KPO?

The KPO term was coined by Evalueserve’s Chief Operating Officer, Ashish Gupta, in September 2003, in an effort to differentiate between his firm’s services and those of the established BPO firms

BPA/P defines KPO as: an extension of BPO involving greater business complexity and focusing on knowledge-intensivebusiness processes that require significant domain expertise. Knowledge workers delivering these services are highly educated and trained, and trusted to make important decisions on behalf of their clients.

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KPO vs. BPO

KPO has more:

• Complex processes that provide guidelines but not rules

• Agent judgment rather than rule driven

• Higher agent level skills (MBA vs. BA)

• Higher agent wages ($15 vs. $4)

• High interactivity with other corporate teams and processes

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KPO Functions

• Investment research; financial modeling• Company and industry reports• Credit risk analysis• Valuation of companies• Equity and Capital Market analysis

Equity and Financial Research and Analytics

• Market research and analysis• Data mining and report preparation• Customer analytics

Business and Marketing Research

and Analytics

• VLSI and chip design• Simulations• Product design support• Prototype development

Engineering and Design Services

• Offshore drug discovery• Clinical research

Pharmaceutical Research Outsourcing

Source: TPI

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KPO Services Segments

Projected 2010 KPO Usage by Segment

Data Research, Integration & Management

29%

Biotech & Pharma

18%Engineering and

Design12%

Remote Education & Publishing

12%

R&D12%

Animation & Simulation Services

8%

Other9%

Source: NASSCOM.

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KPO Growth and Delivery

The KPO market is growing at 34% CAGR

India dominates the KPO Sector and will do so for the near future

Other markets are rapidly expanding into KPO

Global KPO Industry Total Sales $4.4 Billion

Global KPO Industry Total Sales $16.7 Billion

2006-07 2010-11

Source: “India’s KPO Sector: Origin, Current State, and Future Directions” by Alok Aggarwal, Chairman, Evalueserve (2008)

Other 30% Other 33% India 67%India 70%

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KPO Value Proposition

Facilities

Labor

Technology

Process

Intellectual

• Real estate cost savings• Minimal value

• Significant labor savings• Access to scarce labor markets• Selection and training

• Basic technology infrastructure • Advanced analytical tools

• Proprietary processes• Process portability• Integration with onshore operations

• Functional and industry knowledge• Patents and IP

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KPO Vendor Challenges

• Availability of Skills

• Training Requirements (and associated costs)

• Portability of Processes (complex and not well defined)

• Lack of Economies of Scale

• Protecting Intellectual Property Rights

• Legal and Licensing Issues

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KPO Wrap-up

• KPO represents the next stage in the evolution of the business process outsourcing market

• The KPO market continues to grow in maturity and adoption

• Offshore delivery (primarily India) still dominates KPO

• Clients will continue have concerns over the outsourcing of core business functions

• Many vendors are aggressively moving up the value curve into KPO segments

A Dedication to Service

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Future BPO Mega-trends

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The Evolution of Outsourcing

Call Centers

IT Services

Back Office (BPO)

Knowledge Process (KPO)

1980’s 1990’s 2000’s 2003 2010 2015

Low Cost TelcoPBX Switch

Software Platforms

Offshore LaborGlobal Connectivity

Outsourcing Enablers

What’sNext?

Mobile Devices/PDAsHome ConnectivityCloud Computing

Global Issues: Energy, Health

1. Technology over Labor2. At Home Agents3. New Vertical Industry Growth

Three Mega-Tend Predictions

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1. Technology over Labor

Technology (not labor) will drive BPO “value-added”– Self-help via user friendly technology– Technology assisted agents (email, chat, social networking)– Analytics (customer, market, operational, sales)

TODAYPDAs & KiosksEmail, IM, ChatSocial Networks

Web Information Access

Data AnalyticsCloud Computing

Reports

FUTURE

Business Intelligence

Self HelpAgent Assisted Chat

Multi-Channel Support

Phone CarePhone Agents

Research

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2. At Home Agents

Home agents will compliment center based delivery– Why build a call center if agents can work at home?– Reach new labor pools that are not near a call center or able to commute– Rapid adoption in US today; minimal impact for offshore due to connectivity– Requires a lot of technology and a whole new way of managing the workforce– Same technology can automate existing call center processes

TODAYHome Connectivity

VoIPScreen Takeover

eRecruitingeTraining

ChatSocial Networks

FurniturePhones

PCs

Real Estate

FUTURE

At Home Agent

Agent Portal

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3. New Vertical Industry Growth

Certain verticals will lead the growth– Global issues will drive investments: Health & Wellness; Energy– Bio-tech, Healthcare, Clean-Tech, Utilities, Organic Food, Water

TODAY

Global IssuesHealth & WellnessNatural Resources

Customer CareBPOKPO

Retail

Communications

Financial Services

FUTURE

Utilities

BioTechPharma

CleanTech

Organic Food Healthcare

A Dedication to Service

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How Will the Philippines Remain Competitive?

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The Philippines Today

• Strengths– Viewed as #1 for customer care call center– Abundant labor pool of English literate college graduates– Open and team based culture

• Weaknesses– Lagging in BPO, IT and KPO to India– Lack of ample Engineering and MBA talent– Business continuity (weather and Telco)– Mid-management leadership skills (lack of assertiveness and

accountability)

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Recommendations

1. Address the continuity issue– Market to the “perception” issue– Build Redundant infrastructure

2. Address Educational issues– High-end degrees with industry specific skills– Leadership skills (assertiveness and accountability)– Technology literacy

3. Market to the high growth industries– Less about BPO, IT or KPO– More about industry excellence

4. Develop Philippines as a “customer care technology” center– University focus– Adopt call center automation technologies– Develop Infrastructure for next generation technology

A Dedication to Service

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Thank You

asklarry@startek.com