EMEA Location TrendsGCS Consulting

October 14th, 2009

CB Richard Ellis Labor Analytics Group| Page 2

Agenda

Introduction Overview of EMEA Offshoring Market Central and Eastern Europe Where in EMEA? Comparison of CEE Offshoring markets Country Focus- Latvia Latvia- Salary Movement and Arbitrage Opportunity Country Focus- Bulgaria What is next in EMEA? Q&A

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Overview of the Offshoring Market in EMEA

Constrained activity in EMEA in BPO Outsourcing - Q1 2008 to current

Market represents similar signs to 2007

•H1 2008 argued to be an anomaly

•Market Uncertainty

•Decision making delays

Economy should act as catalyst for cost savings and efficiency gains- Has had opposite effect

First 6 months of 2008 saw record levels of activity

Compared to this, we have seen 19% fewer contracts with a 45%

decrease in TCV (TPI)

Weakness is across all regions, including CEE and all functions:

•FM has seen 90% Y-O-Y drop in TCV

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Overview of the Offshoring Market in EMEA

The only major deal in 2009 in EMEA BPO has been AXA-Capita contract

•Outsourcing of policy administration- Annual Net Save- £30m

During 2008 – 2009 there have been limited fresh investments in offshoring back office operations to CEE, though there is an expectation that the financial services sector will invest 40 – 45 times the current market size over the next 5 years (Everest Institute).

Countries continue to offer competitive fiscal and other investment incentives to lure foreign investment

There are still positives:

•Outsourcing levels increased over 2008-2009 in:

– Diversified Financials

– Consumer Durables

– Utilities

– Telecommunications

•There is activity- 2/3rds of UK firms have offshored at least some of their IT functions in H1 2009

– 79% said India was location of choice

But also negatives!

•Slump in activity in:

– Banking

– Oil and Gas

– Aerospace and Defence

– Food, Drink, Tobacco

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Central and Eastern Europe

Potential labour arbitrage opportunity of 65% - 85% in CEE for German/UK operations

– Poland - 65%

– Hungary – 68%

– Czech Republic – 72%

– Russia – 76%

– Romania – 84%

Poland continues to rank #1 in labour pool availability with an approximate supply of c.400,000 fresh graduates per annum, followed by Romania and Czech Republic.

Romania has a larger population than Hungary, Czech and Slovakia.

Very attractive for BPO set-up

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Where in EMEA?

Poland

Czech Republic

Latvia

Lithuania

Estonia

Hungary

Bulgaria

Romania

Ukraine

Montenegro

Macedonia

Slovenia

Bosnia

Albania

Serbia

Croatia

Slovakia

Germany

Austria

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

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Slo

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Latv

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lova

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Ser

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Sw

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land

Bul

garia

Tun

isia

Hun

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Cze

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0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Population

Unemployment

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Where in EMEA?Country Group Commentary

Hungary, Czech Republic, Slovakia, Poland

The countries are relatively mature CEE countries, joining the EU in 2004 and have therefore witnessed a great deal of activity due to lower costs and their strategic position close to Western Europe. Given the size of Hungary, Slovakia and the Czech Republic these markets have tightened, wage inflation and lack of available labour have both been noted by some current operations. Despite this the benefits of experienced, skilled labour, in a relatively stable market (socio-politically) and a strategic location at a cost advantage continue to attract new projects.Poland is the exception – Poland has a much larger population and a spread of office areas across the country, however Poland is impacted to a greater extent by the large migration of workers to Western Europe to secure higher wages. This trend is set to reverse as a result of more job opportunities in Poland, the value of the pound against the zloty dropping and the current economic situation.

Romania, Bulgaria

Romania saw a great deal of interest and activity immediately prior to joining the EU in 2007 given the success of the 2004 accession countries and this activity has continued. Romania is therefore already feeling the effects with wage inflation and strikes to secure higher pay. Romania is a newer market which offers some benefits over the more mature markets such as lower labour costs although increased bureaucracy. Romania does have a good sized population (larger than Hungary, the Czech Republic and Slovakia) and therefore should be able to spread investments. Although Bulgaria joined the EU at the same time as Romania, it lags slightly behind Romania in terms of interest and activity and therefore may be of interest as a less competitive alternative.

Egypt, Tunisia

Tunisia and Morocco are currently seeing a good deal of interest and activity from French companies looking to secure lower cost locations for their operations. These countries both have a good range of sectors including the electronics sector and competitive labour costs being similar to or lower than costs in Romania. CBRE would suggest discounting Egypt – due to the low socio-political score. Although Morocco falls outside the top bracket it may be considered a viable option given Egypt’s discounting.

Estonia

As the highest ranking Baltic country, Estonia may be of interest. Generally the Baltics are considered a strategic location for operations that will also serve Russia and/or Scandinavia. Estonia is a good sized country, experiencing high levels of competition and has the advantage of a relatively stable business environment having joined the EU yet with lower labour costs. Latvia, its neighbour scores lower but may be considered as a viable alternative as Riga is attracting a lot of interest at the moment due to highly skilled finance and accounting specialist staff

Serbia

Despite not being in the top ranking, Serbia could be a strategic alternative. It is receiving a good amount of interest as companies seek a less competitive, lower cost market and given that it is not due to join the EU for a number of years, these advantages could be enjoyed for a good period of time before significantly increased activity and associated factors impact the market.

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Comparison of the Key CEE Offshoring Markets Country Key Destinations

(Cities) Comments

Poland Warsaw, Katowice, Krakow, Lodz, Poznan, Bydgoszcz

Offshoring centres are spread relatively widely throughout the Poland with the key players concentrating in Warsaw, Lodz, Krakow and Wroclaw. Substantial wage differentials and economic benefits has led to organisations investing in 2nd tier cities such as Olsztyn

Czech Republic

Prague, Brno, Ostrava, Plzen

Prague continues to be the main offshoring destination in Czech Republic with smaller concentration in other university towns.

Hungary Budapest, Székesfehérvár, Debrecen

Offshoring in Hungary is not widespread and is concentrated very heavily in and around Budapest, which is driven by lack of adequate infrastructure and resources elsewhere in the country. University cities such as Debrecen and Pécs nevertheless offer a strong supply of highly qualified labour and substantially lower wages and therefore have high potential to absorb demand from the offshoring sector.

Slovakia Bratislava, Banská Bystrica

Most offshoring activity in Slovakia is concentrated in and around the conurbation of Bratislava. Lower wage costs and the availability of qualified labour in other university cities (such as Zilina and Kosice) present opportunities for further investments in future.

Croatia Zagreb Zagreb continues to be the only major city in the country which has been attractive to the offshoring sector. Croatia continues to have one of the highest wage costs in CEE which has become the biggest deterrent for the expansion of offshoring in this country

Romania Bucharest, Timisoara, Brasiv and Sibiu

Bucharest is the focal point of the country's offshoring activities with small clusters developing in Timisoara and Brasov

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The Second Wave?

Country Focus- Latvia

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Economy has one of the highest growth rates in Europe

Ease of Doing Business is 29/181 EU Structural Fund Incentives available depending on

project Excellent transport links Low salary costs Low corporate income tax- 15%

Economic challenges due to climate Rising unemployment levels- 12.7% by 2011 Main sectors effected by downturn- Construction,

Production and Trade Sectors

STRENGTHS

WEAKNESSES

Population: 2,276,100 Working Age: 1,497,479 Unemployment Rate 6.1% Availability of English speakers 39% Main cities

Riga 717,371 Liepaja 85,050 Jelgeva 65,635

54.4 University students per 1000 inhabitants Total students- 125,350 English, Russian and Germany spoken in

schools 70% of under 40’s speak English Main Universities

Riga Technical University if Latvia Riga Stradina University Latvia University of Agriculture

Tieto Shared Service Centre in Riga

COLLEGES & UNIVERSITIES

RECENT DEALS

CEE Market- Rising LABOR AVAILABILITY

Latvia

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Latvia: Competitive position with other CEE countries

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Latvia: Average Monthly Gross Earnings and Labour Costs in the main cities

Difference of €300 per month on Gross Earnings and €400 per month on Labour Costs

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Gross Monthly salary in EUR for key positions in Financial Shared Service Centres

Low Medium High

Head of Finance and Accounting

2.000 2,660 3,650

Accounting Manager

1,400 1,850 2,000

Accountant 1,000 1,200 1,400

Accounts Clerk 500 600 800

Country Focus- Bulgaria

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With Romania it is newest member of EU (2007) Popular destination for international distribution

companies operating in Asia and Europe Ease of Doing Business is 28/181 EU Structural Fund Incentives available depending on

project 13th in AT Kearney rankings Shared Service Centre's offer English, Russian, Polish,

German and Scandinavian

Economic challenges due to climate Competition from Baltic republics- Lithuania has made

significant growth in annual rankings

STRENGTHS

WEAKNESSES

Population: 7,606,600 Working Age: 4,830,159 Unemployment Rate 6.6% Availability of English speakers 23% Main cities

Sofia 1,240,788 Plovdiv 705,121 Varna 459,613

Number of graduates – 78,332 Main universities and higher education

Sofia University New Bulgarian University Trakia University Tech University of Sofia American university in Bulgaria

HP- Global Support Centre (400) IBM- Procurement (tbc) MoneyGram- Customer Support Centre (70)

COLLEGES & UNIVERSITIES

RECENT DEALS

CEE Market- Rising LABOR AVAILABILITY

Bulgaria

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What is Next in EMEA?

Poland/Czech Republic/Hungary reaching saturation on labour costs Romania and Bulgaria emerging as credible locations Latvia/Lithuania South Africa/Egypt/Morocco creating noise

• Supporting operations in France/UK due to similar time zones ITO is booming more than BPO in EMEA Big Question- Where are EU Incentives? Labour Arbitrage moving away from Poland, Czech Republic and Hungary toRomania, Bulgaria and Baltic States CBRE Clients looking at usual criteria:1. Low labour costs2. Skilled Labour set3. Language Availability4. Incentives

Our focus is now on how we offer our “Cradle to Grave” Corporate Services offering to them.

Egypt

Morocco

Tunisia

Bulgaria

Incentives may be available in the form of tax breaks and low cost land.

Ukraine

There may be incentives available for an expansion or to keep the project and jobs in Switzerland

Switzerland

Serbia

Montenegro

Bosnia & Herzegovina

Budget for incentives comes from State budget therefore financial assistance is limited. Tax incentives and subsidised land are usually

Albania

Republic of MacedoniaMoney comes from the State budget. In addition,

have access to pre-accession funds.

Croatia

Slovenia

Slovakia

Romania

Poland

Lithuania

Latvia

Hungary

Estonia

EU members, therefore structural funds are available from the EU to use to provide incentives to

attract foreign investors

Czech Republic

Availability

Egypt

Morocco

Tunisia

Bulgaria

Incentives may be available in the form of tax breaks and low cost land.

Ukraine

There may be incentives available for an expansion or to keep the project and jobs in Switzerland

Switzerland

Serbia

Montenegro

Bosnia & Herzegovina

Budget for incentives comes from State budget therefore financial assistance is limited. Tax incentives and subsidised land are usually

Albania

Republic of MacedoniaMoney comes from the State budget. In addition,

have access to pre-accession funds.

Croatia

Slovenia

Slovakia

Romania

Poland

Lithuania

Latvia

Hungary

Estonia

EU members, therefore structural funds are available from the EU to use to provide incentives to

attract foreign investors

Czech Republic

Availability

Contact Information

For more information, please contact:

Ashu KaushalAssociate Director

+44 (0)207 182 3033ashu.kaushal@cbre.com

Jamie MurrayHead of Location Analysis-EMEA

+44 (0)207 182 3346jamie.murray@cbre.com

CB RICHARD ELLIS

GCS EMEA Consulting