Georgian National Investment Agency€¦ · We note that this report has been extracted and amended by the Georgian National Investment Agency from the report prepared by us on IT&BPO

Georgian National Investment Agency

IT&BPO Sector Research

This report has been extracted and amended by the Georgian National Investment Agency from the report prepared by KPMG Georgia LLC on IT&BPO Sector Research in November 2015. For the full report, please, contact the Georgian National Investment Agency.

2© 2015 KPMG Georgia LLC, a company incorporated under the Laws of Georgia, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

All rights reserved.

Disclaimer

Our findings, observations and/or recommendations are those that we could reasonably derive from the procedures or scope of services performed. The specific procedures performed were agreed with Georgian National Investment Agency (the Client) and were performed by us as set forth in the Report.

Our work was carried out solely based on the publicly available research data.

We have indicated within our Report the sources of the information presented and have satisfied ourselves, so far as possible, that the information presented in our Report is consistent with other information which was made available to us inthe course of our work in accordance with the terms of the Contract. We have not, however, sought to establish the reliability of the sources by reference to other evidence.

All recommendations, provided to you with/in this Report that refer to the future have some limitations in the sense that they are based on the assumptions valid on the issuance date. These assumptions could change with time, after the date of this Report issuance, and so could lose their value.

References to 'KPMG Analysis' in this Report indicate only that we have (where specified) undertaken certain analytical activities on the underlying data to arrive at the information presented; we do not accept responsibility for the underlying data.

We note that this report has been extracted and amended by the Georgian National Investment Agency from the report prepared by us on IT&BPO Sector Research in November 2015. For the full report, please, contact the Georgian National Investment Agency.



Acknowledgment

During our analysis we have interviewed a number of CEOs and HR professionals of different companies in Georgia to get their view on the investment climate, talent pool, IT&BPO potential in Georgia. The brief description of these companies is given below:

Companies interviewedHR outsourcing company focused on recruitment, training and consultingHR outsourcing company focused on recruitment, consulting and HR function outsourcing, such as payroll maintenanceHR company focused on recruitmentBPO company focused on call centreLocal call centerITO company focused on IOS games and mobile applicationsITO company focused on software developmentITO company focused on web development and data analysisITO company focused on web development, hosting and trainingLargest Georgian IT services companyGeorgia’s Innovation and Technology AgencyInternational real estate company focused on valuation, brokerage, development services and construction servicesInternational real estate company focused on feasibility studies, brokerage, valuation and capital markets/investmentLocal real estate company focused on valuation, leasing and consultingInternational law firmInternational company engaged in real estate developmentInternational energy company engaged in hydropower plant operationInternational company engaged in port operationA group engaged in hospitality industry across GeorgiaAudit, tax and advisory firmTop Georgian Bank (HR and IT departments)Georgian insurance companyGeorgian healthcare organizationGeorgian medical centreBusiness Association of Georgia



Table of Contents

Section 1: Assessment of the Global Market Page 7

Section 2: Top services outsourced Page 21

Section 3: IT&BPO Market Overview in Georgia Page 30

Section 4: Overview of Human Resources and Cost Base in Georgia Page 34

Section 5: Benchmarking of Georgia vs Competitor Countries Page 66

Section 6: Investment proposals - Targeted IT&BPO segments Page 85

Appendices Page 104

Contents

Section 1Assessment of the Global Market



What is the regional demand for offshoring/ outsourcing?North America and Europe continue to generate bulk of the demand for IT&BPO services, with APAC increasing its share in recent times

• North America and Europe together constitute over 80% of demand. APAC is gradually increasing its share ofdemand, through increased offshoring adoption by countries such as Japan, Australia and New Zealand

• North America, largest market for IT&BPO grew above industry average, supported by revival of economy andhigher technology adoption

Rest of EMEA

162.2 35.6

IT BPO

Note: Numbers might not add to 100% because of rounding off

306.8

182.6

IT BPOAMERICAs

49%157.2

90.5

IT BPO

24%

% share of the global demand

Source: KPMG Research and Analysis, HFS Global IT and BPO Services Market Report 2013

598.7 631.1 651.8 679.7

267.9 282.4 296.3 321.3

2011 2012 2013 2014

IT BPO

Geography-wise break-up of IT&BPO demand in 2014 (in bn USD)Historical IT&BPO demand (in bn USD)

Central Europe

20%

7%53.4

12.7

IT BPO

APAC

489.4247.7

66.1

197.8

Note: Central Europe includes Austria, Croatia, Czech Republic, Germany, Hungary, Liechtenstein, Poland, Romania Slovakia, Slovenia, Switzerland

866.5 913.5 948.1 1,001.0



What is the growth by functional demand expected over the next five years? The global IT&BPO industry is expected to continue an upward trajectory

156 164 172 179 187 196

78 82 87 92 97 103

344 363 382 392 412 432

135 140

145 150 155

160

29 32

34 36

39 42

57 61

65 68

72 76

47 50

53 57

60 64

207 220

234 245

259 275

2015E 2016E 2017E 2018E 2019E 2020EIT Infrastructure Management ADM IT Professional Services Other IT Services

F&A BPO CRM BPO HR BPO Industry Specific

IT&

BPO

Mar

ket 2

015-

2020

For

ecas

t (in

Bn

USD

)


Note: Industry-specific BPO processes includes sector/ vertical specific activities like: Securities processing, payment processing, mortgage processing in Banking, Health payer, property & casualty admin in Insurance. Welfare benefits administration in Government. Medical records maintenance in Healthcare. Billing in Telecom. Ticketing, reservations management in Transportation

IT CAGR 4.5% to 5.0%BPO CAGR 5.7% to 6.3%

1,054 1,111

1,1721,219 1,281

1,347IT&BPO CAGR (2011-14): 4.9%



What is the demand for offshoring/ outsourcing in AMERICAs?AMERICAs have pioneered offshoring in terms of adoption across functions and industry verticals, as well as cost to business value led propositions

20.7%10.7%

48.7%

20.0%

306.8

ITInfrastructureManagement

ADMIT ProfessionalServices

Other ITservices

Total Demand

• USA generates over 90% of the total demand for IT&BPOservices in this region

• IT outsourcing market demand is characterized by increaseduse of cloud-based and automated services

*Demand in 2014 (in bn

USD)

8.2%15.3%

17.3%

59.2%

182.6

F&ACRMHRIndustry SpecificTotal Demand

IT s

ervi

ces

BPO

ser

vice

s

Key countries for IT&BPO demandDemand by function*


Strong Demand

Moderate DemandLow Demand

Canada

USA

Mexico




What is the demand for offshoring/ outsourcing in EMEA?EMEA demonstrates continued growth in adoption and is characterized by diverse nature of demand across countries



Other ITservices

Total Demand

• EMEA constitutes over 30% of global demand

• Increased demand, driven by cost pressures emanatingfrom sovereign debt crisis, economic challenges andregulatory constraints


USD)F&ACRMHRIndustry SpecificTotal Demand

IT s

ervi

ces

BPO

ser

vice

s


Source: KPMG Research and Analysis, HFS Global IT and BPO Services Market Report 2013, news articles

UK

Spain

France

Germany

Poland

Czech Republic


53.4

157.2

6.6%12.3%

10.0%

36.3%2.5%10.1%

6.2%15.9%

12.7

90.4

4.1%

55.8%

0.3%11.1%

0.3%10.2%

1.3%16.9%

Note: Central Europe includes Austria, Croatia, Czech Republic, Germany, Hungary, Liechtenstein, Poland, Romania Slovakia, Slovenia, Switzerland

Central Europe

Rest of EMEA

• IT&BPO market in Russia was estimated atUSD 1.9 bn in 2013, growing 15% from 2012.Main demand comes from internationalcompanies, governmental, trade and financialorganisations. IT infrastructure management isthe most demanded/developed.segment.

Strong Demand Moderate Demand Low Demand



What is the demand for offshoring/ outsourcing in APAC?Demand across APAC region has accelerated in recent times, with consolidation and business efficiency as key drivers rather than only wage arbitrage

24.2%

9.8%

45.5%

20.5%

163.8



Other ITservices

Total Demand

• There is a strong domestic market for IT&BPO services inmany of the APAC countries which primary offshoring beingdone from Australia and New Zealand

• Language and culture are some of the key barriers foroffshoring in these regions


USD)

Strong Demand

Moderate DemandLow Demand

6.2%21.7%

3.1%

69.0%

35.8

F&ACRMHRIndustry SpecificTotal Demand

IT s

ervi

ces

BPO

ser

vice

s



China

India

Japan

Australia

New ZealandNote: Industry-specific BPO processes includes sector/ vertical specific activities like: Securities processing, payment processing, mortgage processing in Banking, Health payer, property & casualty admin in Insurance. Welfare benefits administration in Government. Medical records maintenance in Healthcare. Billing in Telecom. Ticketing, reservations management in Transportation



Vertical trendsFinancial Services, Manufacturing and Telecom continue to be largest verticals in terms of IT&BPO spend

No. of contracts

2012 2013 2014

• Financial services, Telecom and Manufacturing industries are major consumers of IT and BPO services due to the presence of relatively higher coverage of both horizontal processes and domain-specific work

• While organizations have explored both captives and service providers across the value chain, each of them have their own set of pros and cons which have been carefully analyzed to decide the sourcing model

Source: KPMG Research and Analysis, KPMG Deal Tracker

6.7 6.4

1.42.9

7.6

4.42.2 0.8 1.9

12.3

3.2

8.5

1.8 1.5 2.44 4.8

2.1 1.7 1.1

15.5

3.9

10.8

1.7

4.2 45.6 5.8

2.4 0.6 0.6

19.8

4.3

85

83

64

46

27 2222

23

14

58

58

5074

7078

51

66

50

41

20

27

11

2315 40

33

28

162

125

127

101

89

77

Financial Services

Insurance Automotive and

Aerospace

Travel and Logistics

Manufacturing Energy and Utilities

Pharma and Healthcare

Publishing, Media and

Entertainment

Retail Telecom Others

Dea

l Val

ue (U

SD b

illio

n)



45%

28%

26%

24%

22%

18%

14%

11%

6%

FinancialServices

Pharma

Retail

Energy

Healthcare

Government

Manufacturing

Telecom

Chemicals

Demand for outsourcing by Industry

Source: KPMG Global Pulse Survey 1Q15, NASSCOM Strategic Report 2015, KPMG Research and Analysis

• Financial Services and Manufacturing contribute majority of the IT&BPO market demand

• Emerging verticals like Retail, Healthcare, Travel & Transportation and Utilities are the new growth areas for IT&BPO market

31%

32%

25%

12%

Financial Services Manufacturing Communication & Media Emerging**

Vertical trendsEmerging verticals like Healthcare, Retail and Utilities will drive the next wave of IT&BPO market growth

Market Demand % by verticals % of users in each industry willing to outsource in the next 12 months*

100% = Total IT&BPO Market Demand

*KPMG Pulse survey is a quarterly review of global business services (GBS) market trends with inputs taken from 500+ KPMG sourcing advisors and leading global service providers** Emerging verticals: Retail, healthcare, travel & transportation, utilities, government and education



Brief review of the key industriesFinancial Services (1/2)

Industry Overview Key Delivery locations

Key Drivers for Offshoring in Financial Services

• Impact on the overall revenues through sophisticated financial analyses and cash management to offer better credit terms to customers, thereby increasing customer base

Transformation focused

Re-engineering full processes like:• Cash management, resulting in

higher float• Forecasting, resulting in better

accuracy of forecast

Optimization focused

Reduce cost per FTE by offshoring transactional processes:• Accounts Payable• Accounts Receivable

Savings/ Efficiency focused

• Bengaluru, Mumbai, Metro Manila, Chennai and Singapore are the major locations preferred by Financial Services firms for outsourcing and setting up captives

• The preference of a location also depends on the functions performed:

• BPO: India (Bengaluru, Mumbai, Delhi NCR), the Philippines (Metro Manila) and Malaysia (Kuala Lumpur)

• IT: India (Bengaluru, Mumbai, Chennai) and the Philippines (Metro Manila)

• Financial Services account for 31% of the total vertical spend. The banking sub vertical is the largest segment in this vertical

• The vertical contributes to more than one third of the market in terms of total employee headcount

• Nearly 15% of the captive market in terms of number of centers present across the globe is accounted for by Financial Services vertical

Source: KPMG Research and Analysis



Brief review of the key industriesFinancial Services (2/2)

Offshorable/ Outsourceable

Retained in business unit / head office

% of Activities

50%

50%

Product development

Marketing

25%

75%

Transaction processing

20%

80%Treasury

operations

50%

50%

Control/ compliance

20%

80%

Merchant services

60%

40%Institutional relationships

90%

10%

Business acquisitions

10%

90%Channel Management

25%

75%

Account servicing

10%

90%

• The Financial services industry is the most mature when it comes to offshoring/ outsourcing and have leveraged the same for many of their industry specific processes.

• The industry is now pioneering the offshoring of functions like real-time analytics to enhance their capabilities in opportunity identification, risk management etc.


Services which may be

This graph indicates the typical percentage of processes split between the offshored/ outsourced

organization and the parent organization

ILLUSTRATIVE



Brief review of the key industriesManufacturing (1/2)


Key Drivers for Offshoring in Manufacturing

• Use offshoring to lower the basic cost of the product

• Penetrate new markets using providers’ presence in several countries to open up markets

Transformation focused

Create the optimal environment to support delivery and management of production through effective:• Supply Chain Management• Logistics• Deductions management• Warehouse management


Achieve direct cost savings by offshoring transactional pieces• Benefit Admin• Query resolution• Accounts payable


• Manufacturing along with Financial Services continue to be largest verticals accounting for more than 60% of the total vertical spend

• Nearly one-fourth of the captive market in terms of number of centers present across the globe is setup by firms in Manufacturing

• IT services outsourced include application development, maintenance, helpdesk and data center support

• Bengaluru, Chennai, Krakow and Singapore are the major locations preferred by manufacturing firms for outsourcing and setting up captives


• BPO: India (Bengaluru, Chennai, Pune), the Philippines (Metro Manila), Poland(Krakow) and Singapore

• IT: India (Bengaluru, Chennai) and the Philippines (Metro Manila)




• Offshoring in Manufacturing industry has been largely concentrated on horizontal services with Customer interaction and F&A support being relatively more mature

• While the level of retained processes will remain the same, HR and Procurement as new areas of opportunity which the sector is yet to explore


Retained in business unit /

head office

% of Activities

90%

10%

Production operations

Marketing

25%

75%

Logistics

90%

10%

Sales and after-sales operations

25%

75%

Material management

90%

10%

90%

10%

Safety management

80%

20%

Quality management

80%

20%

Compliance management Warehouse

management

90%

10%

Brief review of the key industriesManufacturing (2/2)





ILLUSTRATIVE



Brief review of the key industriesTelecom (1/2)


Key Drivers for Offshoring in Telecom

Transformation focused Optimization focused Savings/ Efficiency focused

• Bengaluru, Delhi NCR, Chennai , Metro Manila and Budapest are the major locations preferred by Telecom firms for outsourcing and setting up captives


• BPO: India (Chennai, Delhi NCR), the Philippines (Metro Manila) and Hungary (Budapest)

• IT: India (Bengaluru, Delhi NCR)

• Telecom, one of the mature sectors continues to implement large scale outsourcing

• The vertical contributes to around 6% of the market in terms of total employee headcount

• Nearly 5% of the captive market in terms of number of centers present across the globe is accounted for by Telecom vertical


Move towards advanced capabilities by • Allowing greater control over

operations• Flexibility to change business

models when required• Ability to bring quickly new

products and services into market

Improve process accuracy and create operational excellence by creating an optimal environment to support various activities• Inbound customer service• Customer invoicing• Service renewals, up selling and

cross- selling

Achieve direct cost savings by offshoring • Telecom infrastructure into cloud

thereby eliminating cost of ownership

• Professional technical support lowering payroll costs




Retained in business unit / head office

% of Activities

• The Telecom industry is the one of the most mature industry when it comes to offshoring/ outsourcing and have implemented large scale outsourcing

• A number of players in the industry are now offshoring entire domains like IT, mobile network operations and cable network to service providers





Brief review of the key industriesTelecom (2/2)

Marketing

25%

75%

Fulfilment

20%

80%

Network Management

20%

80%

Product Development

90%

10%

Assurance

10%

90%

Billing

10%

90%

Channel Management

90%

10%

Customer Acquisition &

Support

25%

75%

ILLUSTRATIVE



Brief review of the key industriesHealthcare (1/2)


Key Drivers for Offshoring in Healthcare

• Increase patient access and usage by lowering cost of healthcare

• Move towards advanced capabilities, thereby :

• Reduced medication errors• Evidence based medicine• Multi-media EMR• Consumer & Physician driven

portals

Transformation focusedImprove process accuracy by creating an optimal environment to support patient-focused activities and cross-functional care• Medical records management• Patient administration• Revenue cycle management• Claims denial management• Medication errors


Achieve direct cost savings by offshoring transactional pieces• Customer data acquisition and query

resolution• Medical transcription


• Bengaluru, Mumbai, Hyderabad, Singapore, Cork and Poznan are the major locations preferred by healthcare firms for outsourcing and setting up captives. Majority of the healthcare captives are present in India


• BPO: India (Bengaluru, Mumbai, Hyderabad), Singapore, and Ireland (Cork)

• IT: Poland (Poznan)

• Healthcare along with retail, government and utilities are the emerging verticals accounting to around 30% of the total vertical spend

• Within overall captive market, healthcare vertical is small accounting to only 4% of the number of captives across the globe

• The vertical contributes to only 1% of the market in terms of total employee headcount






head office

% of Activities

50%

50%

Product development and Business Acquisition

New business

25%

75% Revenue cycle management

50%

50%

Denial management

50%

50%

Healthcare collections

10%

90%

Medical records

management

10%

90%

Claims processing

10%

90%

Policy servicing

and reporting

10%

90%

Eligibility services

90%

10%

• Increasingly dynamic and active regulatory environment and escalating geopolitical risks are some of the key drivers which determine the offshorability of the processes in the healthcare space

• While many of these industry specific processes have a high degree of offshorability, healthcare captives are found to a minimal extent as compared to other industries

Brief review of the key industriesHealthcare (2/2)





ILLUSTRATIVE

Section 2Top services outsourced



34%

6%2%1%

17%1%

35%

5%1%

IT Infrastructure ADMF&A KPOIT Professional Services HROOther IT services CRMOther BPO Services

Services outsourced % by functions

• IT Infrastructure and other IT services contribute to almost 70% contract value of the functions outsourced by the top 30 companies

ADM Application Development Application Testing

IT Infrastructure

Maintenance & Support Data Management Security

Other IT Services

Network Support Network Security Multimedia Services

F&A Finance & Accounting Payment Processing

HRO Payroll Management

CRM Customer Care Sales & Marketing

KPO R&D Product Engineering Services

Processes outsourced in each function

ILLUSTRATIVE

Services outsourced by companies with strong demand for IT&BPO servicesIT infrastructure support drives the need for offshoring among the top 30 companies

Source: KPMG Research and Analysis, KPMG Deal Tracker

100% = Total annual contract value by top

30 companies

Other BPO Services

Logistics Facility Operations and Management Services

IT Professional

Services

System Integration Information Management Software Implementation



Typical TCO1 savings between US and captive destinations2

2014; percentage

1. TCO (Total Cost of Operations): Indicates total cost incurred by captives in providing support for service delivery. This includes operating cost as well as costs associated with set-up transition and governance of the captive2. Costs of US destinations corresponds to tier-2 cities, while costs of captive destinations correspond to tier-1 cities

India Philippines China Mexico Poland Brazil

80-82%

74-76%

69-71%

65-67%

56-58%

49-51%

47-49%

41-43%

41-43%

41-43%

29-31%

28-30%

BPO Services

Source:: KPMG Research and Analysis

IT Services

How much do companies save by outsourcing/ offshoring? Depending on the outsourcing destination, typical cost savings for companies range from 30% to 80%



Low level of Complexity

Order Capture, Revenue Accounting

Journal Entries, Accounting Policies

Cost Accounting, Inventory Accounting

Tax Accounting

Banking operations

Management Reporting and analysis

NewProduct Evaluation

Financial Consolidation, Statement Prep

Travel & Expenses

Payroll services

High level of

Complexity

AP Helpdesk

Inventory Accounting

Capital planning and budgeting

Tax Returns, Transaction Tax

Capital Planning & Allocation, Debt Management

Internal Audit, SOX project management

Decision Support, Performance Management

InvestorRelations, Regulatory Filings

What are sub-functions/areas likely to be offshored/ outsourced? F&A services with varied complexity across the value chain are being offshored/ outsourced

Source: KPMG Research and Analysis, NASSCOM Strategic Review 2014

• F&A offshoring segment has seen rapid growth over the past decade . A large % of various processes in F&A are readily offshorable

• Captives/ Service providers are evolving into specialist delivery centers to deliver greater impact to the business in terms of higher value and greater cost savings

TaxManagement

Compliance Management 50%

Business Analytics

50%

GeneralAccounting

90%

10%



head office

20%

80%

20%

80%95%

TreasuryManagement

Fixed Asset Accounting

80%

20%

Travel expenses

93%

7%

93%

Accounts Payable/

Receivable

7%

100%

PayrollPeriod Close

and Consolidation

% of Activities

5%

This graph indicates the typical percentage of processes split between the offshored/ outsourced organization and the parent organization


ILLUSTRATIVE

60%

40%



What are sub-functions/areas likely to be offshored/ outsourced?Multiple HR services are being offshored; however global vs. regional models need to be considered for each sub-function

• HR outsourcing is relatively in a nascent stage compared to IT and F&A with selected process being offshored

• Workforce administration, leave management, payroll & recruiting & staffing are the most offshored functions

• Captives/service providers play a critical role in providing the bandwidth for HR organization to resolve critical issues

• HR processes have a strong dependency on organizational and country culture as well as local regulations/ legislations which need to be thoroughly analysed while deciding the sourcing

Source: KPMG/ Equaterra survey covering more than 50 HR outsourcing contracts

63%

37%

100%

87%

PayrollServices

BenefitsAdministration

82%

RecruitmentAdministration

WorkforceDeployment

22%

MobilityServices

78%

18%

40%

60%

31%

69%

CompensationServices

EmployeeCare

Services

81%

19%13%

Governance



head office

% of Activities




ILLUSTRATIVE


Payroll Processing, Reimbursements

Health & Welfare Administration

Severance Administration,Employee Data Management

Offer Mgmt., HR support line

Rewards statement, Survey and job analysis

Learning Administration, Performance Planning

Domestic travel& relocation

High level of Complexity

Garnishments and liens

Claims, Annual Enrolment,

Worker’s compensation, Safety Administration

Executive Sourcing, Background verification

Executive Compensation, Union Pay management

Training Provisioning, Temporaryworkforce mgmt

Expatriate tax compliance, International relocation

HR Policy, Labor Relations



What are sub-functions/areas likely to be offshored/ outsourced?Customer Relationship Management support is driven by the need for specific regional market understanding

• Organizations are leveraging offshored/ outsourced sales team for hosting live online demos for potential end users, and help them with the product information

• The key drivers for offshoring sales function are time zone advantage and regional market understanding to penetrate the market

• The function is gaining importance since customers prefer talking directly to a representative of the parent organization rather than a distributer/ a reseller/ a retailer

Source: KPMG Research and Analysis,

LeadGeneration

87%

13%

Finalizesolution

60%

40%

Periodic update & Knowledge session

47%

53%62%

38%

DeliveryManagement

57%

Planning & Identification

43%

87%

13%

Requirements Analysis & fulfilment



head office

% of Activities




ILLUSTRATIVE


Identify revenue opportunities, Data base creation of prospective clients

Lead Generation through email/ phone, Create customer awareness

RFI process, Identifyright solution

Coordinate with technical team for implementation

Reporting/ escalating issues, liaising between internal departments

Day to day interaction with leading vendors


Resource requirements, Target Market Understanding

Market strategy for lead generation, Market research on client organization

Presentation/ proof of concept, understanding customer needs

Deal finalization and closure

Arrange site visits, coordinate with client representatives

Business review with customers once a quarter



What are sub-functions/areas likely to be offshored/ outsourced?KPO services scope has expanded significantly, driven by adoption across engineering services and analytics

• Knowledge economy, access to specialized skill, time-to-market are some of the key drivers for KPO growth

• Increasing awareness and the advent of digital economy has shifted the mindset of key business decision makers to use data for competitive advantage through business analytics and intelligence driven KPO functions


Legal services

50%

50%

Engineering services

25%

75%

Content development &

publishing

25%

75%

Market research & data analytics

10%

90%

Financial research & analytics

10%

90%



head office

% of Activities




ILLUSTRATIVE


Contract Drafting, Patent Search

Finite Analysis Writing, editing & designing, Contentplanning & proofing

Secondary Research, Report Writing

Industry Research, Company Valuation


Legal Research, Coding & Transcription, Litigation support

Value Engineering, 2D & 3D modelling

Data Warehousing Primary research, surveys

Equity Research & Analysis, Due Diligence & Risk Management



What are sub-functions/areas likely to be offshored/ outsourced?Within IT services, offshoring penetration across sub-functions and organizations continues to increase, besides ongoing delivery model innovation


• Most of IT processes are readily offshorable and IT is one of the pioneering services when it comes to offshoring

• Captives/ Service providers are evolving into IT shared service centers or delivery centers to deliver greater impact to the business in terms of higher value and greater cost savings

• IT Outsourcing has over the years been a key focus of process improvement initiatives and overall service delivery excellence

Retained in business

unit / head office

% of Activities





40%

60%

Data Mgmt.

15%

85%

End User Services

60%

40%

Enterprise Program

Mgmt.

75%

25%

Compliance/ Controls

Mgmt

70%

30%

IT Governance

Mgmt.

50%

Infrastructure

50%

65%

35%

Mgmt. Support

40%

Application Development &

Maintenance

60%

45%

55%

Data Centre

40%

60%

Network

ILLUSTRATIVE


Low level design, Coding & Review

Maturity Assessment

Data Centre Support

Information Management

Desktop Support –On Site & On call

Risk Management

Maintenance & Support,Database Management

Policy Monitoring

Asset Management

Network Support

High level of

Complexity

Business Requirement, High Level Design

Data Security

Data CentreSecurity, Data Centre Strategy & Architecture

Business Intelligence

Enterprise Computing

Quality Management & Assurance, Performance Management

Security, Planning & Design

Policy Administration

Quality Management

Network Security



How is the function-wise adoption changing over time?F&A and IT have the highest preference for offshoring/ outsourcing, followed by HR, Supply Chain Management, CRM and other functions

55%

64%

30%

21%15%

7%

61%65%

35%

17%

10%6%

62%59%

32%

20%

12% 12%

IT F&A HR Supply ChainManagement

CRM Industry specific

1Q13 1Q14 1Q15

*The interpretation of the graph from the KPMG Pulse Survey 1Q15: 62% of Respondents indicate that the demand for IT will increase in the next 12months in 1Q15 as compared to 1Q14 when 61% said that there will be an increase in demand** SMAC refers to the social, mobile, analytics and cloud platformsKPMG Pulse survey is a quarterly review of global business services (GBS) market trends with inputs taken from 500+ KPMG sourcing advisors and leading global service providers

IT offshoring/ outsourcing is increasing globally with all pervasive adoption of SMAC** services which will continue over the next few years

F&A and Supply Chain Management processes are the low-hanging fruit when Organizations look at offshoring/ outsourcing and these are the functions which drive the BPO growth globally

Supply chain and HR are increasingly offshored. While end to end offshoring/ outsourcing is still nascent, companies leverage offshoring for definite cost advantages

Source:: KPMG Research and Analysis, KPMG Global Pulse Survey 1Q15

Section 3IT&BPO Market Overview in Georgia

Current state of Georgian IT&BPO industry

Service industry in Georgia



Current state of the Georgian IT&BPO marketThere is no established IT&BPO industry but potential for leveraging experienced talent from other industries

Current state Service industry

• No established IT&BPO industry• Few market players • Mainly based on one-off factors affecting the decision

to establish the business• Mostly small scale up to 50 FTE, but few large

IT&BPO providers over 100 FTE• We estimate total employed in IT&BPO sector at

750-850 FTEs• IT&BPO companies interviewed employ mainly

Georgians

Current state of the IT&BPO industry

Existing IT&BPO companies

Potential for call centers

• In-house call centers extensively used in banking, insurance and telecom industries

• Language skills available• Communication skills available• According to call centers, banks and insurance

companies interviewed currently non of the large Georgian banks, telecoms or insurance companies considers outsourcing their call center

Presence of in-house call

centers


• No specific sectorial focus although largest IT&BPO companies seem to be providing call center, HR outsourcing and IT services

• No specific regional focus, IT&BPO companies service both domestic, as well as English and Russian speaking countries

• The general trend on the market is the growth in the number of small IT outsourcing companies

• No specific expansion plans were identified at the IT&BPO companies interviewed



Overview of service industry in GeorgiaGeorgia has established service culture evidenced by high contribution to GDP


Source: KPMG Research and Analysis, Geostat, National Bank of Georgia

Note: Number of employees for the Banking sector is available for the Q2 2015, however no significant difference expected

• Key service industry in Georgia saw an overall rise during the past 5 years

• This resulted in a significant number of employees with service orientation that can be leveraged for the IT&BPO industry

• The total number of employees in Retail trade, Hotels and restaurants, Tourism, Post and communication and Banking services as at the end of 2014 was 136,143

• The average salary across these industries was GEL 1,033 (USD 585) whereas average salary in Retail trade and Hotels and restaurants only was GEL 556 (USD 315)

GEL 2,318

GEL 4,229

GEL 4,712

GEL 5,551 GEL 5,994

GEL 6,512

GEL 1,293 GEL 1,759 GEL 1,920

GEL 2,215 GEL 2,349 GEL 2,623

GEL 1,104 GEL 1,023 GEL 1,144 GEL 1,196 GEL 1,219

GEL 1,217

GEL 384 GEL 574 GEL 730 GEL 787 GEL 730 GEL 832

GEL 1,223 GEL 1,491 GEL 1,698 GEL 1,887 GEL 2,047 GEL 2,358

2010 2011 2012 2013 2014 2015E

Retail trade

Tourism

Post&communications

Hotels andrestaurants

Banking

Note: (1) 2015 turnover was estimated by annualizing 2015 H1 data on a straight line basis(2) Turnover for the Banking industry comprises interest and commission income

Average CAGR of the key services industries 18%

Overall key services industry’s contribution

to GDP in 2014:69.1%

Turn

over

by

indu

stry

mln

GE

L

Contribution of the key service industries

highlighted to GDP in 2014:42%

- 200 400 600 800 1,000 1,200 1,400 1,600

- 10,000 20,000 30,000 40,000 50,000 60,000

Employment by industry

Number of employees 2014 Average monthly salary in GEL 2014



Overview of top industries in GeorgiaWholesale and retail trade dominates the Georgian market by annual turnover

EnergyHospitality and Real estate Manufacturing Agriculture and Food processing Regional logistics corridorRegional services hub

Sectors with higher potential in Georgia

Georgian National Investment Agency has identified Hospitality and Real estate and Regional services hub as sectors with higher potential in Georgia. Consequently, various initiatives and improvements shall be expected by investors in these areas.

Top industries in Georgia during the last three years are: Wholesale and retail trade, Industry, and Transport and communication.

Note: Banking turnover was calculated from National Bank of Georgia report


Turnover by industry, 2014 in mn GEL

19,237

8,637

5,167

3,356

2,114

730

2,047

6,899 Wholesale and retail trade

Industry

Transport and communication

Construction

Real estate, renting and businessactivitiesHotels and restaurants

Banking

Others

Section 4Overview of Cost Base and Human Resources in Georgia

Cost base Approach for talent assessment

Probable and readily employable talent pool

Supporting assessment of talent



Estimation of the cost base - Cost per FTEWe have estimated the maximum total monthly gross cost per FTE at GEL 1,396 (USD 790) excl. management overheads. No other infrastructure set up costs are identifiedDescription Components

Frequency of

expenditure

Cost in USD per

month per FTE Net

Cost in USD per

month per FTE Gross

Cost in GEL per

month per FTE Net

Cost in GEL per

month per FTE Gross

Rationale

People Costs

Salaries Monthly 200.0 250.0 353.2 441.5

Closer to the lower end of the average salaries was used for IT&BPO average monthly salary . However, increased based on the population survey. Refer to slide 15

Bonus Annual 30.0 37.5 53.0 66.2Annual L&D Annual 11.1 13.1 19.6 23.1New Hire - Recruitment & Relocation One-time 7.0 8.3 12.4 14.6New Hire - Training Annual 16.0 18.9 28.2 33.3Employee insurance costs (not mandatory) Annual 11.3 14.2 20.0 25.0Total People Costs 275.4 341.9 486.3 603.7

Real Estate Costs

Rental Costs (Net USD 15 for 10 sq.m.) Monthly 150.0 177.0 264.9 312.6 A- class offices rent prices used for calculation. Please refer to slide 17

Utilities (Net USD 2.5 for 10 sq.m.) Monthly 25.0 29.5 44.1 52.1 Amortized during 3 yearsRepairs & Maintenance (Net 5.35 for 10 sq.m) Annual 7.4 8.7 13.1 15.4

Asset Rental Charges (for conference rooms etc.)Quarterly 1.9 2.2 3.3 3.9

Other Admin & Infra (Net USD 0.03 for 10 sq.m) Annual 0.4 0.5 0.7 0.8Total RE Costs 184.7 217.9 326.1 384.8

IT Costs

Laptop/Desktop Lease Costs One-time 33.3 39.3 58.9 69.5 Amortized during 3 yearsBandwidth Charges MPLS & Internet Monthly 9.0 10.6 15.9 18.8End User Software Licenses One-time 6.3 7.5 11.2 13.2 Amortized during 3 yearsTelecom costs Monthly 8.0 9.4 14.1 16.7Print Managed Services - printer One-time 0.5 0.6 0.9 1.1 Amortized during 3 yearsPrint Managed Services - consumable Monthly 4.6 5.5 8.2 9.7IT Admin costs Monthly 56.6 70.8 100.0 125.0Repairs & Maintenance Annual 3.5 4.2 6.3 7.4Total IT Costs 122.0 147.9 215.4 261.2

Travel & Transport Costs

Travel Monthly 27.1 32.0 47.9 56.5Transport Monthly 1.9 2.2 3.3 3.9Total T&T Costs 29.0 34.2 51.2 60.4

Other Costs Marketing & Sales Annual 41.0 48.4 72.5 85.5Total Other Costs 41.0 48.4 72.5 85.5Total monthly cost 652.1 790.3 1,151.5 1,395.6

Source: KPMG Research and AnalysisNote: (1) Average of 8 to 12 sq.m was used for area per FTE calculation in accordance with employment density guide. Refer to slide 17Costs in USD was translated into GEL using average 2014 rate of 1.77

Cost base Analysis of talent



Estimation of the cost base - Cost per FTEWe have estimated the minimum total monthly gross cost per FTE at GEL 1,128 (USD 639) excl. management overheads. No other infrastructure set up costs are identified

Description Components Frequency of expenditure

Cost in USD per

month per FTE Net

Cost in USD per

month per FTE Gross

Cost in GEL per

month per FTE Net

Cost in GEL per

month per FTE Gross

Rationale

People Costs

Salaries Monthly 200.0 250.0 353.2 441.5

Closer to the lower end of the average salaries was used for IT&BPO average monthly salary . However, increased based on the population survey. Refer to slide 15

Bonus Annual 20.0 25.0 35.3 44.1Annual L&D Annual 5.5 6.5 9.8 11.5New Hire - Recruitment & Relocation One-time 7.0 8.3 12.4 14.6New Hire - Training Annual 8.0 9.4 14.1 16.7Total People Costs 240.5 299.2 424.8 528.4

Real Estate Costs

Rental Costs (Net USD 13.2 for 10 sq.m.) Monthly 132.0 155.8 233.1 275.0 B- class offices rent prices used for calculation. Please refer to slide 17.

Utilities (Net USD 2.5 for 10 sq.m.) Monthly 25.0 29.5 44.1 52.1 Amortized during 3 yearsRepairs & Maintenance (Net 5.35 for 10 sq.m) Annual 3.7 4.4 6.5 7.7

Total RE Costs 160.7 189.6 283.8 334.8

IT Costs

Laptop/Desktop Lease Costs One-time 16.7 19.7 29.4 34.7 Amortized during 3 yearsBandwidth Charges MPLS & Internet Monthly 9.0 10.6 15.9 18.8End User Software Licenses One-time 6.3 7.5 11.2 13.2 Amortized during 3 yearsTelecom costs Monthly 8.0 9.4 14.1 16.7Print Managed Services - printer One-time 0.5 0.6 0.9 1.1 Amortized during 3 yearsPrint Managed Services - consumable Monthly 2.3 2.7 4.1 4.8IT Admin costs Monthly 45.3 41.0 80.0 100.0Repairs & Maintenance Annual 3.5 4.2 6.3 7.4Total IT Costs 91.7 111.4 161.9 196.6

Other Costs Marketing & Sales Annual 32.8 38.7 58.0 68.4Total Other Costs 32.8 38.7 58.0 68.4Total monthly cost 525.7 639.0 928.4 1,128.3


Note: (1) Average of 8 to 12 sq.m was used for area per FTE calculation in accordance with employment density guide. Refer to slide 17Costs in USD was translated into GEL using average 2014 rate of 1.77




1,594.9

1,233.1 1,160.7 1,156.1 1,048.7 1,090.7

970.4

727.4 504.6

719.4 772.0 786.0

538.4 534.2 457.0

865.2 786.0

Financialintermediation

Publicadministration

Transport andcommunication

Construction Production anddistribution ofelectricity, gas

and water

Mining andquarrying

Real estate,renting and

businessactivities

Health andsocial work

Fishing Othercommunity,social and

personal serviceactivities

Manufacturing Wholesale andretail trade;

repair of motorvehicles andpersonal and

householdgoods

Agriculture,hunting and

forestry

Hotels andrestaurants

Education Average Median

GEL

Labour costHighest salaries are earned in the financial intermediation sector

Source: GEOSTATE. National Bank of Georgia, KPMG Analysis

Note: Information from GEOSTATE was obtained in Georgian Lari and average salaries in USD were calculated using National Bank of Georgia’s information of FX rates during first quarter of 2015.

Average salary for IT&BPO sector is estimated to be closer to the lower end of the average salaries at USD 250

Source: Caucasus Barometer

Average – GEL 865

Median – GEL 786

Average monthly gross salary, 2014

Generally largest average monthly gross salaries are in the Financial intermediation sector and the lowest are in Education, Hotels and restaurants and Agriculture. Overall average monthly salary for 2014 was GEL 865 (USD 490 at average 2014 exchange rate).




A7% A-

7%

B+23%

B1%C

20%

D42%

Leasable office space in Tbilisi by class, 2014

467

890 902 927160

160 160 160

0

200

400

600

800

1000

1200

2013 2014 2015 F 2016 F

Thou

sand

s sq

.m

Tbilisi Regional business centers

Office stock in Georgia (1/2)Around 460,000 sq.m leasable offices are available in Tbilisi

39%

30%

25%23%

8%5% 4%

12%14%

16%19%

17%

24%

16%

4%0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2010 2011 2012 2013 2014

A A- B+

Total office stock supply in Georgia

In Tbilisi office stock supply grew significantly in 2014 In 2015 and 2016 Tbilisi office stock supply is predicted to

increase slightly, compared to 2014, while no changes are expected in the stock of the regional business centers

Around 52% of the office stock in Tbilisi is leasable, the rest is owner-occupied

The biggest share in leasable office space is C and D class offices, under which old Soviet Union buildings and offices in apartments are considered

Vacancy rates in business centers in Tbilisi

From 2010 to 2014 there was significant decrease of vacancy rate for A class offices.

Vacancy rate for B+ class offices also decreased and is currently below 5%

Vacancy rate of A- class offices increased from 5% in 2010 to 16% in 2014

Average modern business centre vacancy rate in Tbilisi stands at around 7% in 2014

52% leasable

Source: Colliers 2014 report




Cost base Analysis of talent Office stock in Georgia (2/2)

Average rent prices range from USD 13 (GEL 23) to USD 22 (GEL 39) per sq.mfor B+ to A class offices

28.924.5

26.7 25.322.4 22.4 22.4

20.8 17.7 18 1715 15 15

17.9 16.5 15.514 13.2 13.2 13.2

0

5

10

15

20

25

30

35

2008 2009 2010 2011 2012 2013 2014

US

D

A A- B+Source: Colliers 2014 report

Rent price in the regions (USD per sq.m per month excl. VAT and service charges)

Rent prices in Batumi and Kutaisi are almost the same USD 14.3 (GEL 25.3) and USD 14.5 (GEL 25.6) respectively.

For Poti and Rustavi prices per sq,m are USD 8 (GEL 14.1) and USD 6 (GEL 10.6) respectively.

Weighted average rent prices in Tbilisi for leasable office stock (USD per sq.m per month excl. VAT and service

charges) After 2008 average rent prices in Tbilisi for leasable office stock

(excl. VAT and service changes ) were decreasing for all categories of offices

Since 2012 weighted average rents in business centres have been constant to date.

The prime office rent in Tbilisi is around USD 21 (GEL 37) per sq.m. The figure is the same as CEE average.

14.3 14.5

86

0

2

4

6

8

10

12

14

16

Batumi Kutaisi Poti Rustavi

US

D

Average space per FTE is estimated at 8-12 sq.m in accordance with employment density guides IT&BPO industry is expected to use B+ (lower vacancy) and A-(higher vacancy) class of leasable spaces

Source: KPMG Research and Analysis, OffPAT 2010

Utilities are generally paid by the landlord and a fixed surcharge of around USD 2.5 (GEL 4.4) added to the rent price



Telecom, internet and energy distributionInternet and energy distribution

There are four main Internet providers in Georgia - Caucasus Online, Silknet, Magticom and Geocell – they cover almost whole territory ofGeorgia. Price and speed are nearly similar for the companies but generally it depends on the packages that companies offer and canrange from GEL 60 (around USD 27) to GEL 200 (around USD 90) depending on the speed.

In our experience, the average internet cost is GEL 20 (around USD 9) per FTE.

Internet

Energy distribution companies Coverage Other terms

Telasi Covers the whole territory of Tbilisi

The prices per kw/h vary from 0.0728 Gel (0.032 USD) to 0.1356 Gel (0.061USD) excluding VAT. On Consumption stage there are also three types of network: 101kw/h, from 101kwh to 301 kw/h and 301 kw/h and more. Prices per kw/h are: 0.08 Gel (0.0036 USD), 0.1056 Gel (0.047 USD) and 0.15 Gel (0.067 USD) accordingly, excluding VAT.

Energo-Pro Georgia Covers the rest territory of Georgia

For voltage stage network prices per kw/h vary from 0.1154 Gel (0.0518 USD) to 0.168 Gel (0.075 USD), excluding VAT. For Consumer stage network prices per kw/h vary from 0.1098 Gel (0.0493 USD) to 0.1818 Gel (0.0816 USD), excluding VAT.

Energy Distributors

Source: KPMG Research and Analysis, telecom websites, Energy distributor websites




Legal environmentBeneficial legal environment for IT&BPO

• Legal age – 16 years old• Holidays – 24 working days paid and 15 working days unpaid annually• Minimum salary – no minimum wage requirements• Standard working hours – 40 hours per week (48 hours for specified sectors)• Overtime and shifts – to be agreed between employer and employee. Rest time

of minimum 12 hours between working days• Payment for overtime – more than for standard working hours but the exact rate

to be agreed between employer and employee• Termination by employer – 1 month prior written notice and 1 months’ salary or

3-day prior written notice and at least two months’ salary/compensation within30 calendar days of the contract termination

Labor Code of Georgia• The tax legislation of Georgia comprises the Constitution of

Georgia, international treaties and agreements, this Codeand subordinate normative acts adopted in compliance withthem

Tax Code of Georgia

• A business entity shall be registered by the National Agency of Public Registry,a legal entity under public law within the Ministry of Justice of Georgia

• The registration of a foreign enterprise may be re-domiciled in Georgia withoutinterrupting the continuity of the business of the enterprise

• Unless otherwise provided for by the Charter, annual profits and loss shall befixed and each partner's share shall be calculated at the end of each fiscal yearon the basis of the annual balance sheet

• No exception is for services provided within Georgia or abroad.

Law on Entrepreneurs

Tax RatePersonal income tax 20%Profit tax 15%VAT 18%

• Georgia has adopted a law on personal data protection which regulates therequirements for processing personal data and data security, as well as therights of the personal data subject in relation to processing the data

• The law also regulates the transfer of data to other countries and internationalorganisations

Law on personal data protection

Georgia does not have social security tax

Source:: KPMG Research and Analysis

• The state registration in Georgia is performed by NationalAgency of Public Registry (NAPR)

• The registration should be carried out within one working dayafter submitting all required documentation to the NAPR andpaying a state due in the amount of GEL 100 (approximatelyUSD 50)

• A representative office/LLC can be registered on the sameday of submission of documentation and the state duepayable is GEL 200 (approximately USD 100)

• All copies of documentation provided from the country ofincorporation of the Company are to be notarized andapostilled/legalized in that country (where possible), if any.Afterwards the documents are to be translated into Georgianand notarized in Georgia

• Normally the translation costs amount of GEL 15-20(approximately USD 7-10) per each translated standard page

Company set-up costs




Approach for talent assessment Below Middle Management

Current employable talent pool for IT&BPO sector- Fresh

candidates- Experienced

candidates

Multiple filters are being applied to identify the probable talent pool from each of the sources Multiple filters are being

applied to identify the readily employable talent pool from each of the sources

Existing fresh graduates from universities in Georgia

Existing experienced talent across multiple industries

Existing unemployed talent pool

Filter 1Filter 2

Filter 3

Filter 4Filter 5

Filter 6

Probable fresh talent pool (between 20 and 30 years)

Probable experienced talent pool (between 30 and 40 years)

Experienced candidates for IT&BPO

Fresh candidates for IT&BPO

Fresh GradsExperienced ExperiencedUnemployed Unemployed



Approach for talent assessment Middle Management

Probable middle management talent pool

Current employable middle management talent pool for IT&BPO sector

Multiple filters are being applied to identify the probable middle management talent pool from each of the sources

Multiple filters are being applied to identify the readily employable middle management talent pool from each of the sources

Existing middle managers from the experienced talent across multiple industries

Filter 1Filter 2

Filter 3

Filter 4Filter 5

Filter 6

Middle mgt. candidates for IT&BPO

-Experienced

-



Personnel in the band Recruitment Strategy of Personnel

Top Management includes CXO’s and the Head of Functions

Recruitment strategy is a leadership planning and road mapping exercise

Middle Management includes Account Managers, Heads of Projects etc.

Recruitment strategy involvessourcing from the middle management pool of the existing experienced talent pool

Includes all personnel like agents, team leads, quality personnel etc.

Recruitment strategy involvessourcing for 1. Experienced IT&BPO personnel

from:1. Existing experienced

talent2. Unemployed talent

2. Fresh IT&BPO personnel from:1. Fresh Graduates 2. Existing experienced

talent3. Unemployed talent

Approach for talent assessment In a typical organization, at least 70 percent of the employees are below middle management

Top Management

Middle Management

Below Middle Management Employees

10%

20%

70%



Sources of IT&BPOEmployees

Middle Management Below Middle ManagementExperienced candidates

for IT&BPOFresh candidates for

IT&BPO

Fresh Graduates Experienced Talent Pool Unemployed Talent Pool

Approach for talent assessment Candidates between 20-40 years will form IT&BPO talent pool

Middle management is to be recruited only from experienced talent pool because we could leverage the skills of existing middle managers from similar

service industries

Experienced candidates will primarily be tapped from the age group between 30 and 40 years. This bucket needs to be carefully analyzed during recruitment by

the IT&BPO company. While most of them are from the existing experienced talent pool, the

unemployed talent pool also may be leveraged to a smaller extent.

Fresh candidates for IT&BPO sector will be sourced from all the

three talent pools.

Refer to pages 24-27






Probable middle management talent for IT&BPOThere is a pool of around 33 thousand experienced talent for the middle management level in IT&BPO

Middle management

Fresh GradsExperiencedUnemployed

In a typical organization, around 20 percent of the employees are at middle

management level

Employees from Agriculture and Fishing industries may not be

candidates for the IT&BPO sector

Total number of experienced talents was adjusted for talents

unwilling to relocate from regions to capital of Georgia-

Tbilisi estimated at 40%

Some industries like Construction may not have a work culture which is comparable

with the IT&BPO sector

173 171

61 55 33

864

691

2

110

6 22 32.8

Total number ofemployees

Non middle management Non-relevant industries forIT&BPO

Industries with highermedian salary than IT&

BPO

Industries withcomparable work culture

as IT&BPO

Unwilling to relocate fromthe regions to IT&BPO

hubs

Probable middlemanagement level talent

pool for IT&BPO

Tale

nt p

ool (

in 0

00)



Current employable middle management talent for IT&BPOThere is a pool of around 1.3 thousand experienced talent for the middle management level in IT&BPO

Propensity for IT&BPO was determined based on our

assessment of the interest for IT&BPO and career opportunities in each

industry in accordance with our analysis and perception

Total number of talent employable for IT&BPO industry

was adjusted for English language skills in accordance with the self reported statistics

of the age group

Total number of talent employable for

IT&BPO industry was adjusted for computer skills in accordance with

Caucasus barometer 2013 research


was adjusted for soft skills in accordance with our assessment

based on experience

Middle management


33

23

6

1 1 1 Probable middle

management level talentpool for BPO sector

Lack of propensity for BPO Lack of language skills Lack of computer skills Lack of soft skills Middle management leveltalent who are readily

employable in BPO sector

Tale

nt p

ool (

in 0

00)



Assessment of middle management talent for IT&BPO sector (1/2)There is a pool of around 1.3 thousand experienced talent for the middle management level in IT&BPO

Profession Number of employees

Talent -middle

management (%)Note 1

Talent in industries relevant

for IT&BPO 1 (%)

Talent with comparable median salary as IT&BPO

(%)

Talent who work in a similar work

culture as IT&BPO

(%)

Talentwilling to

relocate to IT&BPO hubs(%)Note 2

Talent who have a

propensity for

IT&BPO(%)

Talent with

requisite Language Skills (%)

Talent with requisite Computer Skills (%)

Talent with requisite

Soft Skills (%)

Middle management

level alentwho are readily

employable in IT&BPO

sector

Rationale for the estimates

Agriculture, hunting, foresting

9,677 20% 0% 0% 0% 60% 30% 34% 55% 70% -- The profession is considered to be not relevant for the IT&BPO sector

Fishing 409 20% 0% 0% 0% 60% 30% 34% 55% 70% -Industry 104,116 20% 100% 20% 0% 60% 30% 34% 55% 70% -

Construction 53,410 20% 100% 20% 0% 60% 30% 34% 55% 70% -

Wholesale and retail trade; repair of motor vehicles and personal and household goods

123,460 20% 100% 20% 100% 60% 30% 34% 55% 70% 118

+ Relevant skillset for IT&BPO, such as communication and interpersonal skills, especially in retail

- Average salaries are relatively high, also sales bonuses are common

Hotels and restaurants 27,428 20% 100% 80% 100% 60% 30% 34% 55% 70% 105

+ Relevant skillset for IT&BPO, such as communication and interpersonal skills

- Average salaries are comparable

Transportation and communications

56,765 20% 100% 20% 100% 60% 30% 34% 55% 70% 54

Transportation- Industry is not directly

relevant to IT&BPO sector Communication and tourism+ Relevant skillset for IT&BPO- On average salaries are

relatively high

Source: GEOSTAT, KPMG Research and AnalysisNote: (1) Number of experienced talents was adjusted to arrive at managerial level talents for IT&BPO sector. The percentage used represents general trend on the market(2) Basis of our estimates for unwilling to relocate is based on actual population in Tbilisi (30%) and estimation of additional 30% of population willing to move to Tbilisi

Middle management for IT&BPO

ExperiencedUnemployed



Assessment of middle management talent for IT&BPO sector (2/2)There is a pool of around 1.3 thousand experienced talent for the middle management level in IT&BPO


Talent -middle

management (%)Note 1

Talent in industries relevant

for IT&BPO

(%)

Talent with

comparable median salary as IT&BPO

(%)

Talent who work

in a similar work

culture as IT&BPO

(%)

Non-relevant

age group to IT&BPO

(%)

Talent who have a

propensity for

IT&BPO(%)

Talent with

requisite Language Skills (%)

Talent with

requisite Computer Skills (%)

Talent with requisite Soft

Skills (%)

Middle management level talent

who are readily

employable in IT&BPO

sector

Rationale for the estimates

Real estate operations, renting and providing business services

68,225 20% 100% 20% 100% 60% 30% 34% 55% 70% 65- Average salaries are relatively

high, also sales bonuses are common

Education 159,582 20% 100% 80% 100% 60% 30% 34% 55% 70% 608 + Low average salaries

Health and social work 67,824 20% 100% 40% 100% 60% 30% 34% 55% 70% 129

+ Relevant skillset for Healthcare IT&BPO

+ Relatively low average salariesProviding utility, Social and personal services

57,326 20% 100% 40% 100% 60% 30% 34% 55% 70% 109 - Average salaries are relatively high

Financial intermediation 31,813 20% 100% 10% 100% 60% 30% 34% 55% 70% 15

+ Relevant skillset for IT&BPO- Average salaries are relatively

high and better career opportunities

Public administration 104,073 20% 100% 20% 100% 60% 30% 34% 55% 70% 99



Total 864,108 1,302

Middle management for IT&BPO

ExperiencedUnemployed

Source: GEOSTAT, KPMG Research and Analysis



Assessment of fresh talent for IT&BPO sectorMore than 25 percent of fresh graduates pursue higher education or migrate abroad, 65 percent of them are probable candidates for a IT&BPO job

Considering the employment scenario, students from most

faculties will be candidates for an IT&BPO job except niche faculties

like Agriculture

Due to the current economic situation, there is a higher propensity to either pursue

higher studies or move abroad

We estimate that students studying in Tbilisi would prefer

continuing to work there and 75% willing to relocate from the regions, resulting in around 88% students

willing to work in Tbilisi



17.1

0.1

4.4

1.5

11.1

Total number ofgraduates

Non-relevant faculties ofeducation

Loss to highereducation/ migration

abroad

Unwilling to relocatefrom regions to IT&

BPO hubs

Probable fresh talentpool for IT&BPO

Tale

nt p

ool (

in ‘0

00s) 65% of total

graduates



12,223

4,918

Number of graduates

Public Institutions Private Institutions

Total number of Bachelor graduates of HEIs, 2014-2015

Assessment of fresh talent for IT&BPO sectorEconomics and Business, Law and Humanities faculties are some of the areas from where fresh talent can be tapped

Per the Ministry of Education and Science of Georgia, there are 72 registered and authorized higher educational institutions in Georgia (Research Universities-28, Teaching Universities-31, Colleges-13).

Source:: GEOSTAT

TSU provides more than 50 programs. The most popular programs based on the number of graduates during the last three years are shown below.

TSU top programs graduates, 2012-2014

Faculty 2014-2015 2013-2014 2012-2013Economics and Business 3,718 3,346 3,138 Law 3,338 2,693 1,935 Humanities/Arts 3,278 2,746 1,849Other faculties 6,807 6,731 5,332 Total 17,141 15,516 12,254

Most popular faculties during the last three years are Economics and Business, Law and Humanities/Arts.

Source:: TSU

Source:: TSU

20 HEIs

52 HEIs

Tbilisi State University (TSU) is the key HEI. In 2014-2015, TSU students represented 18.5% of total bachelor graduates (3,171 out of 17,141)

879 840

639

782

663

388

131 137 113 112 125 101 145 127 86

- 100 200 300 400 500 600 700 800 900

1,000

2014 2013 2012

Num

ber o

f Gra

duat

es

Economics and Business LawEnglish philology Computer SciencePsychology



The number of graduates from HEIs increased by 40% in 2 years. If such growth trend is maintained, the pool of fresh talent for IT&BPO

will gradually increase



Assessment of fresh talent for IT&BPO sectorOver 17,000 fresh talent graduated HEIs in Georgia in 2015

Source: GEOSTAT, TSU, KPMG Research and Analysis

Bachelor Graduates in 2014-2015 Public Institutions Private Institutions Total

Number of graduates 12,223 4,918 17,141

Less agriculture sector (52) (84) (136)

Total number of graduates except agriculture sector 12,171 4,834 17,005

Fresh talent pool for IT&BPO sector was estimated based on the following information and assumptions:

Total bachelor graduates in 2014-2015

TSU programs and number of total graduates of each program in 2014-2015

Graduates of Agriculture faculty were excluded from total bachelor graduates as agriculture students are not considered to be suitable for IT&BPO industry

Due to lack of detailed breakdown of total bachelor graduates by faculty for Sciences, Education, Services, Business and Law, the number of graduates was extrapolated based on the breakdown in TSU. No extrapolation is used for Engineering, Medicine and Humanities graduates

Total number of fresh talent employable for IT&BPO industry was adjusted with loss to higher education and migration abroad, based on statistical information obtained from GEOSTAT

Total number was adjusted for those unwilling to move to Tbilisi based on extrapolated data of students graduated in Tbilisi and students graduated from Universities in the regions and willing to move to Tbilisi

The adjusted number of 2014-2015 graduates by faculty was further adjusted based on our estimate of the propensity of the graduates to IT&BPO. Please see the calculations and assumptions on the next slide

Total number of fresh talent employable for IT&BPO industry was adjusted for English language skills in accordance with the perception of business representatives (60% as described in the previous slide), computer skills (80%) and soft skills (50%).

Faculties TSU graduates Share in total Extrapolated total bachelor graduates

Economics and Business 879 33% 3,718

Mathematics and Natural Sciences, except Computer Science

246 9% 1,041

Engineering, manufacturing and construction n/a n/a 1,264

Computer Science 118 4% 499

Law 789 30% 3,338

Medicine n/a n/a 1,274

Social and Political Sciences 418 16% 1,768

Journalism 111 4% 470

Tourism 84 3% 355

Humanities n/a n/a 3,278

Total 2,645 100% 17,005





Assessment of fresh talent for IT&BPO sectorEconomics, Business and Law are the key faculties in which the IT&BPO industry would find probable candidates


Faculties Extrapolated total bachelor graduates

Talent who do not pursue higher

education or migrateabroad (%)

Talent willing to relocate to IT&BPO

hubs(%)

Probable fresh talent for IT&BPO Rationale for the estimates

Economics and Business 3,718 74% 88% 2,434 Talent who do not pursue higher education or migration abroad- Many pursue higher education or migrate abroad Talent who do not pursue higher education and migration abroad is based on statistical information of Georgia

Talent willing to relocate to IT&BPO hubs+ Due to the lack of other

options in the region, there is a higher willingness to relocate.We estimate that students studying in Tbilisi would prefer continuing to work there and 75% willing to relocate from the regions, resulting in around 88% students willing to work in Tbilisi

Mathematical and Natural Sciences 1,041 74% 88% 681

Engineering, manufacturing and construction 1,264 74% 88% 827

Computer Science 499 74% 88% 327

Law 3,338 74% 88% 2,185

Medicine 1,274 74% 88% 834

Social and Political Sciences 1,768 74% 88% 1,158

Journalism 470 74% 88% 307

Tourism 355 74% 88% 233

Humanities 3,278 74% 88% 2,146

Total 17,005 11,132





864.1

259.2

7.1

384.4

22.1 103.4

22.3 65.7

Total numberof employees

Middlemanagement

and above

Non-relevantindustries for

IT&BPO

Industries withhigher mediansalary than IT&

BPO

Industries withcomparable

work culture asIT&BPO

Non-relevantage group

Unwilling torelocate fromthe regions toIT&BPO hubs

Probable talentpool forIT&BPO

Tale

nt p

ool (

in ‘0

00s)

25 , 38%

40 , 62%

Experiencedcandidates for IT&BPO

Fresh candidates forIT&BPO

Assessment of experienced talent for IT&BPO sectorAround 8% of the employed workforce are probable candidates for the IT&BPO

In a typical organization, at least

70 percent of the employees are below middle management

Employees from Agriculture and

Fishing industries may not be

candidates for the IT&BPO sector

Total number of experienced talents was adjusted for

talents unwilling to relocate from regions to capital of

Georgia-Tbilisi estimated at 12% of age group 20-30 and

40% of age group 30-40

Some industries like Construction may not have a work culture which is

comparable with the IT&BPO sector

Age group 20-40 years old is considered the most relevant

for the IT&BPO sector




Split of probable candidates for IT&BPO

7.6% of total employee

pool



Assessment of experienced talent for IT&BPO sector (1/2)Education is the key industry in which the IT&BPO industry would find probable candidates


Talent below middle

management (%)1

Talent in industries

relevant for IT&BPO (%)

Talent with comparable

median salary as

IT&BPO (%)


culture as IT&BPO (%)

Talent between 20 - 30 yrs (%)


Probableexperienced talent for

IT&BPO

Rationale for the estimatesNon-

relevantage group to IT&BPO

(%)

Talentwilling to

relocate to IT&BPO hubs(%)2

Non-relevant

age group to IT&BPO

(%)

Talentwilling to


Agriculture, hunting, foresting

9,677 70% 0% 0% 0% 24% 88% 22% 60% - - The profession is considered to be not relevant for the IT&BPO sector

Fishing 409 70% 0% 0% 0% 24% 88% 22% 60% -Industry 104,116 70% 100% 20% 0% 24% 88% 22% 60% -

Construction 53,410 70% 100% 20% 0% 24% 88% 22% 60% -


123,460 70% 100% 20% 100% 24% 88% 22% 60% 5,931

+ Relevant skillset for IT&BPO, such as communication and interpersonal skills, especially in retail

- Average salaries are relatively high, also sales bonuses are common

Hotels and restaurants 27,428 70% 100% 80% 100% 24% 88% 22% 60% 5,271

+ Relevant skillset for IT&BPO, such as communication and interpersonal skills

- Average salaries are comparable

Transportation and communications

56,765 70% 100% 20% 100% 24% 88% 88% 60% 2,727

Transportation- Industry is not directly relevant to

IT&BPO sector Communication and tourism+ Relevant skillset for IT&BPO- On average salaries are relatively

high

Source: GEOSTAT, KPMG Research and AnalysisNote: (1) Number of experienced talents was adjusted to arrive at non managerial level talents for IT&BPO sector. The percentage used represents general trend on the market(2) Basis of our estimates for unwilling to relocate is based on actual population in Tbilisi (30%) and estimation of additional 30% of population willing to move to Tbilisi






Assessment of experienced talent for IT&BPO sector (2/2)Education is the key industry in which the IT&BPO industry would find probable candidates


Talent below middle

management (%)1

Talent in industries

relevant for IT&BPO

(%)

Talent with comparable median salary as IT&BPO

(%)


culture as IT&BPO

(%)



Probableexperienced

talent for IT&BPO

Rationale for the estimatesNon-relevant

age group to IT&BPO

(%)

Talentwilling to


Non-relevant

age group to IT&BPO

(%)

Talentwilling to


Real estate operations, renting and providing business services

68,225 70% 100% 20% 100% 24% 88% 22% 60% 3,278- Average salaries are relatively


Education 159,582 70% 100% 80% 100% 24% 88% 22% 60% 30,666 + Low average salaries

Health and social work 67,824 70% 100% 40% 100% 24% 88% 22% 60% 6,517

+ Relevant skillset for Healthcare IT&BPO

+ Relatively low average salariesProviding utility, Social and personal services

57,326 70% 100% 40% 100% 24% 88% 22% 60% 5,508 - Average salaries are relatively high

Financial intermediation 31,813 70% 100% 10% 100% 24% 88% 22% 60% 764

+ Relevant skillset for IT&BPO- Average salaries are relatively high

and better career opportunities

Public administration 104,073 70% 100% 20% 100% 24% 88% 22% 60% 5,000



Total 864,108 65,662




Source: GEOSTAT, KPMG Research and AnalysisNote: (1) Number of experienced talents was adjusted to arrive at non managerial level talents for IT&BPO sector. The percentage used represents general trend on the market(2) Basis of our estimates for unwilling to relocate is based on actual population in Tbilisi (30%) and estimation of additional 30% of population willing to move to Tbilisi



1,250.3 1,004.4

7.2 145.2

0.7 36.3 13.2 43.3 Total

unemployedPeople outside

labor forceLoss to

migrationNon-graduates Non-relevant

faculty ofgraduation

Non-relevantage group

Unwilling torelocate fromthe regions toIT& BPO hubs

Probableunemployedtalant pool

Tale

nt p

ool (

in ‘0

00s)

Assessment of unemployed talent for IT&BPO sector (1/2) There is a large pool of young unemployed people around 3% of which are probable candidates for IT&BPO

People outside labour force are

retired people and those not actively looking for work

Considering the unemployment scenario, we estimate that 88 percent of talents between 20-

30 years and 60 percent between 30-40 years of the

unemployed talent pool will be willing to relocate to the

IT&BPO hubs

Only about 40 percent of the

unemployed talent are graduates with ~1 percent of them belonging to non-relevant faculties like Agriculture

Approximately 3 percent of the

unemployed talent pool migrates

abroad

Age group 20-40 years old is

considered the most relevant for IT&BPO sector





14 , 32%

30 , 68%

Experienced candidatesfor IT&BPO


3.5% of total unemployed

pool



Unemployed persons suitable for IT&BPO sectorUnemployment rate in Georgia (2014) 12.4%Total unemployed persons in Georgia 1,250,322People outside labor force 1,004,364Total unemployed persons in Georgia (actively looking for work) 245,958 Emigration estimate 2.9% Talent pool who are graduates (%) 39%Talent from relevant faculty of graduation (%) 99%Unemployed persons from 20 to 30 36%Unemployed persons from 30 to 40 25%Talent between 20-30 years who are willing to relocate from the regions to IT&BPO hubs (%) 88%

Talent between 30-40 years who are willing to relocate from the regions to IT&BPO hubs (%) 60%

Probable unemployed talent for IT&BPO 43,350

Assessment of unemployed talent for IT&BPO sector (2/2)Large share of unemployed are in Tbilisi

Source: GEOSTAT, Caucasus Barometer 2013, KPMG Research and Analysis

Kakheti4%

Tbilisi38%

Shida Kartli5%Kvemo Kartli

8%

Adjara A/R12%

Samegrelo and Zemo Svaneti

12%

Imereti16%

The remaining regions

5%

Unemployed by regions, 2014

61% of the unemployed are 20-40 years old. 100% literacy rate and 92% of at least secondary education in Georgia confirms their ability to work for IT&BPO.According to the national statistics 73% of the unemployed pool actively looking for work has some work experience.

Total unemployed: 246 thousand (39% females and 61%

males)

12.6, 5%

89.3, 36%

60.5, 25%

38.7, 16%

42.5, 17%

2.3, 1%

15-19 years

20-29 years

30-39 years

40-49 years

50-64 years

65+ years

Unemployed by age groups, 2014 in thousand persons






Probable below middle management talent pool for IT&BPOThere is a pool of around 120 thousand fresh and experienced talent for IT&BPO







25.2

13.7

38.9

Experienced Unemployed Total pool ofexperienced

candidates forIT&BPO

Tale

nt p

ool (

in ‘0

00s)

11.1

40.4 29.6

81.2

Fresh Grads Experienced Unemployed Total pool offresh

candidates forIT&BPO

Tale

nt p

ool (

in ‘0

00s)

32%

68%

Experiencedcandiates forIT&BPOFresh candidatesfor IT&BPO

The ratio of probable experienced candidates

and probable fresh candidates for IT&BPO is 1:2.3 which helps us build a better pyramid

structure of an IT&BPO organization

Slide 32

Slide 32 Slide 35

Slide 35

Slide 28



Assessment of current employability of fresh talent in IT&BPO sectorGraduates from Mathematical and Natural Sciences, Social and Political Sciences, Engineering and Humanities are more likely to choose IT&BPO


Faculties

Probabletalent for IT&BPO sector

Talent who have a

propensity for IT&BPO(%)

Talent with requisite Language Skills (%)

Talent with requisite Computer Skills (%)


Skills (%)

Talent who are readily

employable in IT&BPO sector

Basis for our estimate of propensity to IT&BPO

Economics and Business 2,434 15% 60% 80% 50% 88

+ Skills in finance and accounting- High competition from banks, insurance companies,

different international/local companies, better career development and higher salaries

Mathematical and Natural Sciences 681 70% 60% 80% 50% 114

+ Computational skills+ Low competition from the industry

Engineering, manufacturing and construction

827 60% 60% 80% 50% 119 + Computational skills+ Low competition from industry

Computer Science 327 50% 60% 80% 50% 39 + IT skills, however insufficient as per business

representatives+ Moderate competition from the industry

Law 2,185 15% 60% 80% 50% 79 - No relevant skills for IT&BPO - High competition from the industry, higher salaries

Medicine 834 15% 60% 80% 50% 30

+ Skills for medical industry IT&BPO+ Low salaries in the industry- More likely to continue studying for a doctor and high

competition from Pharmacies and InsuranceSocial and Political Sciences 1,158 60% 60% 80% 50% 167

+ Basic skills for low end IT&BPO+ Low competition from the industry

Journalism 307 60% 60% 80% 50% 44 + Basic skills for low end IT&BPO+ Low competition from the industry

Tourism 233 30% 60% 80% 50% 17 + Communication and interpersonal skills- High competition from hospitality and tourism sectors

with higher salaries

Humanities 2,146 60% 60% 80% 50% 309 + Basic skills for low end IT&BPO+ Low competition from the industry

Total 11,132 1,006





Assessment of current employability of experienced talent (1/2)Largest pool of experienced talent is expected to come from education

Profession


Talent who have a propensity for

IT&BPO (%)

Talent between 20-30 Talent between 30-40

Talent who are readily

employable in IT&BPO sector


Language Skills (%)1


Computer Skills (%)2


Skills (%)3






Skills (%)3


5,931 30% 71% 64% 50% 74% 47% 50% 366

Hotels and restaurants 5,271 30% 71% 64% 50% 74% 47% 50% 325

Transportation and communications 2,727 30% 71% 64% 50% 74% 47% 50% 168

Real estate operations, renting and providing business services 3,278 30% 71% 64% 50% 74% 47% 50% 202


Note: (1) Basis of our estimates for languages skills (both English and Russian) is Caucasus Barometer analysis for Georgia in 2013(2) Basis of our estimates for computer skills is Caucasus Barometer analysis for Georgia in 2013(3) Number of talents was adjusted with soft skills for IT&BPO sector in accordance with the perception of business representatives






Assessment of current employability of experienced talent (2/2)Largest pool of experienced talent is expected to come from education

Profession



IT&BPO (%)

Talent between 20-30 Talent between 30-40 Talent who are

readily employable in IT&BPO sector



Talent with requisite Computer Skills (%)2


Skills (%)3






Skills (%)3

Education 30,666 30% 71% 64% 50% 74% 47% 50% 1,890

Health and social work 6,517 30% 71% 64% 50% 74% 47% 50% 402

Providing utility, Social and personal services 5,508 30% 71% 64% 50% 74% 47% 50% 339

Financial intermediation 764 30% 71% 64% 50% 74% 47% 50% 47

Public administration 5,000 30% 71% 64% 50% 74% 47% 50% 308

Total 65,662 4,047








Assessment of current employability of unemployed talent There is a pool of around three thousand unemployed talent for IT&BPO



Description



IT&BPO (%)

Talent between 20-30 Talent between 30-40 Talent who are

readily employable in IT&BPO sector



Talent with requisite Computer Skills (%)2


Skills (%)3






Skills (%)3

Unemployed persons suitable for IT&BPO sector 43,350 30% 71% 64% 50% 74% 47% 50% 2,721






Current employable below management talent for IT&BPOThere is a pool of around 8 thousand readily employable fresh, experienced and unemployed talent for IT&BPO

Propensity for IT&BPO was determined based on our

assessment of the interest for IT&BPO and career opportunities in each

industry in accordance with our analysis and perception


was adjusted for English and Russian language skills in

accordance with the perception of business representatives

interviewed and self reported statistics of the age group

Total number of talent employable for

IT&BPO industry was adjusted for computer skills in accordance with

Caucasus barometer 2013 research


was adjusted for soft skills in accordance with the perception

of business representatives interviewed as well as our

assessment based on experience

Split of readily employable candidates for IT&BPO




2, 26%

5.8, 74%

Experienced candidatesfor IT&BPO


0.4% of total active

population

6% of total active

population

36.89 25.93

15.55 7.77

120.1

83.25

10.96

10.38 7.77

7.77

Probable talent pool forBPO sector

Lack of propensity forBPO

Lack of language skills Lack of computer skills Lack of soft skills Talent who are readilyemployable in BPO sector

Tale

nt p

ool (

in 0

00)



2329

3842 41

4754

63

2008 2009 2010 2011 2012 2013 2014E 2015E

27 2832 33 32

35 37 39

2008 2009 2010 2011 2012 2013 2014E 2015E

60%

25%

English

Russian

Assessment of language and computer skillsSignificant share of young talent has sufficient English knowledge while the older population prefers Russian

Source: Caucasus Barometer

Self reported knowledge of English by age groups, 2013

Self reported knowledge, some level of English


Self reported knowledge of Russian by age groups, 2013

Self reported knowledge, some level of computer skills

Around 60% of young population and 40% of overall population has some level of English. Vast majority of the population have some level of Russian but only 22-36% have advanced knowledge.

Self reported knowledge of Russian and English by age groups, 2013

51%38%

22%8%

15%29%

26%

27%

34% 33%52%

65%

18-19 20-30 31-40 41+Other casesBasic or no knowledgeIntermediate and advance knowledge

59%45%

23%9%

41%54%

76%89%

0% 1% 1% 2%

18-19 20-30 31-40 41+Not respondedBasic knowledge or no knowledgeIntermediate and advanced knowledge

78%63% 73% 72%

22%36% 26% 27%

0% 1% 1% 1%

18-19 20-30 31-40 41+

Not respondedBasic knowledge or no knowledgeIntermediate and advanced knowledge

Note: Other cases means not responded or knows one out of two languages

Section 5: Benchmarking of Georgia vs Competitor Countries

City selection Benchmarking



City selectionTbilisi is the first choice for the potential IT&BPO hub in the short run (1/2)


Category Sub-Category Tbilisi Potential Tier II cities: Kutaisi and Batumi

Financial Attractiveness

Employee Salary Cost Average wage in 2014 was GEL 920 (USD 509)Average wage in 2014 in Adjara region (Batumi) was GEL 645 (USD 357) and in Imereti region (Kutaisi) was GEL 505 (USD 280)

Real Estate Costs Average rent in Tbilisi of A- and B+ offices was USD 14.1 per sq.m in 2014

Average rent in Batumi was USD 14.3 per sq.m and in Kutaisi was USD 14.5 per sq.m in 2014

Utility Costs

Electricity costs range from USD 0.04 (GEL 0.07) to USD 0.07 (GEL 0.13) for residential and equal to USD 0.08 (GEL 0.15) for non-residential customers (net of VAT)Internet costs do not vary between regions

Electricity costs range from USD 0.06 (GEL 0.11) to USD 0.10 (GEL 0.18) for residential and from USD 0.06 (GEL 0.12) to USD 0.09 (GEL 0.17) for non-residential customers (net of VAT)Internet costs do not vary between regions

Although Tbilisi is less financially attractive, it has a much larger pool of available talent, higher quality of life and is much better connected to the potential demand countries. In the short-term period Tbilisi is the first choice for a potential IT&BPO hub which is consistent with the global trend of the most developed city in a country becoming a Tier I IT&BPO hub and the hub gradually expanding into Tier II cities.

Source:: KPMG Research and Analysis, GEOSTAT, ColliersNote: Average exchange rate of 2014 was used for the conversion of GEL amounts to USD

AzerbaijanArmeniaTurkey

Russia

Black sea Poti

BatumiTbilisi

Georgia

FIZ

FIZ

Kutaisi

FIZ



City selectionTbilisi is the first choice for the potential IT&BPO hub in the short run (2/2)


Category Sub-Category Tbilisi Potential Tier II cities: Kutaisi and Batumi

Talent Considerations

New Talent Availability9 public and 37 private HEIs in TbilisiWe estimate that 88% of total number of graduates are willing to stay/move to Tbilisi

2 public and 2 private HEIs in Kutaisi and 3 public and 4 private HEIs in Batumi. We estimate that only 12% of total number of graduates are willing to stay/move back to regions

Existing Talent Availability

Small number of IT&BPO companies and other companies where talent may be sourced are mainly situated in TbilisiOver 63% of all persons employed during 2014 were located in Tbilisi

Less than 9% and 8% of all persons employed during 2014 were located in Adjara region (Batumi) and Imereti region (Kutaisi), respectivelyAlthough Adjara has high concentration of persons employed in Hotels and restaurants sector (19%)

Computer skills59% of the population in Tbilisi reported to have intermediate or advanced computer skills in 2013 survey

42% of the population in other urban areas reported to have intermediate or advanced computer skills in 2013 survey

Language Capability35% of the population in Tbilisi reported to have intermediate or advanced knowledge in both English and Russian in 2013 survey

21% of the population in other urban areas reported to have intermediate or advanced knowledge in both English and Russian in 2013 survey

Quality of lifeSocial life suitability Higher, more active social life, larger expatriate

communityLower, less active social life (especially in Kutaisi), smaller expatriate community

Cost of living Significantly higher in comparison to Kutaisi andnot significantly higher than in Batumi

Kutaisi has significantly lower apartment rent prices and food prices compared to both Tbilisi and Batumi

Infrastructure

Real estate availability Total office space in 2014 was 912 thousand sq.m

Total office space in 2014 was 53 thousand sq.m in Batumi and 58 thousand sq.m in Kutaisi

Inter & intra city connectivity Tbilisi international airport has 28 international destinations

Batumi and Kutaisi international airports have 6-7 international destinations each

Telecom infrastructure availability

Mobile and high speed internet is available in all three cities

Mobile and high speed internet is available in all three cities

Reliability of power supply All three cities have uninterrupted power supply All three cities have uninterrupted power supplySource:: KPMG Research and Analysis, Caucasus Barometer, Colliers



SummaryTakeaway

Weaknesses of Georgia

Georgia does not offer sector specific

government incentives offered similar

to the benchmarking countries

Georgia has higher real estate costs

compared to most of the European

benchmark countries

Georgia is not well connected to the

major destinations

All the benchmarking countries have

existing IT&BPO industry with

experienced existing talent while

Georgia is doing its first steps. Also

the number of graduates is much

higher in most of the benchmarking

countries due to the larger size of the

countries

Georgia is still slightly behind in

computer skills but ahead Egypt

While Georgia rankshigh in Ease of doingbusiness and isfinancially attractive,the main areas forimprovement are:- Development of

talent- Inter city

connectivity- Government

incentives

Advantages of Georgia

Georgia is among best

countries for doing business

Georgia is leading in terms

employee salary costs (slightly

behind Egypt) and utility costs

Georgia has much more

flexible labour laws and lower

taxation rates

All the cities have reliable

power supply with hardly any

power cuts

Telecom infrastructure is

comparable across all cities

No major business constraints

were identified in any of the

countries, except that no data

privacy law is established in

Egypt




Assessment ModelCategory Parameters Used


Category Sub-Category Description


Employee Salary Cost Manpower Costs in IT&BPO Sector

Real Estate Costs Real Estate Costs – A- and B+ category premises - USD/sqm/month.

Utility Costs Telecommunications - Voice and Internet, Power/Electricity Costs - USD/per FTE

Business Environment

Ease of doing businessCountry/City ranking in ease of doing business constituting resolving insolvency, enforcing contracts, trading across borders, paying taxes, investor protection, getting credit, registration of property, getting electricity, dealing with permits, starting a business

Business Constraints Regulatory and operational constraints for BPO sector

Labour lawsKey laws governing the labour market which includes minimum wages, standard working hours, key contributions by employer and employee, employee contracts, termination and severance pay

Infrastructure

Real estate availability Vacancy rate, total office space, office locations, availability of SEZs

Inter & intra city connectivity Airports, flights, passenger traffic, transportation

Telecom infrastructure availability Major telecommunication players and services availability

Reliability of power supply Availability of power supply

Benchmarking by categories



Infrastructure




Infrastructure



Financial attractiveness – Salary trendsGeorgia has the second lowest average gross salary but the highest inflation

■ Georgia has the second lowest average gross salary among the benchmarking countries. The average gross salary is highest in Estonia, while it is lowest in Egypt

Average gross salaries, 2014

■ Wage inflation is a critical factor in the evaluation of long-term Cost attractiveness of a location

■ In 2014 the lowest inflation (deflation) was recorded in Slovak Republic

Wage Inflation

Annual Inflation in 2014(In %)

Source: KPMG Analysis, GEOSTAT, Czech republic yearbook, Slovak Republic yearbook, Hungarian Central Statistics Office, Statistics Estonia, Statistics of Egypt, Recruitment Agency websites

3.1

1.3

2.1

-0.2

2.4

3.8

Hungary

Egypt

Estonia

Slovak Republic

Czech Republic

Georgia

335 490

928 959

1,183 1,335

Egypt Georgia Czech Republic Hungary Slovak Republic Estonia

US

D

560-830 710-1,060 980-1,600 1,500-2,580 1,990-2,660 1,330-2,520 ITO

250-490 280-510 800-1,270 860-1,940 1,130-1,990 1,060-1,730 BPO




Financial attractiveness – Real estate costs, utility costsGeorgia has slightly higher office rents than Slovak Republic, Hungary and Estonia but the lowest utility costs among the benchmarking countries

Office Rent, capital cities

■ Office rent costs in Georgia are slightly higher than in Slovak Republic, Hungaryand Estonia

■ In Georgia average monthly office rent for A- and B+ offices amounts to USD 14.5 per sq.m. with the highest rent being USD 30

■ The average office rent costs in the Czech Republic and Egypt are higher than in Georgia by 8% and 30%, respectively

Source: KPMG Analysis, Colliers Country reportsNote: Egypt 2015 Grade A office space costs was extrapolated to arrive at A- and B office costs based on 2012 data

■ Georgia is the most economical location in terms of utility costs

■ Utility costs per sq.m. are highest in Slovak Republic (around 268% higher compared to Georgia) and internet costs are the highest in Egypt

Utility Costs

Source: KPMG Analysis, Eurostat,Note: 1) Utility Costs for benchmarking countries were calculated based on average households and industry electricity price adjusted per Georgia Utility cost ratio

10.0 10.0 11.6

14.1 15.3

18.5

SlovakRepublic

Hungary Estonia Georgia CzechRepublic

Egypt

US

D p

er s

q.m

.

2.5 5.6 7.4 5.7 6.2

3.0

17.13 17.27 18.02 20.4423.09

48.83

Georgia Hungary SlovakRepublic

CzechRepublic

Estonia Egypt

US

D p

er s

q.m

.

Utility Costs per sq.m. Monthly Internet cost (broadband 6 mbps)





Infrastructure



Business Environment: Ease of doing businessGeorgia is among the best countries for doing business

The number of procedures required to register a firm in Egypt amounts to 7 and it takes 8 days

11.5 days and 6 procedures are needed in order to register a firm in Slovak Republic In Czech 15 days and 8 procedures are required to register company

In Hungary it requires 5 days and 4 procedures to register a firm

In Estonia it requires 3.5 days and 3 procedures to start a business

It takes only 2 days to register a firm in Georgia and only 2 procedures need to be undertaken

Ease of doing business ranking from 1-189 indicates regulatory environment is more conducive to the starting and operation of a local firm It includes variety of

indicators with equal weights:oStarting a businessoDealing with construction

permitsoGetting ElectricityoProperty registrationoGetting CreditoProtecting investoroPaying taxesoTrading across bordersoEnforcing contractsoResolving insolvency

Source: KPMG Analysis, The World Bank

Ease of doing business ranking

Source: KPMG Research & Analysis, World Bank Group/ doing business

1624 29

3642

131

Estonia Georgia Slovak Republic Czech Republic Hungary Egypt




Business Environment: Labour Laws (1/2)Georgia has simpler taxation system and lower rates

Source: KPMG Analysis, Labour laws of individual countries, government websites of the countries

Georgia Czech Republic Estonia Hungary Slovak Republic EgyptWorking hours per day

8 8 8 8 8 8

Working days per week

5 5 5 5 5 6

Holiday (minimum) 24 20 28 20-23 working daysdepending on years of tenure

20 21

Minimum wage Remuneration is defined by the counterparties

CZK 7,955 (around USD 288) per month

EUR 355 (around USD 396) per month

HUF 105,000 (around USD 452) per month

317 EUR (around USD 421) per month

Remuneration is defined by the counterparties

Social security tax None Social security contributions – 45% (employee - 11%, employer - 34%)

Social tax - 33 % of which 20 % is allocated for pension insurance and 13 % for health insurance

Unemployment insurance - 2.4% (employer - 0.8%, employee - 1.6%)

Social contribution tax (employer) - 27%

Vocational training contribution (employer) - 1.5%

Pension plan contribution(employee) - 10%

Health insurance contribution in kind- 4%, health insurance contribution in cash- 3%

Unemployment fund(employee) - 1.5%.

Social security tax(employer) - 33%

Unemployment insurance – 3% (employer -1%, employee -2%)

Employee paid social insurance contributions - 13% on basic salary, 10% on variable salary

Employer paid social insurance contributions - 23% on basic salary, 21% on variable salary

Employee paid payroll tax - 20%




Business Environment: Labour Laws (2/2)Georgia is more flexible in terms of employee compensation

Source: KPMG Analysis, Labour laws of individual countries, government websites of the countries

Georgia Czech Republic Estonia Hungary Slovak Republic EgyptIncome tax 20% Flat tax rate of 15%

and an additional7 percent (the “solidarity tax increase”) is applied to income in excess of the maximum annual assessment base for social security contributions (CZK 1,277,328 (around USD 54K) in 2015)

20% 16% 21% Up to EGP 5,000 –0%;EGP 5,001 to EGP 30,000 – 10%;EGP 30,001 tp EGP 45,000 – 15%;EGP 45,001 tp EGP 25,000,000 - 20%;Over EGP 25,000,000 – 25%USD/EGP – 8.03

Payment of overtimeOvertime work shall be compensated by increasing the amount of hourly pay rate or by granting additional time off to an employee in return of overtime compensation that shall be determined by parties

Maximum amount of overtime that can be ordered by the employer is 150 hours per year and maximum amount of overtime with the consent of employee must not exceed 416 hours annually

Overtime compensation includes a supplement of 25% of average hourly wage and in case of holidays surcharge of 50% of the average hourly wage

Additional remuneration per hour of overtime paid to an employee shall not be less than 50% of the rate of the hourly wage

Work during holidays may be compensated either by offering time off or by extra remuneration of at least 50% of the wage rate

Work on public holidays is required to be compensated at a double rate

An employee may be required to work not more than 250 hours in any given calendar year in overtime. In case of collective agreement the hours of overtime may exceed 250 but shall not exceed 300 hours

Work during holidays may be compensated either by extra remuneration of at least 50% of the wage rate

The average weekly work time (including overtime), must not exceed 48 hours

Employer and employee can agree either to compensate overtime or to take additional holiday

Premium for overtime work amounts 35% of an hourly pay for day working hours and 70% for night working hours




Business Environment: Business Constraints (1/2)Regulations are similar and not restrictive in nature

Georgia Czech Republic Estonia Hungary Slovak Republic Egypt

Fore

ign

Empl

oyee

s

No work permit and/or visa/ residence permit is needed for citizens of EU, the US and number of other states for up to 365 days (total of 94 countries)

Usually temporary residence permit is obtained

No work permit is needed for employees from EU/EEA or Switzerland

Citizens from other countries must obtain a work permit оr residence permit

No work permit is needed for employees from EU/EEA or Switzerland for up to three months. After 3 months temporary residence (for 5 years) and afterwards permanent residenceshould be obtained

Work permit must be obtained by third-country nationals

For EU/EEA citizens, depends on bilateral agreements that exist between Hungary and the EU citizen's home country

Third country citizens require a residence permit and work permit

No work permit is needed for employees from EU/EEA or Switzerland

Citizens from other countries must obtain a work permit and residence visa, or they must be holders of the newly enacted Green Card

Work permit must be obtained

Tem

pora

ry E

mpl

oyee

s

No specific requirements were identified

It is not allowed to mediate temporaryemployment for persons with disabilities and foreign nationals from third countries

There is no limit in regulations on number and duration of the contracts between the temporary work agencies and the employee

Generally allowed.However, it is forbidden to hire temporary employees for unlawful work, to break a strike or if the same employee had their employment with the firm terminated in the last six months, during the trial period or by way of ordinary dismissal for reasons in connection with the employer’s operations

In Slovak Republic temporary assignment of employees takes place via the Agency or directly with the employer

The temporary assigned employees are compensated

The temporary assignation shall terminate by lapse of its agreed duration or by agreement of the participants of the employment relationship

No specific requirements were identified

Source: KPMG research & analysis, news articles, government websites of the countries




Business Environment: Business Constraints (2/2)Regulations are similar and not restrictive in nature


Rep

atria

tion

of T

axes

The Country does not have restrictions on currency convertibility or repatriation of capital and profit

No limitations exist concerning the distribution and expatriation of profits by Czech Republic subsidiaries to their foreign parent companies, other than the obligation of joint stock and limited liability companies to generate a mandatory reserve fund and pay withholding taxes (dividends and certain types of other sourced income is taxed at 15%)

Foreign investors are guaranteed unrestricted repatriation of profits and capital

No legal restrictions on the payment of returns on investments (e.g. dividends, interest, repayment of loans) to foreign shareholders

No limits exist concerning taxes repatriation

The law allows 100 percent foreign ownership of investment projects and guarantees the right to remit income earned in Egypt and to repatriate capital

Dat

a pr

ivac

y

The Company has to be in compliance with law of Georgia on personal data protection

The Company has to be in compliance with Act No. 101/2000 Coll., on the Protection of Personal Data of Czech Republic

The Company has to be in compliance with Personal Data Protection Act of Estonia

The Company has to be in compliance with Hungarian General Data Protection Act

The Company has to be in compliance with Slovak Republic Act. on Protection of Personal Data

No data privacy law

Source: KPMG research & analysis, news articles, government websites of the countries





Infrastructure



Infrastructure: Real Estate AvailabilityGeorgia has comparable infrastructure with Estonia, Egypt and Slovak Republic

■ Out of total office space in Tbilisi 46% is modern office stock. 54% of modern stock is leasable. Traditional stock is distributed equally between leasable and owner-occupied offices. The share of office spaces located in A class business centers in total rented space is 7%. A-, B+ and B class offices occupy 7%, 23% and 1% respectively. The biggest share (42%) is C and D class offices, under which old Soviet Union buildings and offices in apartments are considered

■ In Bratislava almost 60% of the space is represented by A Grade office space and more than 40% by B Grade office space

Office stock, capital cities

Vacancy rate

Source: Colliers country reports

■ Occupancy rates in the key locations within Tbilisi are above 90%

■ The vacancy rate in Tallinn continued to trend downwards in Class B1 office buildings, while new office supply somewhat decreased the occupancy rate in the Class A office segment in the first half of the year

4.8%7.0%

11.8%13.5%

16.8%

20.0%

Estonia Georgia SlovakRepublic

Hungary CzechRepublic

Egypt

Source: Colliers country reports

3,277,900 3,198,590

2,000,000

1,543,000

912,367698,930

Hungary CzechRepublic

Egypt SlovakRepublic

Georgia Estonia

m2





Broadband network Fiber optic network available

Fiber optic network available





Main telecom operators

Caucasus Online,Silknet, Magticom, Geocell, Beeline

T-Systems, T-Mobile, Vodafone, O2, Volny,U:fon

EMT, Tele2, Elisa Magyar Telecom, T-Mobile, Vodafone, Telenor

Slovak Telecom, T-Mobile, Orange, O2

Telecom Egypt, Vodafone Egypt, Mobinil, Etisalat Egypt

Networked Readiness index, 2015

4.2 4.5 5.3 4.3 4.2 3.6

Power supply Generally uninterrupted, rare outage

Generally uninterrupted, rare outage





Source: KPMG Analysis, World Economic Forum website, news articles, government websites of the countriesNote: The World Economic Forum's Networked Readiness Index (NRI) measures the propensity for countries to exploit the opportunities offered by information and communications technology (ICT) and seeks to better understand the impact of ICT on the competitiveness of nations

Infrastructure: Power Reliability and Telecom InfrastructureAll cities have good telecom infrastructure and uninterrupted power supply




24 28 31

62

99

124

Estonia Georgia Egypt Hungary SlovakRepublic

Czechrepublic

■ Czech Republic, Slovak Republic and Hungary are well connected to major European cities

■ On an average, the travel time by air from major European cities is around three to four hours to all benchmarking cities, slightly more for Egypt

■ Estonia and Georgia are far behind in terms of the number of direct flights to worldwide destinations

■ Egypt has 72 direct international flights, out of which 41 to less countries in Africa (except UAE which is a common destination among benchmarking countries)

Infrastructure: Inter and Intra City ConnectivityGeorgia, Estonia and Egypt score poorly on overall connectivity

Connectivity

Source: KPMG Analysis, airport websites of the countries

Number of international destinations connected


Section 6Investment proposals –Targeted IT&BPO segments



29 32

34 36 39

42

2015E 2016E 2017E 2018E 2019E 2020E

F&A

Mar

ket 2

015-

2020

For

ecas

t(in

Bn

USD

)

15.0

0.0

9.2

2.2

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

F&A Market demand 2014

Americas Central Europe

Rest of EMEA APAC

F&A Segment F&A Market

• Current demand for F&A outsourcing is USD 26.5 billion• Most of the demand comes from Americas, however the demand from the

EMEA region represents 35% of the total demand and stands at USD 9.3 billion

• F&A sector is expected to grow 43% in the next 5 years

Demand factors

Source:: KPMG Research and Analysis, HFS Global IT and BPO Services Market Report 2013

CAGR 7.7%



F&A Segment Competitive forces and Georgia’s competitive advantage

Talent availability and quality

• F&A BPO in Georgia is in a nascent stage, however talent available among graduates and industry

• Fresh talent in F&A is expected to come from Economics and business faculty which is the top faculty in Georgia, showing 38% growth in the last 2 years

• Ability to tap fresh talent from the young pool of unemployed with 100% literacy rate and 92% of at least secondary education

• Experienced talent in F&A is available in all industries• Quality of fresh F&A talent with basic skills is assessed as high

by business representatives

Cost attractiveness• Lower wage cost compared to other locations in CEE region• Lower utility and internet costs compared to other locations in

CEE region• Comparable office rental prices to CEE countries and high

availability of A-, B+ class office stock• Opportunity to move to Tier II cities in the long-term, with even

lower costs per FTE

Source:: KPMG Research and Analysis, HFS blueprint reports, Progressive Finance & Accounting Business Process Outsourcing Services, March 2015, BPO company websites

Nearshoring opportuinities

• Close proximity and similar time zone with both European and CIS markets

• Presence of cultural affinity with both Europeans and Russians • Scalable English speaking talent but also a large pool of Russian

speaking talent

Business environment• Presence of attractive business environment, ease of setting up

a business• Relatively stable macroeconomic environment compared to the

region• Association Agreement with EU• Flexible labour laws, no minimum wage, no fixed overtime

premium• Low taxation (corporate tax – 15%, no social security tax)• Ability to fully depreciate capital investment in the first year of

operation generating a significant amount of tax loss-carry forward to be used during the first years of operation

• With the largest pool of skilled resources, and process maturity accruing from the established IT industry, India is a leading destination for F&A segment. There is good competition from CEE countries as well

Competitive forces



F&A SegmentTarget operational and financial model

• Current level of talent is suitable for serving the demand from Russia and the CIS in the short term

• Georgia might target BPO companies with no current locations in CIS (for example Genpact or CapGemini) to set up a location in Tbilisi

• In the longer term, given the increase in the number of available talent and increase in their experience level, European market may be targeted both for direct offshoring and through attracting large BPO companies (for example Infosys) to set up locations in Tbilisi as an alternative to CEE countries

Operationalo Accounts payable o Travel and expenseo Credito Accounts receivableo Billing/invoicingo Collectionso Order capture, revenue

accountingo Journal entries,

accounting policieso Cost accounting,

inventory accountingo Fixed asset accountingo Payrollo Intercompany

accountingo Regulatory/statutory

reportingo Management reportingo Risk

management/Treasury

Processes – full range of low-end processes

• Revenue per FTE for low-end work is estimated at USD 11,000 per year• Cost per FTE excluding management overheads is estimated at USD

7,700 per year• Management overheads are estimated at 20% of Cost per FTE• Currently around 7,700 fresh and experienced staff are readily available

for the industry from which 1,500 to 2,000 can be allocated to F&A segment

• Average EBIT margin on similar companies in the industry in Europe ranges from 4% to 9%

• EBIT margin in Georgia is estimated at 16%

Financial

Source: KPMG analysis, SPI Research, CapIQ

16.5

22.0

11.615.4

2.3

3.12.6

3.5

0.02.04.06.08.0

10.012.014.016.018.020.022.0

Conservative Aggressive

milli

on U

SD

EBIT

ManagementoverheadsCost

Revenue



57 61 65 68

72 76

2015E 2016E 2017E 2018E 2019E 2020E

CR

M M

arke

t 201

5-20

20 F

orec

ast

(in B

nU

SD)

27.9

0.2

15.3

7.8

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

CRM Market demand 2014


Rest of EMEA APAC

CRM Segment CRM Market

• Current demand for CRM outsourcing is USD 51.1 billion• Most of the demand comes from Americas, however the demand from the


• CRM sector is expected to grow 32% in the next 5 years

Demand factors


CAGR 5.7%



CRM Segment Georgia’s competitive advantage

Talent availability and quality• CRM in Georgia is the most developed among the BPO

segments with a number of relatively large call centers (between 200 and 500 FTEs) servicing both local and international markets

• Fresh talent in CRM is expected to come mostly from Humanities/Arts faculty which is in top 5 faculties in Georgia showing 77% growth in last 2 years

• Ability to tap fresh talent from the young pool of unemployed with 100% literacy rate, 92% of at least secondary education and average English and Russian skills of 38% and 63% respectively

• CRM experienced specialists are available in the BPO industry as well as in industries employing large call centers, such as banks, telecoms and insurance companies which are in the top 3 industries in Georgia by number of FTEs




lower costs per FTESource:: KPMG Research and Analysis, , Everest Group, news articles, BPO company websites




speaking talent

Business environment

• Presence of attractive business environment, ease of setting up a business

• Relatively stable macroeconomic environment compared to the region

• Association Agreement with EU• Flexible labour laws, no minimum wage, no fixed overtime



• CRM is a long developed IT&BPO segment with established market players all across the world and most companies having locations in CEE/CIS• Contact center outsourcing market is heavily fragmented with top 20 players accounting for less than 40% of the market share, but the market has

seen consolidation over the last 18 to 24 months

Competitive forces



CRM SegmentTarget operational and financial model

• Considering availability of experienced talent in CRM, Georgia can offer direct offshoring/ nearshoring to demand companies

• Georgia might also target BPO companies with no current locations in CIS (for example Teletech which is expanding geography) to set up a location in Tbilisi

• Full range of low-end processes throughout Marketing, Sales and Customer care may be provided in short-term

• Due to low availability of IT talent, digital CRM should be tapped in the longer term perspective

• Georgia should leverage talent in economics/ mathematics to couple voice/non voice customer care with data analytics for improved offering

Operationalo Campaign execution

(loyalty program management, coupon and gift card management)

o Content managemento Lead generationo Cross-sell/Up-sello Omni-channel

customer care (SMS/web chat/email/ social media/voice)

o Search engine and social media marketing

o Data cleansing and consolidation

o Marketing and campaign analytics

o Call center analyticso Customer analyticso Web development, e-

commerce support




for the industry from which 1,000 to 1,500 can be allocated to CRM segment



Financial

11.0

16.5

7.7

11.6

1.5

2.3

1.8

2.6

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0


milli

on U

SD

EBIT


Revenue




47 50 53

57 60

64

2015E 2016E 2017E 2018E 2019E 2020EHR

Mar

ket 2

015-

2020

For

ecas

t(in

Bn

USD

)

31.6

0.0

10.0

1.1

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

HR Market demand 2014


Rest of EMEA APAC

HR Segment HR Market

• Current demand for HR outsourcing is USD 42.8 billion• Most of the demand comes from Americas, however the demand from the


• HR sector is expected to grow 37% in the next 5 years

Demand factors


CAGR 6.5%



HR Segment Georgia’s competitive advantage

Talent availability and quality• HR BPO in Georgia is relatively developed with a number of

small companies servicing both local and international markets• Fresh talent in HR is expected to come from Social and political

sciences faculty as well as Economics and Business which are in top 5 faculties in Georgia. Social and political sciences faculty showed 90% growth in he last 2 years

• HR experienced specialists are available in the BPO and other industries

• Ability to tap fresh talent from the young pool of unemployed with 100% literacy rate and 92% of at least secondary education, as well as average English and Russian skills of 38% and 63% respectively




lower costs per FTE

Source:: KPMG Research and Analysis, Everest Group, news articles, BPO company websites



• Presence of cultural affinity with both Europeans and Russians • Scalable English speaking talent but also a large pool of

advanced Russian speakers with ability to understand Russian Labour legislation






• The top 5 providers continue to dominate the market, both in terms of revenue and number of active deals, holding 55% share of the market • Indian heritage service providers have been steadily increasing their share of new deals signed in the market reaching 37% share in 2014• The top providers engaged in HRO all have locations in CEE and CIS including Kazakhstan, Ukraine, Azerbaijan and Russia• While new deals, renewals and scope expansions contributed to market growth, terminations, de-scopes, and non-renewals hampered growth,

indicating a scope for new entrants

Competitive forces



HR SegmentTarget operational and financial model

• Considering availability of some experienced talent in HRO, Georgia can offer direct offshoring/ nearshoring of low end processes to demand companies

• Georgia might also target growing BPO companies with no current locations in CIS (for example Genpact) to set up a location in Tbilisi

• In the longer term, given the increase in the number of available talent and increase in their experience level, as well as the increase in the demand from the CIS region, Georgia might target top BPO companies (for example NGA HR) to set up locations in Tbilisi as a better alternative to CEE and other CIS countries

Operational

o Payroll administration: Produce cheques, handle taxes, deal with sick/vacation time

o Employee benefits: Health, Medical, Life

o HR management: Recruiting, hiring, and firing. Also

background interviews, exit interviews, and wage reviews

o HR analytics solutions: performance management, employee satisfaction, retention




for the industry from which 1,000 to 1,500 can be allocated to HR segment



Financial

11.0

16.5

7.7

11.6

1.5

2.3

1.8

2.6

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0


milli

on U

SD

EBIT


Revenue




207 220 234 245

259 275

2015E 2016E 2017E 2018E 2019E 2020E

Indu

stry

spe

cific

Mar

ket 2

015-

2020

For

ecas

t(in

Bn

USD

)

27.0

0.1

12.6

6.2

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Industry Specific – Telecom Market demand 2014


Rest of EMEA APAC

Industry Specific – Telecom Segment IS Telecom Market

• Current demand for industry specific BPO is estimated at USD 183.8 billion of which Telecom related demand is estimated at USD 45.9 billion

• Most of the demand for industry specific BPO comes from Americas, however the demand from the EMEA region represents 28% of the total demand and stands at USD 51 billion of which Telecom related demand is estimated at USD 12.7 billion

• Industry specific BPO sector is expected to grow 32% in the next 5 years

Demand factors


CAGR 5.8%



Industry Specific – Telecom Segment Georgia’s competitive advantage


• Currently there is no Telecom Specific BPO in Georgia• Fresh talent in Telecom specific BPO is expected to come from

Economics and business faculty, as well as Engineering, manufacturing and construction which are top faculties in Georgia. Economics and business faculty has shown 38% growth in the last 2 years


• Experienced talent is available in telecom industry which is in the top 3 industries in Georgia




lower costs per FTE

Source:: KPMG Research and Analysis, HFS blueprint reports, Telecom Operations Services, December 2014, news articles, BPO company websites

Nearshoring opportuinities• Close proximity and similar time zone with both European and

CIS markets• Presence of cultural affinity with both Europeans and Russians • Scalable English speaking talent but also a large pool of Russian

speaking talent • Currently no top Telecom focused BPO company has locations

in CIS






• There are about 700-800 Telecom firms in the world, but only about 100 or so tier 1 firms in selected countries have embraced outsourcing of operations services. Now there is an opportunity to provide services to tier 2 and tier 3 Telecom firms too

• India, Philippines and Hungary are the major locations preferred by Telecom firms for outsourcing and setting up captives• Top telecom specific BPO companies are all represented in CEE but on a smaller scale compared to other BPO segments. None of the top

players has locations in CIS.

Competitive forces



Industry Specific – Telecom SegmentTarget operational and financial model

• Georgia might target top Telecom focused BPO companies with no current locations in CIS and limited representation in CEE (for example Tata Consultancy Services or Tech Mahindra) to set up a location in Tbilisi

• Full range of telecom processes provided by these BPO companies might be provided in Georgia

• Automation is high on the agenda in the telecom operations services marketplace. In the longer term Georgia should develop IT talent to cope with the industry requirements

Operationalo Assurance – technical help desk,

incident and problem management, service level management

o Billing – bill generation, validation, pricing management

o Interconnect/roaming relations –report generation, exchange between partners

o Fulfilment – all back office functions pertaining to setting up a new connection, such as order management, provisioning, activation, order fallout mgt

o Network management – network design and planning, network rollout management, network inventory management, network performance management, e.g. monitoring downtimes

o Customer acquisition and support –cold calling, lead generation, sentiment analysis, customer support

o Data analytics – churn analytics, billing analytics, network and assurance analytics, etc

Processes – full range of telecom processes

• Revenue per FTE for Telecom specific work is estimated at USD 13,000 per year

• Cost per FTE excluding management overheads is estimated at USD 9,500 per year

• Management overheads are estimated at 20% of Cost per FTE• Currently around 7,700 fresh and experienced staff are readily

available for the industry from which 1,000 to 1,500 can be allocated to Telecom specific BPO segment



Financial

13.0

19.5

9.5

14.3

1.9

2.9

1.6

2.4

0.02.04.06.08.0

10.012.014.016.018.020.0


milli

on U

SDEBIT


Revenue




207 220 234 245

259 275

2015E 2016E 2017E 2018E 2019E 2020E

Indu

stry

spe

cific

Mar

ket 2

015-

2020

For

ecas

t(in

Bn

USD

)

34.6

0.2

16.1

7.9

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Industry Specific – Manufacturing Market demand 2014


Rest of EMEA APAC

Industry Specific – Manufacturing Segment IS Manufacturing Market

• Current demand for industry specific BPO is estimated at USD 183.8 billion of which Manufacturing related demand is estimated at USD 58.8 billion

• Most of the demand for industry specific BPO comes from Americas, however the demand from the EMEA region represents 28% of the total demand and stands at USD 51 billion of which Manufacturing related demand is estimated at USD 16.3 billion

• Industry specific BPO sector is expected to grow 32% in the next 5 years

Demand factors


CAGR 5.8%



Industry Specific – Manufacturing Segment Georgia’s competitive advantage


• Currently there is no Manufacturing Specific BPO in Georgia• Fresh talent in Manufacturing related BPO is expected to come

from Engineering, manufacturing and construction faculty which is in the top 5 faculties in Georgia showing 56% growth in the last 2 years


• Experienced talent is available in manufacturing industry which is in the top 3 industries in Georgia




lower costs per FTE

Source:: KPMG Research and Analysis, news articles, BPO company websites




speaking talent






• India, Philippines, Poland and Singapore are the major locations preferred by manufacturing firms for outsourcing and setting up captives• Top BPO companies focused on manufacturing are represented in CEE but on a smaller scale compared to other BPO segments• The services offered by top companies in Manufacturing BPO span the functional areas of procurement, production planning, manufacturing

operations, warehousing and inventory, and distribution and delivery across all manufacturing segments: industrial manufacturing, metals and mining, engineering and construction, high technology

Competitive forces



Industry Specific – Manufacturing SegmentTarget operational and financial model

• Considering the smaller presence of top manufacturing specific BPO companies in CEE as well as presence of Free Economic Zones in Georgia, these companies should be targeted for setting up locations in Georgia

• Georgia can target any of the manufacturing segments serviced by the top Manufacturing BPO companies

• However, considering the large size of the Metals & Mining industry in the CIS, Georgia could focus on the Minerals, Metals and Mining industry specific BPO and the related typical processes

Operational

o Supply chain management: Sourcing, purchasing, contracts, invoicing and payment

o Deductions management: pricing discrepancies, freight discrepancies

o Warehouse management analytics: monitoring and tracking of inflow and out flow of materials in warehouses, materials re-order level

Processes – typical processes to focus on

• Revenue per FTE for Manufacturing specific work is estimated at USD 14,000 per year

• Cost per FTE excluding management overheads is estimated at USD 9,500 per year

• Management overheads are estimated at 20% of Cost per FTE• Currently around 7,700 fresh and experienced staff are readily available

for the industry from which 1,000 to 1,500 can be allocated to Manufacturing specific BPO segment



Financial

14.0

21.0

9.514.3

1.9

2.9

2.6

3.9

0.02.04.06.08.0

10.012.014.016.018.020.022.0


milli

on U

SD

EBIT


Revenue




156 164 172 179 187 196

2015E 2016E 2017E 2018E 2019E 2020EIT In

frast

ruct

ure

man

agem

ent M

arke

t 20

15-2

020

Fore

cast

(in

BnU

SD)

63.5

3.3

25.0

39.6

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

IT Infrastructure management Market demand 2014


Rest of EMEA APAC

IT Infrastructure management Segment IT Infrastructure management Market

• Current demand for IT Infrastructure management outsourcing is USD 131.5 billion

• Most of the demand comes from Americas, however the demand from the EMEA region represents 22% of the total demand and stands at USD 28.3 billion

• IT Infrastructure management sector is expected to grow 25% in the next 5 years

Demand factors


CAGR 4.6%



IT Infrastructure management Segment Georgia’s competitive advantage

Talent availability and quality• ITO, and especially IT infrastructure management, in Georgia is

in a nascent stage• Fresh talent in ITO is expected to come from Computer Science

faculty which is not in top 5 faculties in Georgia showing a moderate growth at 11% in the last 2 years

• Ability to tap fresh talent from the young pool of unemployed with 100% literacy rate, 92% of at least secondary education and an average of 37% with moderate or advanced level of computer skills

• Experienced IT specialists are available in a small number of ITO companies and in all industries


CEE region• Significantly lower energy costs compared to CIS and CEE.

Price per kw/h in the range of USD 0.032 to USD 0.061• Comparable office rental prices to CEE countries and high


lower costs per FTESource:: KPMG Research and Analysis, Everest Group, news articles, BPO company websites




speaking talent






• With the largest pool of skilled resources, and process maturity accruing from the established IT industry, India is a leading destination for any ITO. There is good competition from CEE countries as well.

• Most of the largest IT infrastructure outsourcing providers have locations in CEE countries, as well as in CIS and in Russia• Apart from top international IT Outsourcing companies, local companies in CIS countries are also active in the local and European markets

Competitive forces



IT Infrastructure management SegmentTarget operational and financial model

• Georgia has an anchor data center outsourcing project which should be marketed to achieve offshoring/nearshoring from tier 2 demand companies as well as bring in top ITO companies with no/little presence in CIS (for example Accenture) to set up a location in Tbilisi

• Russian ITO market is in its infancy in 2015 but expected to grow fast. Georgia is well positioned to benefit from this.

• In the longer term, given the increase in the number of available talent and increase in their experience level, European tier 1 market may be targeted both for direct offshoring and through attracting top ITO companies (for example CSC) to set up locations in Tbilisi as an alternative to CEE countries

Operational

o Data centerso Desktop serviceso Database

administrationo Directory service

supporto Storage system

managemento Service desks

o Network administration

o Back up and data recovery service

Processes – typical processes to focus on

• Revenue per FTE for IT work is estimated at USD 15,000 per year• Cost per FTE excluding management overheads is estimated at USD


for the industry from which 500 to 1,000 can be allocated to IT Infrastructure segment



Financial

7.5

15.0

5.5

11.01.1

2.2

0.9

1.8

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0


milli

on U

SD

EBIT


Revenue


Appendix



Appendix 1What are the key aspects of Information Technology and Business Process offshoring/ outsourcing?

Information Technology

• Focuses on the IT which supports the business.

• Combination of hardware, software, support and related management.

• Typically includes, IT Infrastructure Services - Data Centre operations (including server and storage management), end user computing services, service desk services, network management.

• Application Services - development, testing and maintenance.

• IT sourcing is typically service based – often (but not always) focussed on reducing IT operating expenditure but could require significant capital expenditure investment to drive transformation of existing services.

• The IT sourcing market started with Y2K and is now mature:

• Established global and local service providers

• Well understood strengths and weaknesses

• Established commercial models which can be customised

• Many clients use ERP and testing services and are now into 3rd or 4th generation

Business Process

• Focuses on the specific processes which support the business.

• Combination of people, activities and related functional management .

• Typically includes Finance & Accounting, Human Resources & Procurement.

• Can also include other business specific processes like insurance claims and underwriting or music royalties.

• BP sourcing is typically focused on improving performance, efficiency and productivity of an entire business process (or processes).

• BP sourcing has many more variances but they share a common theme of FTE transfer followed by continuous process improvement.

• BP sourcing market is more people dependant and relatively less mature:

• Fewer global players than IT sourcing

• Service providers tend to be functional specialists

• Less established complex commercial models

• Many clients are still 1st generation, with some emerging 2nd generation.



Appendix 2Definitions of some key terminologies used in this deck

Sourcing strategy Strategy for deciding what to source from whom, where and how to get strategic advantages

OutsourceLong term result oriented relationship with third party service provider for business processes to get

strategic advantages

OffshoreRelocation of processes and activities to a different country for strategic advantages of lower cost,

talent, skills and round the clock coverage

NearshoreRelocation of processes and activities to a nearby country or region often to take advantage of both

local language support and lower cost

Captive/ Shared

services

A wholly-owned unit to perform particular services for a single or multiple divisions e.g. Finance or

HR Shared Services (SS) at remote, low cost location

Centre of

Excellence

A central unit which develops expertise in specific areas and provides resources and services to

different parts of the firm as needed e.g. Product Development Centre of Excellence (CoE)

Business

Partner/Joint

Venture

The customer and the service provider each contribute capital, intellectual property (IP), personnel

and other resources to design and implement a new service business



Appendix 3Glossary (1/6)

Terms Definition

ADM Application development and maintenance

AMERICAs North America and South America

APAC Asia Pacific

Baht Thai Baht

BOTBuild Operate Transfer, a framework where one party (a service provider for instance) designs and operates the offshored services center for a fixed time, post which the control and operational responsibility are transferred to other entity (client organization)

BPAP Business Process Association of the Philippines

BPO Business Process Outsourcing

CA Chartered Accountant

CAGR Compound annual growth rate

CC Customer care

CEE Central & Eastern Europe

CFA Chartered Financial Analyst

CIS Commonwealth of Independent States

CoE Center of Excellence




Terms Definition

CMMI Capability Maturity Model Integration

Content Management Data management services (e.g. document management, print management, etc.)

CRM Customer Relationship Management solutions and services

CZK Czech Koruna

EIU Economic Intelligence Unit

ERP Enterprise resource planning implementation and support services

EMA, EMEA Europe, Middle East and Africa

EU/EEA European Union / European Economic Area

F&A Finance and Accounting services

FTA Free trade agreement

FTE Full time equivalent

GBS Global Business Services

GDP Gross domestic product

GEL Georgian lari

GEOSTAT National Statistics Office of Georgia




Terms Definition

GIC Global In-house Center

HDI Human development index

HEI Higher educational institution

HR Human resources

HRO Human Resource outsourcing services

HUF Hungarian Forint

ICT Services Information and communication technology services (e.g. contact centre technology, telecommunication, and related services)

IOS Internetworking operating system

IPO Initial Public Offering

IPR Intellectual Property Rights

IRR Internal Rate of Return

IT Information technologies

IT Consulting Information technology consulting services

IT Infrastructure IT hardware deployment (e.g. data centre outsourcing, network management, hardware deploy and support, hosting services, etc.)

IT Products Software products typically developed and branded by IT companies and sold as own Intellectual Property




Terms Definition

ITO Information Technology Outsourcing

JV Joint Venture

KB Knowledge Base

KPO Knowledge process outsourcing services

MBA Master in Business Administration

Middle office Departments of a company (normally financial services) that manage position-keeping (i.e. control representation of transactions)

MES Manufacturing Execution System

Mln Millions

MoU Memorandum of Understanding

MS Managed services

NASSCOM National Association of Software and Services Companies

Near shore Within the same geographic region

NRI Networked readiness index

Off shore Outside of the same geographic region

OLA Operating level agreement




Terms Definition

On shore In the same country

OO Off shored outsourcing

OO Off shored outsourcing

Outsource service provider Provider of outsourcing service

Other IT Services Typically services that do not fall in other buckets (e.g. Software testing, IT helpdesk support services, Cyber security)

PaaS Platform as a service

PIKOM National ICT Association of Malaysia

PR Public Relations

R&D Research & Development

SA Staff augmentation is a hybrid offshoring strategy which involves dynamically staffing a project as per the needof the business where the staff can be either from a service provider or from a captive

SaaS Software as a Service

SCADA Supervisory Control And Data Acquisition

SEZ Specific economic zones

SLA Service level agreements




Terms Definition

SMAC Social, mobile, analytics and cloud

SME Small and medium entities

SoA Service-oriented Architecture

Sq.m Square meters

SSC Shared Services Center

STPI Software Technology Parks of India

System Integration IT system integration services (application or enterprise system integration services)

TESDA Technical Education and Skills Development Authority

Transactional Services Services like billing services, payment processing, claims processing, mortgage processing, etc.

TSU Tbilisi State University

VC Virtual captive is a model of hybrid offshoring where the control of the people and infrastructure is with the parent organization while the ownership is with the service provider

WOS Wholly owned subsidiary. A company whose common stock is completely owned by another company called parent company

Y2K Year 2000

• © 2015 KPMG Georgia LLC, a companyincorporated under the Laws of Georgia, amember firm of the KPMG network ofindependent member firms affiliated withKPMG International Cooperative (“KPMGInternational”), a Swiss entity. All rightsreserved.

• The KPMG name, logo and “cutting throughcomplexity” are registered trademarks ortrademarks of KPMG International Cooperative(“KPMG International”), а Swiss entity.

Documents

Georgian National Investment Agency€¦ · We note that this report has been extracted and amended by the Georgian National Investment Agency from the report prepared by us on IT&BPO