European Enlargment and ICTs: the Capgemini Experience.

Pierre Blanchard, Business Development Director.Telecom, Media & Entertainment Global sector

IDATE Foundation’s seminar. November 24, 2004.

Summary

Introduction

Our presence in the region

General facts and figures

Offshore/ rightshore

Growth trends

Conclusion

Some introductory comments

This presentation is a pragmatic and concrete overview of our experience in the new EU countries rather than a well structured and exhaustive point of view of our Group.

If there is any representative of the new EU countries here, they specifically shall feel free to object and/or correct me in case they see any approximative or wrong considerations in this presentation.

In terms of scope of the Enlargment, I rarely refer in this presentation to Malta and Cyprus, because of their limited impact on our business. Instead, I have incorporated for some of the analysis the 3 negotiating candidates (Romania, Bulgaria and Croatia) which are likely due to join in the next few years.

Summary

Introduction

Our presence in the region

General facts and figures

Offshore/ rightshore

Growth trends

Conclusion

Our Group has been present in these coutries for more than 10 years

Poland

350p / 1993

Slovakia

20p / 1996

Hungary

60p / 1997

Poland

DenmarkLithuania

Latvia

Estonia

Slovakia

Romania

BiHSerbia & M

FYR Macedonia

Albania

Italy

Austria

Germany

Russia

Czech Rep.

Bulgaria

Hungary

Slovenia Croatia

Belarus

Ukrainia

Sweden

Czech Rep.

25p / 2001

CroatiaBranch40p / 2002

We have achieved some major successes in the Telecom and Banking sectors

Poland

DenmarkLithuania

Latvia

Estonia

Slovakia

Romania

BiHSerbia & M

FYR Macedonia

Albania

T-HT(Croatia Telecom)Billing & CRM

Cesky MobilBilling & CRM

PTC EraBilling system

Bulgarian Telecom (BTC) Strategy

VIPnetBilling

Ceska SporitelnaCRM, DWH, CoreBanking system

Italy

Austria

Germany

Russia

Czech Rep.

Bulgaria

Hungary

Slovenia Croatia

Belarus

Ukrainia

Sweden

Slovak TelekomBusiness Processes

MATAVCustomer Care & Billing ( plus, e-billing)

INVITELBilling system

NETIAMediation

TPSAProgram Management

• Currently 300 staff • 95 % are university graduates• 95 % speak English, 35 % speak French

or German• Large waiting list of applicants with

appropriate technical and language skills• Senior management team with extensive

cross-border service delivery, consulting and shared services set up experience

• 70 % of our staff have a financially related qualification

• Low staff turnover – 4% in 2002 and 2003• Training development program for all

grades of staff & changing workplaces

• 18 colleges and universities comprising 130,000 students

• Many of the faculties specialize in foreign languages:

– Jagiellonian University

– Pedagogical University

• English widely spoken as a second language

We also have developed one of our global BPO center in Krakow, because it offers ideal opportunities to hire well-educated and multi-lingual people

Krakow : The Educational Capital of Poland

Our people atLubicz OfficeCenter

Summary

Introduction

Our presence in the region

General facts and figures

Offshore/ rightshore

Growth trends

Conclusion

History, Geography and Politics still underpin a number of business rationales and attitudes, to a greater extent than in the EU-15 countries.

• Still a significant weight of the 1945-1989 era legacy and, also, of the 19th century history.

• Highly sensitive and complex relationship with the « Eastern » neighbours ( mix of attraction & fear).

• Strong expectation to get a RoI for the efforts done to match the Copenhagen criteria and firm willingness to assert their being part of EU, including through business.

We regularly refer to general key economy indicators to set priorities in our investment and business development plans

Indicator

Country

Population

(million)

GDP per capita in Purchasing

Power Standards ((EU-25 = 100)

GDP growth (%) in 2003

IT expenditure as % of GDP

Unemployment rate (%)

Poland 38.2 46.1 3.8 2.2 19.2

Hungary 10.1 60.7 3.0 2.9 5.8

Czech Rep. 10.3 72.6 3.1 3.8 7.8

Slovakia 5.4 51.1 4.0 2.8 17.5

Latvia 2.3 42.3 7.5 2.4 10.4

Estonia 1.4 46.4 5.1 3.4 10.2

Lithuania 3.5 45.7 9.0 1.9 12.7

Croatia 4.8 56.9 4.2 2.2 17.4

Slovenia 2.0 77.1 2.5 2.1 6.5

Romania 21.8 29.7 4.9 1.1 6.6

Bulgaria 7.8 29.4 4.3 2.0 13.6

Source: Eurostat and others

0

50

100

150

200

250

300

350

2001 2002 2003 2004 2005 2006 2007 2008

Development and Integration

Software Support

Hardware Maintenance &Support

In addition, our own history in these countries and the assessment of ICT related indicators led us to strongly focus on Poland, Hungary and Czech Republic.

Eastern European IT market is set to capture 10 per cent of the EU market by 2007 and the largest area of growth will be in software.

Eastern Europe’s IT services will grow from $5 billion in 2002 to $ 7.2 billion in 2007 – a CAGR of 7.7%.

The largest IT services markets in this region are Poland, the Czech Republic and Hungary. Together they accounted for two-thirds of the market in 2002.

These 3 countries (and also Romania) offers a high level of education in ICTs, which allow to recruit very well educated and multi-lingual staff.

IT Outsourcing Market Spending in Eastern Europe (USD Mn)

Source: Gartner Outsourcing Database

Approximate Value of Annual Salaries for Programmer in Software Development

CAGR(03-08) : 4 % CAGR(03-08) : 8.6 %CAGR(03-08) : 7.5 %

Czech Republic € 21600

Poland € 18700

Hungary € 15800

Average EU-15 € 35000

Because in the past decades, the IT market in these countries has been mainly “ Hardware and Software” oriented , the concept of System Integration Services is still less developped than in the rest of the EU.

Summary

Introduction

Our presence in the region

General facts and figures

Offshore/ rightshore

Growth trends

Conclusion

As part of our Rightshore™policy, we have carefully assessed the new EU countries context and atractiveness from an offshoring perspective

POTENTIALS

High levels of IT skills make the region well-placed to possibly challenge India’s leading role.

Continuing improvements in telecommunications and infrastructure make offshore service provision a viable option.

IT market in new EU countries is expected to grow more than three times faster than Western Europe between 2003 and 2007.

PITFALLS

Political, economic and cultural challenges still face many parts of CEE, making progress slow.

Availability of right talent that the current market demands still remains a concern.

Relatively low experience levels in managing service provider’s contract effectively.

Suffer from a lack of aggressive marketing beyond their own shores.

Our experience with the BPO center in Krakow, as well as the participation of our Hungarian unit in non-domestic projects provide us with actual lessons learnt

India remains to date the undisputed leader for IT offshoring and we see “low-cost” EU countries mainly as solutions for “nearshoring” initiatives.

• Some of these countries themselves use already India for offshore production (we have recently delivered from India part of a big SAP project in Czech Republic).

• Let’s also keep in mind that they will shortly face with their neighbours their own delocalisation and offshoring challenges in IT.

Source: Capgemini Analysis

Hig

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Summary

Introduction

Our presence in the region

General facts and figures

Offshore/ rightshore

Growth trends

Conclusion

In the Telecom sector , we have identified 2 major specific areas for growth, that likely can be extrapolated to other sectors

All large groups have to speed up their alignment on EU Regulatory framework

Increasing pressure for deregulation promt the advent of new comers which will need “ in-a-box” solutions:

• Additional GSM licences• Wireline alternative operators• MVNO’s

These moves will be underpinned by drastic changes in organisations, governance and corporate cultures:

• Strategy reshuffling• Business process transformation• Re-branding

The fast development of « Customer » concept vs «  subscriber » already prompts several Customer Care initiatives

We anticipate that because of the growth of wirleine infrastructure and mobile penetration, there will be an increasing demand for Call Centers services

Most of the operators have already launched or are launching significant Customer Relationship Management projects, as well as Datawarehousing initiatives

Regulatory Alignment & Restructuring Customer Care

For the ICTs in general, the recent and growing move of the market from « Hardware and Software » to « Services & Outsourcing » will result into a higher growth in IT Services and System Integration.

E-government initiatives will also be a major driver for investments in ICT’s in the next few years.

Summary

Introduction

Our presence in the region

General facts and figures

Offshore/ rightshore

Growth trends

Conclusion

In a nutshell, we believe that…

This 75- 110 Million people new part of Europe deserves high attention from our global organisations. It will be soon 10% of the European IT market and things will move faster in this region than in the rest of Europe.

The so-called ”new” members will become rapidly “old” members. Our groups have to reckon with them in a similar way we do with the EU 15 countries. There is no more room for Export-like approach of the projects in this region.

That said, the alignment and catching up of the new EU countries on European standards will be likely a 5 to15 year step by step process with ups and downs. Progress pace will be highly variable depending on each individual country.

We will continue leveraging our existing presence with a realistic ambition to ensure a fast development of our Group in this part of Europe.

Thank you!

and, feel free to comment , object and debate!