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Investment Agency
IT&BPO Sector Research
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.
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.
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 interviewed
HR outsourcing company focused on recruitment, training and consulting
HR outsourcing company focused on recruitment, consulting and HR function outsourcing, such as payroll maintenance
HR company focused on recruitment
BPO company focused on call centre
Local call center
ITO company focused on IOS games and mobile applications
ITO company focused on software development
ITO company focused on web development and data analysis
ITO company focused on web development, hosting and training
Largest Georgian IT services company
Georgias Innovation and Technology Agency
International real estate company focused on valuation, brokerage, development services and construction services
International real estate company focused on feasibility studies, brokerage, valuation and capital markets/investment
Local real estate company focused on valuation, leasing and consulting
International law firm
International company engaged in real estate development
International energy company engaged in hydropower plant operation
International company engaged in port operation
A group engaged in hospitality industry across Georgia
Audit, tax and advisory firm
Top Georgian Bank (HR and IT departments)
Georgian insurance company
Georgian healthcare organization
Georgian medical centre
Business Association of Georgia
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.
Table of Contents
Contents
Section 1: Assessment of the Global Market
Page 7
Page 21
Page 30
Page 34
Page 66
Page 85
Appendices
Page 104
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.
Section 1
Assessment of the Global Market
North America and Europe continue to generate bulk of the demand for IT&BPO
services, with APAC increasing its share in recent times
Historical IT&BPO demand (in bn USD)
866.5
913.5
948.1
489.4
1,001.0
247.7
24%
Central
Europe
49%
7%
157.2
282.4
267.9
296.3
321.3
631.1
651.8
IT
679.7
IT
BPO
AMERICAs
2011
2012
2013
53.4
90.5
12.7
306.8
182.6
598.7
BPO
IT
BPO
APAC
197.8
162.2
2014
BPO
20%
35.6
IT
IT
66.1
BPO
North America and Europe together constitute over 80% of demand. APAC is gradually increasing its share of
demand, 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 and
higher technology adoption
Source: KPMG Research and Analysis, HFS Global IT and BPO Services Market Report 2013
Note: Central Europe includes Austria, Croatia, Czech Republic, Germany, Hungary, Liechtenstein, Poland, Romania
Slovakia, Slovenia, Switzerland
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.
What is the growth by functional demand expected over the next five years?
IT&BPO CAGR
(2011-14): 4.9%
1,219
1,347
1,281
1,172
1,054
275
1,111
259
245
234
64
220
60
207
53
47
57
29
135
344
50
61
32
65
34
145
140
363
57
68
36
150
382
392
76
72
39
42
160
155
432
412
87
92
103
82
97
78
156
164
172
179
187
196
2015E
2016E
2017E
2018E
2019E
2020E
IT Infrastructure Management
ADM
IT Professional Services
Other IT Services
F&A BPO
CRM BPO
HR BPO
Industry Specific
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
Source: KPMG Research and Analysis, HFS Global IT and BPO Services Market Report 2013
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.
Demand by function*
IT services
20.0%
48.7%
306.8
10.7%
20.7%
BPO services
Total Demand
Other IT
services
IT Professional
Services
ADM
IT
Infrastructure
Management
Canada
USA
59.2%
182.6
Mexico
17.3%
15.3%
8.2%
*Demand in
2014 (in bn
USD)
HR
CRM
F&A
Strong Demand
Moderate Demand
Source: KPMG Research and Analysis, HFS Global IT and BPO Services Market Report 2013
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
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.
Demand by function*
IT services
53.4
6.6%
12.3%
Central Europe
10.0%
Rest of EMEA
36.3%
157.2
2.5%
10.1%
6.2%
15.9%
Total Demand
BPO services
12.7
Other IT
services
IT Professional
Services
ADM
4.1%
IT
Infrastructure
Management
UK
Poland
Germany
55.8%
90.4
*Demand in
2014 (in bn
USD)
Czech Republic
France
0.3%
11.1%
HR
Spain
1.3%
16.9%
CRM
0.3%
10.2%
F&A
Strong Demand
Moderate Demand
Low Demand
Note: Central Europe includes Austria, Croatia, Czech Republic, Germany, Hungary, Liechtenstein, Poland, Romania
Slovakia, Slovenia, Switzerland
Source: KPMG Research and Analysis, HFS Global IT and BPO Services Market Report 2013, news articles
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
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.
Demand across APAC region has accelerated in recent times, with consolidation
and business efficiency as key drivers rather than only wage arbitrage
Key countries for IT&BPO demand
Demand by function*
IT services
20.5%
45.5%
163.8
9.8%
24.2%
BPO services
Total Demand
Other IT
services
IT Professional
Services
ADM
IT
Infrastructure
Management
69.0%
China
35.8
3.1%
Japan
India
21.7%
*Demand in
2014 (in bn
USD)
6.2%
Total DemandIndustry Specific
HR
CRM
F&A
Strong Demand
Australia
Moderate Demand
New Zealand
Low Demand
Language and culture are some of the key barriers for
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
offshoring in these regions
Government. Medical records maintenance in Healthcare. Billing in Telecom. Ticketing, reservations management in Transportation
Source: KPMG Research and Analysis, HFS Global IT and BPO Services Market Report 2013
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.
10
Vertical trends
127
125
162
64
83
19.8
74
85
46
6.4 27
58
1.8 1.7
Financial
Services
Insurance
22
1.4 1.5
Automotive
and
Aerospace
2.9 2.4
Travel and
Logistics
4.4 4.8
5.8
Energy and
Utilities
77
12.3
89
33
101
23
41
11
2.2 2.1 2.4
Manufacturing
28
20
7.6
5.6
4.2
27
51
58
22
15.5
66
70
23
8.5
6.7
78
50
14
10.8
50
15
40
3.2 3.9
Telecom
2012
2013
4.3
Others
2014
No. of contracts
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
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.
11
Vertical trends
Emerging verticals like Healthcare, Retail and Utilities will drive the next wave of
IT&BPO market growth
% of users in each industry willing to outsource in
the next 12 months*
Chemicals
12%
Telecom
31%
Manufacturing
6%
11%
14%
25%
Government
Healthcare
Energy
32%
Retail
Financial Services
Manufacturing
22%
24%
26%
Emerging**
Pharma
Source: KPMG Global Pulse Survey 1Q15, NASSCOM Strategic Report 2015, KPMG Research and Analysis
18%
28%
Financial
Services
Demand for outsourcing by Industry
*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
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.
45%
12
Financial Services
(1/2)
Industry Overview
Transformation focused
Optimization focused
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.
13
Financial Services
(2/2)
ILLUSTRATIVE
Services which
may be
Offshorable/
Outsourceable
Marketing
Product
development
75%
Channel
Management
Business
acquisitions
Account
servicing
90%
90%
Control/
compliance
Transaction
processing
80%
75%
80%
Treasury
operations
Merchant
services
50%
50%
Institutional
relationships
% of
Activities
10%
25%
Retained in
business unit
/ head office
50%
25%
40%
10%
10%
20%
20%
50%
60%
This graph indicates the typical percentage of
processes split between the offshored/ outsourced
organization and the parent organization
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.
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.
14
Manufacturing
(1/2)
Key Delivery locations
Industry Overview
Transformation focused
Optimization focused
Create the optimal environment to
support delivery and management of
production through effective:
Supply Chain Management
Logistics
Deductions management
Warehouse management
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.
15
Manufacturing
(2/2)
ILLUSTRATIVE
Services which
may be
Marketing
Sales and
after-sales
operations
75%
75%
25%
25%
Offshorable/
Outsourceable
% of
Activities
Production
operations
Logistics
10%
10%
Material
management
Warehouse
management
10%
10%
Compliance
management
Quality
management
20%
20%
Safety
management
10%
Retained in
business unit /
head office
80%
90%
90%
90%
90%
80%
90%
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
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.
16
Telecom
(1/2)
Industry Overview
Transformation focused
Optimization focused
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.
17
Telecom
(2/2)
ILLUSTRATIVE
Assurance
Services which
may be
Marketing
Offshorable/
Outsourceable
% of
Activities
Billing
Fulfilment
80%
75%
Product
Development
Channel
Management
10%
10%
20%
25%
Retained in
business unit
/ head office
90%
90%
90%
90%
Customer
Acquisition &
Support
75%
10%
Network
Management
80%
10%
25%
20%
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
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.
18
Healthcare
(1/2)
Industry Overview
Transformation focused
Optimization focused
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.
19
Healthcare
(2/2)
ILLUSTRATIVE
Policy
servicing
and reporting
Services which
may be
Offshorable/
Outsourceable
New business
Product
development
and Business
Acquisition
90%
Claims
processing
90%
Revenue cycle
management
75%
50%
50%
Healthcare
collections
Medical
records
management
90%
90%
10%
10%
Denial
management
50%
Eligibility
services
% of
Activities
10%
10%
10%
25%
Retained in
business unit /
head office
50%
50%
90%
50%
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
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.
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20
Section 2
Top services outsourced
IT infrastructure support drives the need for offshoring among the top 30
companies
Services outsourced % by functions
100% = Total annual
contract value by top
30 companies
ADM
5% 1%
34%
35%
6%
2%
1%
1%
17%
IT Infrastructure
ADM
F&A
KPO
IT Professional Services
HRO
Other IT services
CRM
Application Development
Application Testing
IT
Infrastructure
IT
Professional
Services
System Integration
Information Management
Software Implementation
Other IT
Services
ILLUSTRATIVE
Network Support
Network Security
Multimedia Services
F&A
HRO
Payroll Management
CRM
Customer Care
Sales & Marketing
KPO
R&D
Product Engineering Services
Other BPO
Services
Logistics
Facility Operations and Management Services
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.
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22
BPO Services
69-71%
56-58%
47-49%
41-43%
29-31%
74-76%
IT Services
65-67%
49-51%
41-43%
41-43%
28-30%
India
Philippines
China
Mexico
Poland
Brazil
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
captive
2. Costs of US destinations corresponds to tier-2 cities, while costs of captive destinations correspond to tier-1
cities
Source:: KPMG Research and Analysis
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.
23
F&A services with varied complexity across the value chain are being
offshored/ outsourced
ILLUSTRATIVE
Accounts
Travel
Period Close expenses
and Consolidation
Accounting
Offshorable/
Outsourceable
Business
Analytics
93%
90%
80%
Tax
Management
20%
% of
Activities
7%
10%
Treasury
Management
5%
Compliance
Management
60%
50%
7%
50%
Retained in
business unit /
head office
Low level of
Complexity
High level
of
Complexity
95%
100%
20%
20%
80%
93%
Payroll
40%
80%
This graph indicates the typical percentage of processes split between
the offshored/ outsourced organization and the parent organization
Order
Capture,
Revenue
Accounting
Journal
Entries,
Accounting
Policies
Cost
Accounting,
Inventory
Accounting
Tax
Accounting
Banking
operations
Management
Reporting and
analysis
New
Product
Evaluation
Financial
Consolidation,
Statement
Prep
AP
Helpdesk
Inventory
Accounting
Capital planning
and budgeting
Tax Returns,
Transaction
Tax
Capital
Planning &
Allocation,
Debt
Management
Internal Audit,
SOX project
management
Decision
Support,
Performan
ce
Manageme
nt
Investor
Relations,
Regulatory
Filings
Travel &
Expenses
Payroll
services
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
Source: KPMG Research and Analysis, NASSCOM Strategic Review 2014
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.
24
Multiple HR services are being offshored; however global vs. regional models
need to be considered for each sub-function
ILLUSTRATIVE
Services which
may be
Payroll
Services
Benefits
Administration
Employee
Care
Services
Offshorable/
Outsourceable
87%
% of
Activities
13%
82%
18%
81%
Workforce
Deployment
40%
37%
31%
60%
63%
69%
Governance
Mobility
Services
22%
19%
78%
Retained in
business unit /
head office
Low level of
Complexity
High level of
Complexity
Payroll
Processing,
Reimburseme
nts
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
Garnishments
and liens
Claims,
Annual
Enrolment,
Workers
compensation,
Safety
Administration
Executive
Sourcing,
Background
verification
Executive
Compensatio
n, Union Pay
management
Training
Provisioning,
Temporary
workforce mgmt
Expatriate tax
compliance,
International
relocation
100%
HR Policy, Labor
Relations
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
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.
25
Services which
may be
Offshorable/
Outsourceable
Lead
Generation
Requirements Analysis
& fulfilment
Finalize
solution
Planning &
Identification
Delivery
Management
87%
60%
38%
13%
87%
57%
% of
Activities
47%
13%
40%
43%
62%
53%
Retained in
business unit /
head office
Low level of
Complexity
High level of
Complexity
Identify revenue
opportunities, Data
base creation of
prospective clients
Lead Generation
through email/
phone, Create
customer
awareness
Coordinate with
technical team for
implementation
Reporting/
escalating issues,
liaising between
internal
departments
Resource
requirements,
Target Market
Understanding
Presentation/ proof of
concept,
understanding
customer needs
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,
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.
26
Services which
may be
Legal services
Engineering
services
Content
development &
publishing
75%
75%
25%
25%
Offshorable/
Outsourceable
50%
% of
Activities
50%
90%
90%
10%
10%
Retained in
business unit /
head office
Contract Drafting,
Patent Search
Finite Analysis
Secondary Research,
Report Writing
Industry Research,
Company Valuation
Legal Research,
Coding & Transcription,
Litigation support
Value Engineering, 2D
& 3D modelling
Data Warehousing
Primary research,
surveys
Financial research
& 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
Source: KPMG Research and Analysis,
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.
27
End User
Services
Services which
Application
may be Development &
Offshorable/ Maintenance
Outsourceable
60%
Data
Centre
Compliance
/ Controls
Mgmt
Data
Mgmt.
85%
55%
Enterprise
Program
Mgmt.
60%
40%
25%
% of
Activities
50%
Network
IT
Governance
Mgmt.
Mgmt.
Support
30%
35%
60%
15%
40%
Retained in
business
unit / head
office
45%
40%
60%
75%
50%
40%
70%
65%
Low level of
Complexity
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
Requireme
nt, High
Level
Design
Data
Security
Data Centre
Security, Data
Centre
Strategy &
Architecture
Business
Intelligence
Enterprise
Computing
Quality
Management &
Assurance,
Performance
Management
Security,
Planning &
Design
Policy
Administra
tion
Quality
Management
Network
Security
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
Source: KPMG Research and Analysis,
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.
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28
F&A and IT have the highest preference for offshoring/ outsourcing, followed by
HR, Supply Chain Management, CRM and other functions
61% 62%
64%
65%
1Q13
59%
1Q14
1Q15
55%
35%
32%
30%
IT
F&A
IT offshoring/ outsourcing is
increasing globally with all
pervasive adoption of SMAC**
services which will continue over
the next few years
Source:: KPMG Research and Analysis, KPMG Global Pulse Survey 1Q15
HR
Supply Chain
Management
CRM
12%
12%
7% 6%
Industry specific
*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 12
months 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 platforms
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
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.
29
Section 3
IT&BPO Market Overview in
Georgia
Current state of Georgian
IT&BPO industry
Service industry in
Georgia
Current state
Service
industry
Existing IT&BPO
companies
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31
Current state
Service
industry
GEL 5,994
GEL 6,512
Retail trade
GEL 5,551
GEL 4,712
Tourism
Turnover by industry
mln GEL
GEL 4,229
GEL 2,318
GEL 1,759
GEL 1,223
GEL 1,920
GEL 1,293
GEL 1,104
GEL 384
2010
GEL 1,144
2011
2012
GEL 2,047
GEL 1,887
GEL 1,196
GEL 2,623
GEL 2,358
GEL 1,217
GEL 1,219
GEL 787
GEL 730
GEL 574
GEL 2,349
GEL 2,215
GEL 1,698
GEL 1,491
GEL 1,023
2013
GEL 730
2014
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
Post&communicat
ions
Hotels and
restaurants
Banking
GEL 832
2015E
Employment by industry
1,600
1,400
1,200
1,000
800
600
400
200
-
60,000
50,000
40,000
30,000
20,000
10,000
-
Note: Number of employees for the Banking sector is available for the Q2 2015, however no significant difference expected
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.
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32
Current state
Service
industry
Wholesale and retail trade dominates the Georgian market by annual turnover
Turnover by industry, 2014 in mn GEL
6,899
19,237
2,047
730
2,114
Construction
3,356
Banking
Others
5,167
8,637
Note: Banking turnover was calculated from National Bank of Georgia report
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33
Section 4
Overview of Cost Base and Human
Resources in Georgia
Cost base
Supporting assessment
of talent
Cost base
Analysis of
talent
We 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 identified
Cost in
Cost in
Cost in
Cost in
Description
People Costs
Real Estate
Costs
IT Costs
Travel &
Transport
Costs
Other Costs
Components
Frequency
USD per USD per
GEL per
of
month per month per month per
expenditure
FTE Net FTE Gross FTE Net
GEL per
month per
FTE Gross
Salaries
Monthly
200.0
250.0
353.2
441.5
Bonus
Annual L&D
New Hire - Recruitment & Relocation
New Hire - Training
Employee insurance costs (not mandatory)
Total People Costs
Annual
Annual
One-time
Annual
Annual
30.0
11.1
7.0
16.0
11.3
275.4
37.5
13.1
8.3
18.9
14.2
341.9
53.0
19.6
12.4
28.2
20.0
486.3
66.2
23.1
14.6
33.3
25.0
603.7
Monthly
150.0
177.0
264.9
312.6
Monthly
Annual
25.0
7.4
29.5
8.7
44.1
13.1
52.1
15.4
1.9
2.2
3.3
3.9
0.4
184.7
33.3
9.0
6.3
8.0
0.5
4.6
56.6
3.5
122.0
27.1
1.9
29.0
41.0
41.0
652.1
0.5
217.9
39.3
10.6
7.5
9.4
0.6
5.5
70.8
4.2
147.9
32.0
2.2
34.2
48.4
48.4
790.3
0.7
326.1
58.9
15.9
11.2
14.1
0.9
8.2
100.0
6.3
215.4
47.9
3.3
51.2
72.5
72.5
1,151.5
0.8
384.8
69.5
18.8
13.2
16.7
1.1
9.7
125.0
7.4
261.2
56.5
3.9
60.4
85.5
85.5
1,395.6
Annual
One-time
Monthly
One-time
Monthly
One-time
Monthly
Monthly
Annual
Monthly
Monthly
Annual
Rationale
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 17
Costs in USD was translated into GEL using average 2014 rate of 1.77
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35
Cost base
Analysis of
talent
We 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
People Costs
IT Costs
Other Costs
Components
Cost in
Cost in
Cost in
Cost in
GEL per
Frequency of USD per USD per GEL per
expenditure month per month per month per month per
FTE Net FTE Gross FTE Net FTE Gross
Salaries
Monthly
200.0
250.0
353.2
441.5
Bonus
Annual L&D
New Hire - Recruitment & Relocation
New Hire - Training
Total People Costs
Annual
Annual
One-time
Annual
20.0
5.5
7.0
8.0
240.5
25.0
6.5
8.3
9.4
299.2
35.3
9.8
12.4
14.1
424.8
44.1
11.5
14.6
16.7
528.4
Monthly
132.0
155.8
233.1
275.0
Monthly
25.0
29.5
44.1
52.1
Annual
3.7
4.4
6.5
7.7
160.7
16.7
9.0
6.3
8.0
0.5
2.3
45.3
3.5
91.7
32.8
32.8
525.7
189.6
19.7
10.6
7.5
9.4
0.6
2.7
41.0
4.2
111.4
38.7
38.7
639.0
283.8
29.4
15.9
11.2
14.1
0.9
4.1
80.0
6.3
161.9
58.0
58.0
928.4
334.8
34.7
18.8
13.2
16.7
1.1
4.8
100.0
7.4
196.6
68.4
68.4
1,128.3
One-time
Monthly
One-time
Monthly
One-time
Monthly
Monthly
Annual
Annual
Rationale
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 17
Costs in USD was translated into GEL using average 2014 rate of 1.77
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.
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36
Analysis of
talent
Cost base
Labour cost
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).
1,594.9
1,156.1
GEL
1,233.1
1,048.7
1,090.7
970.4
727.4
719.4
772.0
504.6
Financial
Public
Transport and Construction Production and
intermediation administration communication
distribution of
electricity, gas
and water
Mining and
quarrying
Real estate,
renting and
business
activities
Health and
social work
Fishing
865.2
786.0
Other
Manufacturing Wholesale and
community,
retail trade;
social and
repair of motor
personal service
vehicles and
activities
personal and
household
goods
538.4
534.2
Agriculture,
hunting and
forestry
Hotels and
restaurants
786.0
457.0
Education
Average
Median
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.
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37
Analysis of
talent
Cost base
1200
Thousands sq.m
1000
160
160
160
45%
40%
800
39%
35%
600
160
890
400
467
200
902
30%
927
25%
52%
leasable
20%
0
2013
25%
24%
19%
15%
2014
2015 F
2016 F
Tbilisi
Regional business centers
5%
A7%
D
42%
C
20%
16%
14%
12%
16%
8%
5%
0%
2010
B+
23%
23%
17%
10%
A
7%
30%
4%
4%
2011
2012
A
A-
2013
2014
B+
B
1%
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38
Analysis of
talent
Cost base
Average rent prices range from USD 13 (GEL 23) to USD 22 (GEL 39) per sq.m
for B+ to A class offices
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.
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.
35
16
28.9
USD
20
15
26.7
24.5
25
20.8
17.9
18
17.7
16.5
15.5
10
14
25.3
17
14
22.4
22.4
22.4
15
15
15
13.2
13.2
13.2
12
USD
30
10
8
14.3
14.5
0
2008
8
6
2009
2010
2011
2012
2013
2014
0
A-
B+
Batumi
Kutaisi
Poti
Rustavi
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39
Cost base
Analysis of
talent
Internet
There are four main Internet providers in Georgia - Caucasus Online, Silknet, Magticom and Geocell they cover almost whole territory of
Georgia. Price and speed are nearly similar for the companies but generally it depends on the packages that companies offer and can
range 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.
Energy Distributors
Energy distribution companies
Telasi
Energo-Pro Georgia
Coverage
Other terms
The prices per kw/h vary from 0.0728 Gel (0.032 USD) to 0.1356 Gel (0.061
USD) excluding VAT. On Consumption stage there are also three types of
Covers the whole territory of Tbilisi 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.
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
Covers the rest territory of Georgia
per kw/h vary from 0.1098 Gel (0.0493 USD) to 0.1818 Gel (0.0816 USD),
excluding VAT.
Source: KPMG Research and Analysis, telecom websites, Energy distributor websites
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40
Cost base
Legal environment
Analysis of
talent
Tax
Personal income tax
Profit tax
VAT
Rate
20%
15%
18%
Law on Entrepreneurs
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41
Experienced
Fresh candidates for
candidates for IT&BPO
IT&BPO
Existing fresh
graduates from
universities in
Georgia
Experienced
Unemployed
Probable fresh
talent pool
(between 20 and
30 years)
Existing
experienced talent
across multiple
industries
Current
employable
talent pool for
IT&BPO sector
- Fresh
candidates
- Experienced
candidates
Probable
experienced talent
pool (between 30
and 40 years)
Existing
unemployed talent
pool
Fresh Grads
Experienced
Unemployed
Filter 6
Filter 5
Filter 4
Filter 3
Filter 2
Filter 1
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42
Experienced
-
Middle Management
Multiple filters are being
applied to identify the
probable middle
management talent pool
from each of the sources
Existing middle
managers from the
experienced talent
across multiple
industries
Current
employable
middle
management
talent pool for
IT&BPO
sector
Probable
middle
management
talent pool
Filter 6
Filter 5
Filter 4
Filter 3
Filter 2
Filter 1
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43
10%
Top Management
20%
Middle Management
70%
Below Middle
Management
Employees
Recruitment Strategy of
Personnel
Middle Management
includes Account
Managers, Heads of
Projects etc.
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44
Fresh Graduates
Middle Management
Experienced candidates
for IT&BPO
Experienced Talent
Pool
Unemployed 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
Refer to pages
24-27
Refer to pages
28-31
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45
Middle management
Fresh Grads
Experienced
Unemployed
691
864
2
110
173
171
61
Total number of
employees
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
6
55
22
33
32.8
Industries with
Unwilling to relocate from
Probable middle
comparable work culture the regions to IT&BPO management level talent
as IT&BPO
hubs
pool for IT&BPO
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46
Middle management
Fresh Grads
Experienced
Unemployed
23
33
6
1
Probable middle
Lack of propensity for BPO
management level talent
pool for BPO sector
1
Lack of soft skills
Total number of
talent employable for
IT&BPO industry
was adjusted for
computer skills in
accordance with
Caucasus barometer
2013 research
1
Middle management level
talent who are readily
employable in BPO sector
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47
Middle management
for IT&BPO
Profession
Agriculture,
hunting,
foresting
Fishing
Industry
Construction
Experienced
Unemployed
Middle
Talent who Talent
management
Talent with
Talent Talent in
work in a willing to Talent who Talent
comparabl
Talent with Talent with level alent
middle industries
similar relocate to have a
with
who are
e median
Number of
requisite requisite
manageme relevant
work
IT&BPO propensity requisite
readily
salary as
employees
Computer Soft Skills
nt (%) for IT&BPO
culture as hubs(%)
for
Language
1
employable
IT&BPO
Skills (%)
(%)
Note 1
IT&BPO
(%)
Note 2 IT&BPO(%) Skills (%)
in IT&BPO
(%)
(%)
sector
9,677
20%
0%
0%
0%
60%
30%
34%
55%
70%
409
104,116
20%
20%
0%
100%
0%
20%
0%
0%
60%
60%
30%
30%
34%
34%
55%
55%
70%
70%
53,410
20%
100%
20%
0%
60%
30%
34%
55%
70%
Wholesale and
retail trade;
repair of motor
vehicles and
123,460
personal and
household
goods
20%
Hotels and
restaurants
20%
27,428
100%
20%
100%
60%
30%
34%
55%
70%
118
100%
80%
100%
60%
30%
34%
55%
70%
105
Transportation
and
56,765
communications
20%
100%
20%
100%
60%
30%
34%
55%
70%
54
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48
Profession
Talent
Middle
Talent
Talent in
who work
management
with
Talent NonTalent who Talent
Talent
industries
in a
level talent
middle
relevant
with
with
comparabl
have a
Talent with
similar
who are
Number of
relevant
managem
e median
age group propensity requisite requisite requisite Soft
work
readily
for
employees
ent (%)
salary as
to IT&BPO
for
Language Computer Skills (%)
employable
IT&BPO
culture as
Note 1
IT&BPO
(%)
IT&BPO(%) Skills (%) Skills (%)
in IT&BPO
(%)
IT&BPO
(%)
sector
(%)
Middle management
for IT&BPO
Experienced
Unemployed
Real estate
operations,
renting and
providing
business
services
68,225
20%
100%
20%
100%
60%
30%
34%
55%
70%
65
Education
159,582
20%
100%
80%
100%
60%
30%
34%
55%
70%
608
Health and
social work
67,824
20%
100%
40%
100%
60%
30%
34%
55%
70%
129
Providing
utility, Social
57,326
and personal
services
20%
100%
40%
100%
60%
30%
34%
55%
70%
109
20%
100%
10%
100%
60%
30%
34%
55%
70%
15
Public
104,073
administration
20%
100%
20%
100%
60%
30%
34%
55%
70%
99
Total
864,108
1,302
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49
Fresh Grads
Experienced
Unemployed
0.1
Talent pool (in 000s)
4.4
65% of total
graduates
1.5
17.1
11.1
Total number of
graduates
Non-relevant faculties of
Loss to higher
education
education/ migration
abroad
Unwilling to relocate
from regions to IT&
BPO hubs
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50
Most popular faculties during the last three years are Economics
and Business, Law and Humanities/Arts.
Faculty
Economics and Business
Law
Humanities/Arts
Other faculties
Total
12,223
Number of graduates
Public Institutions
Private Institutions
Source:: GEOSTAT
Number of Graduates
52
HEIs
Source:: TSU
4,918
20
HEIs
Fresh Grads
Experienced
Unemployed
879
840
782
663
700
639
600
500
388
400
300
Source:: TSU
200
86
2014
2013
2012
Law
Computer Science
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113 101
100
51
Private
Institutions
Public Institutions
Total
Fresh Grads
Experienced
Unemployed
Fresh talent pool for IT&BPO sector was estimated based on the
following information and assumptions:
Total bachelor graduates in 2014-2015
Number of graduates
12,223
4,918
17,141
(52)
(84)
(136)
12,171
4,834
17,005
Faculties
Extrapolated total
bachelor graduates
879
33%
3,718
246
9%
n/a
n/a
Computer Science
118
4%
Law
789
30%
Medicine
n/a
n/a
418
16%
Journalism
111
4%
Tourism
84
3%
Humanities
n/a
n/a
3,278
Total
2,645
100%
17,005
1,041
1,264
499
3,338
1,274
1,768
470
355
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%).
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52
Economics, Business and Law are the key faculties in which the
IT&BPO industry would find probable candidates
Faculties
Extrapolated total
bachelor graduates
3,718
74%
88%
2,434
1,041
74%
88%
681
1,264
74%
88%
827
Computer Science
499
74%
88%
327
Law
3,338
74%
88%
2,185
Medicine
1,274
74%
88%
834
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
Fresh Grads
Experienced
Unemployed
11,132
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53
Experienced
Fresh candidates for
candidates for IT&BPO
IT&BPO
Experienced
Unemployed
Fresh Grads
Experienced
Unemployed
Experienced
candidates for IT&BPO
259.2
25 , 38%
7.1
Fresh candidates for
IT&BPO
864.1
40 , 62%
384.4
7.6% of total
employee
pool
22.1
103.4
22.3
Total number
of employees
Middle
management
and above
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
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65.7
54
Experienced
Fresh candidates for
candidates for IT&BPO
IT&BPO
Profession
Agriculture,
hunting,
foresting
Fishing
Industry
Construction
Experienced
Unemployed
9,677
70%
0%
0%
0%
24%
88%
22%
60%
409
104,116
70%
70%
0%
100%
0%
20%
0%
0%
24%
24%
88%
88%
22%
22%
60%
60%
53,410
70%
100%
20%
0%
24%
88%
22%
60%
Wholesale and
retail trade;
repair of motor
vehicles and
123,460
personal and
household
goods
70%
Hotels and
restaurants
70%
27,428
100%
20%
100%
24%
88%
22%
60%
5,931
Fresh Grads
Experienced
Unemployed
100%
80%
100%
24%
88%
22%
60%
5,271
Transportation
and
56,765
communications
70%
100%
20%
100%
24%
88%
88%
60%
2,727
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55
Experienced
Fresh candidates for
candidates for IT&BPO
IT&BPO
Profession
Experienced
Unemployed
Fresh Grads
Experienced
Unemployed
Real estate
operations,
renting and
providing
business
services
68,225
70%
100%
20%
100%
24%
88%
22%
60%
3,278
Education
159,582
70%
100%
80%
100%
24%
88%
22%
60%
30,666
Health and
social work
67,824
70%
100%
40%
100%
24%
88%
22%
60%
6,517
Providing utility,
Social and
57,326
personal
services
70%
100%
40%
100%
24%
88%
22%
60%
5,508
Financial
31,813
intermediation
70%
100%
10%
100%
24%
88%
22%
60%
764
Public
104,073
administration
70%
100%
20%
100%
24%
88%
22%
60%
5,000
Total
864,108
65,662
Note:
Source: GEOSTAT, KPMG Research and Analysis
(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
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56
Experienced
Fresh candidates for
candidates for IT&BPO
IT&BPO
Fresh Grads
Experienced
Unemployed
Experienced
Unemployed
Experienced candidates
for IT&BPO
Fresh candidates for
IT&BPO
1,004.4
1,250.3
7.2
Total
People outside
unemployed
labor force
People outside
labour force are
retired people and
those not actively
looking for work
Loss to
migration
Approximately 3
percent of the
unemployed talent
pool migrates
abroad
145.2
30 , 68%
3.5% of total
unemployed
pool
0.7
Non-graduates Non-relevant
faculty of
graduation
Only about 40
percent of the
unemployed talent
are graduates with
~1 percent of them
belonging to nonrelevant faculties
like Agriculture
14 , 32%
36.3
13.2
Non-relevant
age group
Unwilling to
relocate from
the regions to
IT& BPO hubs
43.3
Probable
unemployed
talant pool
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57
Experienced
Fresh candidates for
candidates for IT&BPO
IT&BPO
Experienced
Unemployed
Fresh Grads
Experienced
Unemployed
The remaining
Kakheti
regions
4%
5%
2.3, 1%
12.6, 5%
42.5, 17%
Imereti
16%
15-19 years
20-29 years
89.3, 36%
38.7, 16%
30-39 years
40-49 years
Total unemployed:
246 thousand (39%
females and 61%
males)
50-64 years
Tbilisi
38%
Samegrelo and
Zemo Svaneti
12%
65+ years
60.5, 25%
Adjara A/R
12%
Kvemo Kartli
8%
12.4%
1,250,322
1,004,364
245,958
2.9%
39%
99%
36%
25%
88%
Shida Kartli
5%
60%
43,350
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58
Experienced
Fresh candidates for
candidates for IT&BPO
IT&BPO
Experienced
Unemployed
Fresh Grads
Experienced
Unemployed
38.9
25.2
32%
Experienced
candiates for
IT&BPO
13.7
Fresh candidates
for IT&BPO
Experienced
Unemployed
Slide 32
Slide 35
68%
Total pool of
experienced
candidates for
IT&BPO
81.2
40.4
29.6
11.1
Fresh Grads
Slide 28
Experienced
Slide 32
Unemployed
Slide 35
Total pool of
fresh
candidates for
IT&BPO
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59
Talent with
requisite
Computer
Skills (%)
Talent with
requisite Soft
Skills (%)
Fresh Grads
Experienced
Unemployed
Economics and
Business
2,434
15%
60%
80%
50%
88
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
Law
2,185
15%
60%
80%
50%
79
Medicine
834
15%
60%
80%
50%
30
1,158
60%
60%
80%
50%
167
Journalism
307
60%
60%
80%
50%
44
Tourism
233
30%
60%
80%
50%
17
Humanities
2,146
60%
60%
80%
50%
309
Total
11,132
+
+
+
+
1,006
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60
Experienced
Fresh candidates for
candidates for IT&BPO
IT&BPO
Profession
Probable
talent for
IT&BPO
sector
Talent with
Talent who have Talent with
requisite
requisite
a propensity for
Computer
Language
Skills
IT&BPO (%)
1
2
Skills (%)
(%)
Experienced
Unemployed
Fresh Grads
Experienced
Unemployed
Talent with
Talent with
Talent with
Talent with
requisite
requisite
requisite Soft
requisite Soft
3
3
Language Skills Computer Skills
1
2
Skills (%)
Skills (%)
(%)
(%)
30%
71%
64%
50%
74%
47%
50%
366
5,271
30%
71%
64%
50%
74%
47%
50%
325
Transportation and
communications
2,727
30%
71%
64%
50%
74%
47%
50%
168
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
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61
Experienced
Fresh candidates for
candidates for IT&BPO
IT&BPO
Profession
Probable
talent for
IT&BPO
sector
Experienced
Unemployed
Fresh Grads
Experienced
Unemployed
Talent with
Talent with
Talent with
Talent with
requisite
requisite
requisite Soft
requisite Soft
3
3
Language Skills Computer Skills
1
2
Skills (%)
Skills (%)
(%)
(%)
Education
30,666
30%
71%
64%
50%
74%
47%
50%
1,890
6,517
30%
71%
64%
50%
74%
47%
50%
402
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
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
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62
Experienced
Fresh candidates for
candidates for IT&BPO
IT&BPO
Probable
talent for
IT&BPO
sector
30%
Talent with
Talent with
requisite
requisite
Language Skills Computer
1
2
Skills (%)
(%)
71%
64%
Experienced
Unemployed
Talent with
Talent with
Talent with
Talent with
requisite
requisite
requisite Soft
requisite Soft
3
3
Language Skills Computer Skills
1
2
Skills (%)
Skills (%)
(%)
(%)
50%
Fresh Grads
Experienced
Unemployed
74%
47%
50%
2,721
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
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63
Experienced
Fresh candidates for
candidates for IT&BPO
IT&BPO
Fresh Grads
Experienced
Unemployed
Experienced
Unemployed
Experienced candidates
for IT&BPO
2, 26%
10.96
36.89
10.38
25.93
15.55
7.77
7.77
Total number of
talent employable for
IT&BPO industry
was adjusted for
computer skills in
accordance with
Caucasus barometer
2013 research
7.77
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64
Significant share of young talent has sufficient English knowledge while the
older population prefers Russian
Self reported knowledge of Russian and
English by age groups, 2013
33%
34%
41%
52%
15%
65%
1%
1%
1%
1%
26%
27%
73%
72%
31-40
41+
1%
0%
22%
2%
36%
54%
76%
29%
89%
78%
26%
51%
59%
27%
38%
22%
45%
23%
8%
18-19
20-30
31-40
Other cases
Basic or no knowledge
Intermediate and advance knowledge
41+
63%
18-19
20-30
31-40
Not responded
Basic knowledge or no knowledge
Intermediate and advanced knowledge
9%
18-19
41+
20-30
Not responded
Basic knowledge or no knowledge
Intermediate and advanced knowledge
Note: Other cases means not responded or knows one out of two languages
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.
63
32
27
33
32
35
37
54
39
Russian
47
25%
38
28
42
41
2011
2012
29
23
English
2008
2009
2010
2011
2012
60%
2008
2009
2010
2013
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2014E 2015E
65
Section 5: Benchmarking of
Georgia vs Competitor Countries
City selection
Benchmarking
City selection
Benchmarking
City selection
Tbilisi is the first choice for the potential IT&BPO hub in the short run (1/2)
Russia
FIZ
Black sea
Poti
Kutaisi
Batumi
Financial
Attractiveness
Sub-Category
Tbilisi
Tbilisi
FIZ
FIZ
Turkey
Category
Georgia
Armenia
Azerbaijan
Utility Costs
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67
City selection
Benchmarking
City selection
Tbilisi is the first choice for the potential IT&BPO hub in the short run (2/2)
Category
Talent
Considerations
Sub-Category
Tbilisi
Computer skills
Language Capability
Mobile and high speed internet is available in all Mobile and high speed internet is available in all
three cities
three cities
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68
City selection
Benchmarking
Summary
Takeaway
Advantages of Georgia
Georgia
is
among
Weaknesses of Georgia
best
has
much
more
infrastructure
is
IT&BPO
experienced
existing
industry
with
talent
while
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69
City selection
Benchmarking
Assessment Model
Financial
Attractiveness
Business
Environment
Sub-Category
Description
Utility Costs
Business Constraints
Labour laws
Key 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
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70
Benchmarking by
categories
Financial Attractiveness
Business Environment
Infrastructure
Benchmarking by
categories
Financial Attractiveness
Business Environment
Infrastructure
City selection
Benchmarking
Georgia has the second lowest average gross salary but the highest inflation
Average gross salaries, 2014
1,335
1,183
959
Czech Republic
Hungary
USD
928
490
335
Egypt
Georgia
Slovak Republic
Estonia
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
Source: KPMG Analysis, GEOSTAT, Czech republic yearbook, Slovak Republic yearbook, Hungarian Central Statistics Office, Statistics Estonia, Statistics of Egypt, Recruitment Agency websites
Wage Inflation
Annual Inflation in 2014
(In %)
Georgia
3.8
Czech Republic
2.4
2.1
1.3
3.1
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73
City selection
Benchmarking
Georgia has slightly higher office rents than Slovak Republic, Hungary and
Estonia but the lowest utility costs among the benchmarking countries
Office Rent, capital cities
18.5
15.3
14.1
11.6
10.0
10.0
Slovak
Hungary
Estonia
Georgia
Czech
Egypt
Republic
Republic
Source: KPMG Analysis, Colliers Country reports
Note: Egypt 2015 Grade A office space costs was extrapolated to arrive at A- and B office costs based on 2012 data
Utility Costs
48.83
2.5
Georgia
5.6
7.4
Hungary
Slovak
Republic
20.44
18.02
17.27
17.13
23.09
5.7
6.2
Czech
Republic
Estonia
3.0
Egypt
74
Benchmarking by
categories
Financial Attractiveness
Business Environment
Infrastructure
City selection
Benchmarking
131
It includes variety of
indicators with equal
weights:
o Starting a business
o Dealing with construction
permits
o Getting Electricity
24
29
42
36
16
Estonia
Georgia
Slovak Republic
Czech Republic
Hungary
Egypt
o Property registration
o Getting Credit
Source: KPMG Research & Analysis, World Bank Group/ doing business
o Protecting investor
o Paying taxes
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
o Enforcing contracts
o Resolving insolvency
76
City selection
Benchmarking
Minimum wage
Remuneration is
defined by the
counterparties
None
Czech Republic
Estonia
Hungary
Slovak Republic
Egypt
20
28
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%)
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%
Unemployment fund
(employee) - 1.5%.
Source: KPMG Analysis, Labour laws of individual countries, government websites of the countries
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77
City selection
Benchmarking
Czech Republic
Estonia
Hungary
Slovak Republic
Flat tax rate of 15% 20%
16%
21%
and an additional
7 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)
Payment of overtimeOvertime work shall Maximum amount of Additional
An employee may be The average weekly
be compensated by overtime that can be remuneration per hourrequired to work not work time (including
increasing the amount ordered by the
of overtime paid to an more than 250 hours overtime), must not
of hourly pay rate or employer is 150 hours employee shall not be in any given calendar exceed 48 hours
by granting additional per year and
less than 50% of the year in overtime. In
time off to an
maximum amount of rate of the hourly
case of collective
Employer and
employee in return of overtime with the
wage
agreement the hours employee can agree
overtime
consent of employee
of overtime may
either to compensate
compensation that
must not exceed 416 Work during holidays exceed 250 but shall overtime or to take
shall be determined hours annually
may be compensated not exceed 300 hours additional holiday
by parties
either by offering time
Overtime
off or by extra
Work during holidays
compensation
remuneration of at
may be compensated
includes a
least 50% of the wage either by extra
supplement of 25% of rate
remuneration of at
average hourly wage
least 50% of the wage
and in case of
Work on public
rate
holidays surcharge of holidays is required to
50% of the average be compensated at a
hourly wage
double rate
Income tax
20%
Egypt
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
Premium for overtime
work amounts 35% of
an hourly pay for day
working hours and
70% for night working
hours
Source: KPMG Analysis, Labour laws of individual countries, government websites of the countries
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78
City selection
Benchmarking
Slovak Republic
Egypt
Temporary Employees
Foreign Employees
Georgia
Czech Republic
Estonia
Hungary
No work permit
No work permit is
No work permit is
and/or visa/
needed for employees
needed for employees
residence permit
from EU/EEA or
from EU/EEA or
is needed for
Switzerland
Switzerland for up to
citizens of EU, the Citizens from other
three months. After 3
US and number of
countries must obtain a
months temporary
other states for up
work permit r
residence (for 5 years)
to 365 days (total
residence permit
and afterwards
of 94 countries)
permanent residence
Usually temporary
should be obtained
residence permit
Work permit must be
is obtained
obtained by thirdcountry nationals
No specific
requirements
were identified
Generally allowed.
In Slovak Republic
No specific
However, it is forbidden
temporary assignment
requireme
to hire temporary
of employees takes
nts were
employees for unlawful
place via the Agency or
identified
work, to break a strike or
directly with the
if the same employee
employer
had their employment
The temporary assigned
with the firm terminated
employees are
in the last six months,
compensated
during the trial period or The temporary
by way of ordinary
assignation shall
dismissal for reasons in
terminate by lapse of its
connection with the
agreed duration or by
employers operations
agreement of the
participants of the
employment relationship
It is not allowed to
mediate temporary
employment 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
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
Source: KPMG research & analysis, news articles, government websites of the countries
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.
79
City selection
Benchmarking
Data privacy
Repatriation of Taxes
Georgia
The Country does
not have
restrictions on
currency
convertibility or
repatriation of
capital and profit
Czech Republic
Estonia
Hungary
Slovak Republic
No limits exist
concerning taxes
repatriation
Egypt
The law
allows 100
percent
foreign
ownership
of
investment
projects and
guarantees
the right to
remit
income
earned in
Egypt and
to repatriate
capital
No data
privacy law
Source: KPMG research & analysis, news articles, government websites of the countries
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.
80
Benchmarking by
categories
Financial Attractiveness
Business Environment
Infrastructure
City selection
Benchmarking
Georgia has comparable infrastructure with Estonia, Egypt and Slovak Republic
Office stock, capital cities
3,277,900
3,198,590
m2
2,000,000
1,543,000
912,367
Hungary
Czech
Republic
Egypt
Slovak
Republic
Georgia
698,930
Estonia
Vacancy rate
20.0%
16.8%
11.8%
13.5%
7.0%
4.8%
Estonia
Georgia
Slovak
Republic
Hungary
Czech
Republic
Egypt
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.
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82
City selection
Benchmarking
All cities have good telecom infrastructure and uninterrupted power supply
Georgia
Czech Republic
Estonia
Hungary
Slovak Republic
Egypt
Main telecom
operators
Caucasus Online,
Silknet, Magticom,
Geocell, Beeline
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
Generally
uninterrupted, rare
outage
Generally
uninterrupted, rare
outage
Generally
uninterrupted, rare
outage
Generally
uninterrupted, rare
outage
Source: KPMG Analysis, World Economic Forum website, news articles, government websites of the countries
Note: 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
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.
83
City selection
Benchmarking
62
24
28
31
Estonia
Georgia
Egypt
Hungary
Slovak
Republic
Czech
republic
84
Section 6
Investment proposals
Targeted IT&BPO segments
F&A Segment
F&A Market
42
CAGR 7.7%
29
32
34
39
36
100%
2.2
90%
80%
9.2
70%
60%
0.0
2015E
2016E
2017E
2018E
2019E
2020E
Demand factors
50%
40%
30%
15.0
20%
10%
0%
F&A Market demand 2014
Americas
Central Europe
Rest of EMEA
APAC
Source:: KPMG Research and Analysis, HFS Global IT and BPO Services Market Report 2013
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.
86
F&A Segment
Competitive forces
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
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
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
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
Source:: KPMG Research and Analysis, HFS blueprint reports, Progressive Finance & Accounting Business Process Outsourcing Services, March 2015, BPO company websites
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.
87
F&A Segment
Operational
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
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%
million USD
Financial
22.0
20.0
18.0
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
o
o
o
o
o
o
inventory accounting
Fixed asset accounting
Payroll
Intercompany
accounting
Regulatory/statutory
reporting
Management reporting
Risk
management/Treasury
3.5
3.1
EBIT
2.6
Management
overheads
Cost
2.3
22.0
16.5
15.4
Revenue
11.6
Conservative
Aggressive
88
CRM Segment
CRM Market
CAGR 5.7%
57
61
65
72
68
76
100%
7.8
90%
80%
70%
15.3
60%
2015E
2016E
2017E
2018E
2019E
2020E
Demand factors
0.2
50%
40%
30%
27.9
20%
10%
0%
CRM Market demand 2014
Americas
Central Europe
Rest of EMEA
APAC
Source:: KPMG Research and Analysis, HFS Global IT and BPO Services Market Report 2013
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.
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89
CRM Segment
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
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
Source:: KPMG Research and Analysis, , Everest Group, news articles, BPO company websites
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.
90
CRM Segment
Operational
18.0
Financial
16.0
2.6
14.0
2.3
12.0
million USD
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 1,000 to 1,500 can be allocated to CRM
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%
1.8
1.5
10.0
8.0
6.0
4.0
EBIT
Management
overheads
Cost
16.5
11.6
11.0
Revenue
7.7
2.0
0.0
Conservative
Aggressive
91
HR Segment
HR Market
CAGR 6.5%
47
50
53
60
57
64
100%
1.1
90%
10.0
80%
0.0
70%
60%
2015E
2016E
2017E
2018E
2019E
2020E
Demand factors
50%
40%
31.6
30%
20%
10%
0%
HR Market demand 2014
Americas
Central Europe
Rest of EMEA
APAC
Source:: KPMG Research and Analysis, HFS Global IT and BPO Services Market Report 2013
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.
92
HR Segment
Competitive forces
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
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
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
advanced Russian speakers with ability to understand Russian
Labour legislation
Source:: KPMG Research and Analysis, Everest Group, news articles, BPO company websites
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.
93
HR Segment
Operational
18.0
Financial
16.0
2.6
14.0
EBIT
2.3
12.0
million USD
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 1,000 to 1,500 can be allocated to HR
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%
1.8
1.5
10.0
8.0
6.0
4.0
Management
overheads
Cost
16.5
11.6
11.0
Revenue
7.7
2.0
0.0
Conservative
Aggressive
94
IS Telecom Market
CAGR 5.8%
207
220
234
259
245
275
100%
6.2
90%
80%
12.6
70%
60%
2015E
2016E
2017E
2018E
2019E
2020E
Demand factors
0.1
50%
40%
30%
27.0
20%
10%
0%
Industry Specific Telecom Market demand
2014
Americas
Central Europe
Rest of EMEA
APAC
Source:: KPMG Research and Analysis, HFS Global IT and BPO Services Market Report 2013
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.
95
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
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
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
Source:: KPMG Research and Analysis, HFS blueprint reports, Telecom Operations Services, December 2014, news articles, BPO company websites
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.
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96
Operational
Financial
20.0
18.0
2.4
16.0
2.9
EBIT
14.0
million USD
1.6
1.9
12.0
10.0
19.5
8.0
6.0
4.0
Management
overheads
Cost
14.3
13.0
Revenue
9.5
2.0
0.0
Conservative
Aggressive
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.
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97
IS Manufacturing Market
CAGR 5.8%
207
220
234
259
245
275
100%
7.9
90%
80%
16.1
70%
60%
2015E
2016E
2017E
2018E
2019E
2020E
Demand factors
0.2
50%
40%
30%
34.6
20%
10%
0%
Industry Specific Manufacturing Market
demand 2014
Americas
Central Europe
Rest of EMEA
APAC
Source:: KPMG Research and Analysis, HFS Global IT and BPO Services Market Report 2013
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.
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98
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
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
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
Source:: KPMG Research and Analysis, news articles, BPO company websites
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.
99
Operational
million USD
Financial
22.0
20.0
18.0
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
o Warehouse
management
analytics: monitoring
and tracking of inflow
and out flow of
materials in
warehouses, materials
re-order level
3.9
EBIT
2.9
Management
overheads
Cost
2.6
1.9
21.0
14.3
14.0
Revenue
9.5
Conservative
Aggressive
100
CAGR 4.6%
156
164
172
187
179
196
100%
90%
39.6
80%
70%
2015E
2016E
2017E
2018E
2019E
2020E
Demand factors
60%
25.0
50%
3.3
40%
30%
63.5
20%
10%
0%
IT Infrastructure management Market demand
2014
Americas
Central Europe
Rest of EMEA
APAC
Source:: KPMG Research and Analysis, HFS Global IT and BPO Services Market Report 2013
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.
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101
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
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
Source:: KPMG Research and Analysis, Everest Group, news articles, BPO company websites
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.
102
Operational
o Data centers
o Desktop services
o Database
administration
o Directory service
support
o Storage system
management
o Service desks
o Network
administration
o Back up and data
recovery service
16.0
Revenue per FTE for IT work is estimated at USD 15,000 per year
Cost per FTE excluding management overheads is estimated at USD
11,000 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 500 to 1,000 can be allocated to IT
Infrastructure segment
Average EBIT margin on similar companies in the industry in Europe
ranges from 6% to 8%
EBIT margin in Georgia is estimated at 12%
million USD
Financial
14.0
1.8
12.0
2.2
10.0
8.0
0.9
1.1
6.0
4.0
2.0
EBIT
Management
overheads
Cost
15.0
11.0
Revenue
7.5
5.5
0.0
Conservative
Aggressive
103
Appendix
Appendix 1
What 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
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:
Many clients use ERP and testing services and are now
into 3rd or 4th generation
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.
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105
Appendix 2
Sourcing strategy
Outsource
Offshore
Nearshore
Captive/ Shared
Strategy for deciding what to source from whom, where and how to get strategic advantages
Long term result oriented relationship with third party service provider for business processes to get
strategic advantages
Relocation of processes and activities to a different country for strategic advantages of lower cost,
talent, skills and round the clock coverage
Relocation of processes and activities to a nearby country or region often to take advantage of both
local language support and lower cost
A wholly-owned unit to perform particular services for a single or multiple divisions e.g. Finance or
services
Centre of
A central unit which develops expertise in specific areas and provides resources and services to
Excellence
Business
Partner/Joint
Venture
different parts of the firm as needed e.g. Product Development Centre of Excellence (CoE)
The customer and the service provider each contribute capital, intellectual property (IP), personnel
and other resources to design and implement a new service business
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.
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106
Appendix 3
Glossary
(1/6)
Terms
Definition
ADM
AMERICAs
APAC
Asia Pacific
Baht
Thai Baht
BOT
Build 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
BPO
CA
Chartered Accountant
CAGR
CC
Customer care
CEE
CFA
CIS
CoE
Center of Excellence
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.
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107
Appendix 3
Glossary
(2/6)
Terms
Definition
CMMI
Content Management
CRM
CZK
Czech Koruna
EIU
ERP
EMA, EMEA
EU/EEA
F&A
FTA
FTE
GBS
GDP
GEL
Georgian lari
GEOSTAT
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.
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108
Appendix 3
Glossary
(3/6)
Terms
Definition
GIC
HDI
HEI
HR
Human resources
HRO
HUF
Hungarian Forint
ICT Services
Information and communication technology services (e.g. contact centre technology, telecommunication, and
related services)
IOS
IPO
IPR
IRR
IT
Information technologies
IT Consulting
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
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.
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Appendix 3
Glossary
(4/6)
Terms
Definition
ITO
JV
Joint Venture
KB
Knowledge Base
KPO
MBA
Middle office
Departments of a company (normally financial services) that manage position-keeping (i.e. control
representation of transactions)
MES
Mln
Millions
MoU
Memorandum of Understanding
MS
Managed services
NASSCOM
Near shore
NRI
Off shore
OLA
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.
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110
Appendix 3
Glossary
(5/6)
Terms
Definition
On shore
OO
OO
Outsource service
provider
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
PR
Public Relations
R&D
SA
Staff augmentation is a hybrid offshoring strategy which involves dynamically staffing a project as per the need
of the business where the staff can be either from a service provider or from a captive
SaaS
Software as a Service
SCADA
SEZ
SLA
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.
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111
Appendix 3
Glossary
(6/6)
Terms
Definition
SMAC
SME
SoA
Service-oriented Architecture
Sq.m
Square meters
SSC
STPI
System Integration
TESDA
Transactional Services
Services like billing services, payment processing, claims processing, mortgage processing, etc.
TSU
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 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.
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112