BPO Sector Research - 2016

Georgian National Investment Agency IT&BPO Sector Research

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

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.

2

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 Georgia’s 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.

3

Table of Contents

Contents Section 1: Assessment of the Global Market

Page 7

Section 2: Top services outsourced

Page 21

Section 3: IT&BPO Market Overview in Georgia

Page 30

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

Page 34

Section 5: Benchmarking of Georgia vs Competitor Countries

Page 66

Section 6: Investment proposals - Targeted IT&BPO segments

Page 85

Appendices

Page 104

© 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.

4

Section 1 Assessment of the Global Market

What is the regional demand for offshoring/ outsourcing?

North America and Europe continue to generate bulk of the demand for IT&BPO services, with APAC increasing its share in recent times Historical IT&BPO demand (in bn USD)

866.5

913.5

948.1

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

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

% share of the global demand

BPO

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

•

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.

6

What is the growth by functional demand expected over the next five years?

The global IT&BPO industry is expected to continue an upward trajectory

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

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

1,219

1,347 1,281

1,172 1,054

275

1,111

259 245 234

64

220

60

207

IT&BPO Market 2015-2020 Forecast (in Bn USD)

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.

7

What is the demand for offshoring/ outsourcing in AMERICAs?

AMERICAs have pioneered offshoring in terms of adoption across functions and industry verticals, as well as cost to business value led propositions Key countries for IT&BPO demand

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)

• •

Total DemandIndustry Specific

HR

CRM

F&A

USA generates over 90% of the total demand for IT&BPO services in this region

Strong Demand Moderate Demand

IT outsourcing market demand is characterized by increased Low Demand use of cloud-based and automated services Note: Industry-specific BPO processes includes sector/ vertical specific activities like: Securities processing, payment processing,

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.

8

What is the demand for offshoring/ outsourcing in EMEA?

EMEA demonstrates continued growth in adoption and is characterized by diverse nature of demand across countries Key countries for IT&BPO demand

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)

Total DemandIndustry Specific

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

IT&BPO market in Russia was estimated at USD 1.9 bn in 2013, growing 15% from 2012. Main demand comes from international companies, governmental, trade and financial organisations. IT infrastructure management is the most demanded/developed.segment.

•

EMEA constitutes over 30% of global demand

•

Increased demand, driven by cost pressures emanating from sovereign debt crisis, economic challenges and regulatory constraints Note: Industry-specific BPO processes includes sector/ vertical specific activities like: Securities processing, payment processing,

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.

9

What is the demand for offshoring/ outsourcing in APAC?

Demand across APAC region has accelerated in recent times, with consolidation and business efficiency as key drivers rather than only wage arbitrage 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

There is a strong domestic market for IT&BPO services in many of the APAC countries which primary offshoring being done from Australia and New Zealand

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

Financial Services, Manufacturing and Telecom continue to be largest verticals in terms of IT&BPO spend Deal Value (USD billion)

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

4

Travel and Logistics

4

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

0.8 1.7 0.6

Pharma and Publishing, Media and Healthcare Entertainment

40 3.2 3.9

1.9 1.1 0.6 Retail

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*

Market Demand % by verticals 100% = Total IT&BPO Market Demand

Chemicals

12%

Telecom

31%

Manufacturing

6% 11% 14%

25% Government Healthcare Energy

32%

Retail Financial Services

Manufacturing

Communication & Media

• Financial Services and Manufacturing contribute majority of the IT&BPO market demand • Emerging verticals like Retail, Healthcare, Travel & Transportation and Utilities are the new growth areas for IT&BPO market

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

Brief review of the key industries

Financial Services

(1/2)

Industry Overview

Key Delivery locations

• Financial Services account for 31% of the total vertical spend. The banking sub vertical is the largest segment in this vertical • The vertical contributes to more than one third of the market in terms of total employee headcount • Nearly 15% of the captive market in terms of number of centers present across the globe is accounted for by Financial Services vertical

• Bengaluru, Mumbai, Metro Manila, Chennai and Singapore are the major locations preferred by Financial Services firms for outsourcing and setting up captives • The preference of a location also depends on the functions performed: • BPO: India (Bengaluru, Mumbai, Delhi NCR), the Philippines (Metro Manila) and Malaysia (Kuala Lumpur) • IT: India (Bengaluru, Mumbai, Chennai) and the Philippines (Metro Manila)

Key Drivers for Offshoring in Financial Services

Transformation focused

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

Optimization focused

Re-engineering full processes like: • Cash management, resulting in higher float • Forecasting, resulting in better accuracy of forecast

Savings/ Efficiency focused

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

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.

13

Brief review of the key industries

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.

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.

14

Brief review of the key industries

Manufacturing

(1/2) Key Delivery locations

Industry Overview

• Manufacturing along with Financial Services continue to be largest verticals accounting for more than 60% of the total vertical spend • Nearly one-fourth of the captive market in terms of number of centers present across the globe is setup by firms in Manufacturing • IT services outsourced include application development, maintenance, helpdesk and data center support

• Bengaluru, Chennai, Krakow and Singapore are the major locations preferred by manufacturing firms for outsourcing and setting up captives • The preference of a location also depends on the functions performed: • BPO: India (Bengaluru, Chennai, Pune), the Philippines (Metro Manila), Poland(Krakow) and Singapore • IT: India (Bengaluru, Chennai) and the Philippines (Metro Manila)

Key Drivers for Offshoring in Manufacturing

Transformation focused

• Use offshoring to lower the basic cost of the product • Penetrate new markets using providers’ presence in several countries to open up markets

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

Savings/ Efficiency focused

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

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.

15

Brief review of the key industries

Manufacturing

(2/2) ILLUSTRATIVE

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

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

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.

16

Brief review of the key industries

Telecom

(1/2)

Industry Overview

Key Delivery locations

• Telecom, one of the mature sectors continues to implement large scale outsourcing • The vertical contributes to around 6% of the market in terms of total employee headcount • Nearly 5% of the captive market in terms of number of centers present across the globe is accounted for by Telecom vertical

• Bengaluru, Delhi NCR, Chennai , Metro Manila and Budapest are the major locations preferred by Telecom firms for outsourcing and setting up captives • The preference of a location also depends on the functions performed: • BPO: India (Chennai, Delhi NCR), the Philippines (Metro Manila) and Hungary (Budapest) • IT: India (Bengaluru, Delhi NCR)

Key Drivers for Offshoring in Telecom

Transformation focused

Optimization focused

Move towards advanced capabilities by • Allowing greater control over operations • Flexibility to change business models when required • Ability to bring quickly new products and services into market

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

Savings/ Efficiency focused Achieve direct cost savings by offshoring • Telecom infrastructure into cloud thereby eliminating cost of ownership • Professional technical support lowering payroll costs

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.

17

Brief review of the key industries

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%

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

• 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

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.

18

Brief review of the key industries

Healthcare

(1/2)

Industry Overview

Key Delivery locations

• Healthcare along with retail, government and utilities are the emerging verticals accounting to around 30% of the total vertical spend • Within overall captive market, healthcare vertical is small accounting to only 4% of the number of captives across the globe • The vertical contributes to only 1% of the market in terms of total employee headcount

• Bengaluru, Mumbai, Hyderabad, Singapore, Cork and Poznan are the major locations preferred by healthcare firms for outsourcing and setting up captives. Majority of the healthcare captives are present in India • The preference of a location also depends on the functions performed: • BPO: India (Bengaluru, Mumbai, Hyderabad), Singapore, and Ireland (Cork) • IT: Poland (Poznan)

Key Drivers for Offshoring in Healthcare

Transformation focused

Optimization focused

Savings/ Efficiency focused

• Increase patient access and usage by lowering cost of healthcare • Move towards advanced capabilities, thereby : • Reduced medication errors • Evidence based medicine • Multi-media EMR • Consumer & Physician driven portals

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

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

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.

19

Brief review of the key industries

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%

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

• 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

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.

20

Section 2 Top services outsourced

Services outsourced by companies with strong demand for IT&BPO services

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%

Processes outsourced in each function

17% IT Infrastructure

ADM

F&A

KPO

IT Professional Services

HRO

Other IT services

CRM

 Application Development  Application Testing

IT Infrastructure

 Maintenance & Support  Data Management  Security

IT Professional Services

 System Integration  Information Management  Software Implementation

Other IT Services

ILLUSTRATIVE

 Network Support  Network Security  Multimedia Services

F&A

 Finance & Accounting  Payment Processing

HRO

 Payroll Management

CRM

 Customer Care  Sales & Marketing

KPO

 R&D  Product Engineering Services

Other BPO Services

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

Other BPO Services

 Logistics  Facility Operations and Management Services

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.

22

How much do companies save by outsourcing/ offshoring?

Depending on the outsourcing destination, typical cost savings for companies range from 30% to 80% Typical TCO1 savings between US and captive destinations2 2014; percentage 80-82%

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

What are sub-functions/areas likely to be offshored/ outsourced?

F&A services with varied complexity across the value chain are being offshored/ outsourced ILLUSTRATIVE Accounts

Services which Payable/ General may be Receivable Accounting Fixed Asset

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

What are sub-functions/areas likely to be offshored/ outsourced?

Multiple HR services are being offshored; however global vs. regional models need to be considered for each sub-function ILLUSTRATIVE

Services which may be

Payroll Services

Benefits Administration

Employee Care Services

Offshorable/ Outsourceable

87% % of Activities

13%

82%

18%

81%

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

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,

Worker’s 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

What are sub-functions/areas likely to be offshored/ outsourced?

Customer Relationship Management support is driven by the need for specific regional market understanding ILLUSTRATIVE

Services which may be Offshorable/ Outsourceable

Lead Generation

Requirements Analysis & fulfilment Finalize solution

Planning & Identification

Delivery Management

87%

60% 38% 13%

Periodic update & Knowledge session

87%

57% % of Activities

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

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

RFI process, Identify right solution

Coordinate with technical team for implementation

Reporting/ escalating issues, liaising between internal departments

Day to day interaction with leading vendors

Resource requirements, Target Market Understanding

Market strategy for lead generation, Market research on client organization

Presentation/ proof of concept, understanding customer needs

Deal finalization and closure

Arrange site visits, coordinate with client representatives

Business review with customers once a quarter

• 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

What are sub-functions/areas likely to be offshored/ outsourced?

KPO services scope has expanded significantly, driven by adoption across engineering services and analytics ILLUSTRATIVE Market research & data analytics

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%

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

Retained in business unit / head office Contract Drafting, Patent Search

Finite Analysis

Writing, editing & designing, Content planning & proofing

Secondary Research, Report Writing

Industry Research, Company Valuation

Legal Research, Coding & Transcription, Litigation support

Value Engineering, 2D & 3D modelling

Data Warehousing

Primary research, surveys

Equity Research & Analysis, Due Diligence & Risk Management

Low level of Complexity

High level of Complexity

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

What are sub-functions/areas likely to be offshored/ outsourced?

Within IT services, offshoring penetration across sub-functions and organizations continues to increase, besides ongoing delivery model innovation ILLUSTRATIVE

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

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

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. All rights reserved.

28

How is the function-wise adoption changing over time?

F&A and IT have the highest preference for offshoring/ outsourcing, followed by HR, Supply Chain Management, CRM and other functions 61% 62%

64%

65%

1Q13

59%

1Q14

1Q15

55%

35% 32%

30%

21% 17% 20% 15% 10%

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

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

CRM

12%

12% 7% 6%

Industry specific

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

*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

Current state of the Georgian IT&BPO market

Service industry

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

Existing IT&BPO companies

• No established IT&BPO industry • Few market players • Mainly based on one-off factors affecting the decision to establish the business • Mostly small scale up to 50 FTE, but few large IT&BPO providers over 100 FTE • We estimate total employed in IT&BPO sector at 750-850 FTEs • IT&BPO companies interviewed employ mainly Georgians

• No specific sectorial focus although largest IT&BPO companies seem to be providing call center, HR outsourcing and IT services • No specific regional focus, IT&BPO companies service both domestic, as well as English and Russian speaking countries • The general trend on the market is the growth in the number of small IT outsourcing companies • No specific expansion plans were identified at the IT&BPO companies interviewed

Potential for call centers

Presence of inhouse call centers

• In-house call centers extensively used in banking, insurance and telecom industries • Language skills available • Communication skills available • According to call centers, banks and insurance companies interviewed currently non of the large Georgian banks, telecoms or insurance companies considers outsourcing their call center

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.

31

Current state

Overview of service industry in Georgia

Service industry

Georgia has established service culture evidenced by high contribution to GDP Average CAGR of the key services industries 18%

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

Overall key services industry’s contribution to GDP in 2014: 69.1%

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

• Key service industry in Georgia saw an overall rise during the past 5 years • This resulted in a significant number of employees with service orientation that can be leveraged for the IT&BPO industry • The total number of employees in Retail trade, Hotels and restaurants, Tourism, Post and communication and Banking services as at the end of 2014 was 136,143 • The average salary across these industries was GEL 1,033 (USD 585) whereas average salary in Retail trade and Hotels and restaurants only was GEL 556 (USD 315) Source: KPMG Research and Analysis, Geostat, National Bank of Georgia

Post&communicat ions

Contribution of the key service industries highlighted to GDP in 2014: 42%

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 -

Number of employees 2014

Average monthly salary in GEL 2014

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. All rights reserved.

32

Current state

Overview of top industries in Georgia

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

Wholesale and retail trade Industry Transport and communication

730 2,114

Construction

3,356

Real estate, renting and business activities Hotels and restaurants

Sectors with higher potential in Georgia  Energy

 Hospitality and Real estate  Manufacturing  Agriculture and Food processing  Regional logistics corridor

 Regional services hub

Banking Others

5,167 8,637

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

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

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

© 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.

33

Section 4 Overview of Cost Base and Human Resources in Georgia

Cost base

Approach for talent assessment

Probable and readily employable talent pool

Supporting assessment of talent

Estimation of the cost base - Cost per FTE

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

Rental Costs (Net USD 15 for 10 sq.m.)

Monthly

150.0

177.0

264.9

312.6

Utilities (Net USD 2.5 for 10 sq.m.) Repairs & Maintenance (Net 5.35 for 10 sq.m)

Monthly Annual

25.0 7.4

29.5 8.7

44.1 13.1

52.1 15.4

Asset Rental Charges (for conference rooms etc.)Quarterly

1.9

2.2

3.3

3.9

Other Admin & Infra (Net USD 0.03 for 10 sq.m) Total RE Costs Laptop/Desktop Lease Costs Bandwidth Charges MPLS & Internet End User Software Licenses Telecom costs Print Managed Services - printer Print Managed Services - consumable IT Admin costs Repairs & Maintenance Total IT Costs Travel Transport Total T&T Costs Marketing & Sales Total Other Costs Total monthly cost

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

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

A- class offices rent prices used for calculation. Please refer to slide 17 Amortized during 3 years

Amortized during 3 years Amortized during 3 years Amortized during 3 years

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

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.

35

Estimation of the cost base - Cost per FTE

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

Real Estate 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

Rental Costs (Net USD 13.2 for 10 sq.m.)

Monthly

132.0

155.8

233.1

275.0

Utilities (Net USD 2.5 for 10 sq.m.) Repairs & Maintenance (Net 5.35 for 10 sq.m) Total RE Costs Laptop/Desktop Lease Costs Bandwidth Charges MPLS & Internet End User Software Licenses Telecom costs Print Managed Services - printer Print Managed Services - consumable IT Admin costs Repairs & Maintenance Total IT Costs Marketing & Sales Total Other Costs Total monthly cost

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

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

B- class offices rent prices used for calculation. Please refer to slide 17. Amortized during 3 years

Amortized during 3 years Amortized during 3 years Amortized during 3 years

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

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.

36

Analysis of talent

Cost base

Labour cost

Highest salaries are earned in the financial intermediation sector

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).

Average monthly gross salary, 2014

1,594.9

Average – GEL 865 1,160.7

1,156.1

GEL

1,233.1

1,048.7

1,090.7

Median – GEL 786

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

Average salary for IT&BPO sector is estimated to be closer to the lower end of the average salaries at USD 250 Source: GEOSTATE. National Bank of Georgia, KPMG Analysis Note: Information from GEOSTATE was obtained in Georgian Lari and average salaries in USD were calculated using National Bank of Georgia’s information of FX rates during first quarter of 2015. Source: Caucasus Barometer

© 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.

37

Analysis of talent

Cost base

Office stock in Georgia (1/2)

Around 460,000 sq.m leasable offices are available in Tbilisi Total office stock supply in Georgia

Vacancy rates in business centers in Tbilisi

 In Tbilisi office stock supply grew significantly in 2014  In 2015 and 2016 Tbilisi office stock supply is predicted to increase slightly, compared to 2014, while no changes are expected in the stock of the regional business centers  Around 52% of the office stock in Tbilisi is leasable, the rest is owner-occupied  The biggest share in leasable office space is C and D class offices, under which old Soviet Union buildings and offices in apartments are considered

 From 2010 to 2014 there was significant decrease of vacancy rate for A class offices.  Vacancy rate for B+ class offices also decreased and is currently below 5%  Vacancy rate of A- class offices increased from 5% in 2010 to 16% in 2014  Average modern business centre vacancy rate in Tbilisi stands at around 7% in 2014

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%

Leasable office space in Tbilisi by class, 2014

30%

4%

4% 2011

2012 A

A-

2013

2014

B+

B 1%

Source: Colliers 2014 report

© 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.

38

Analysis of talent

Cost base

Office stock in Georgia (2/2)

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

6

5

4

0 2008

2

8 6

2009

2010

2011

2012

2013

2014 0

Source: Colliers 2014 report

A

A-

B+

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

Batumi

Kutaisi

Poti

Rustavi

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

Source: KPMG Research and Analysis, OffPAT 2010

© 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.

39

Cost base

Telecom, internet and energy distribution

Analysis of talent

Internet and energy distribution

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

© 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.

40

Cost base

Legal environment

Analysis of talent

Beneficial legal environment for IT&BPO Labor Code of Georgia

Tax Code of Georgia

Legal age – 16 years old Holidays – 24 working days paid and 15 working days unpaid annually Minimum salary – no minimum wage requirements Standard working hours – 40 hours per week (48 hours for specified sectors) Overtime and shifts – to be agreed between employer and employee. Rest time of minimum 12 hours between working days • Payment for overtime – more than for standard working hours but the exact rate to be agreed between employer and employee • Termination by employer – 1 month prior written notice and 1 months’ salary or 3-day prior written notice and at least two months’ salary/compensation within 30 calendar days of the contract termination

• The tax legislation of Georgia comprises the Constitution of Georgia, international treaties and agreements, this Code and subordinate normative acts adopted in compliance with them

• • • • •

Tax Personal income tax Profit tax VAT

Rate 20% 15% 18%

Georgia does not have social security tax

Law on Entrepreneurs

Company set-up costs

• A business entity shall be registered by the National Agency of Public Registry, a legal entity under public law within the Ministry of Justice of Georgia • The registration of a foreign enterprise may be re-domiciled in Georgia without interrupting the continuity of the business of the enterprise • Unless otherwise provided for by the Charter, annual profits and loss shall be fixed and each partner's share shall be calculated at the end of each fiscal year on the basis of the annual balance sheet • No exception is for services provided within Georgia or abroad.

• The state registration in Georgia is performed by National Agency of Public Registry (NAPR) • The registration should be carried out within one working day after submitting all required documentation to the NAPR and paying a state due in the amount of GEL 100 (approximately USD 50) • A representative office/LLC can be registered on the same day of submission of documentation and the state due payable is GEL 200 (approximately USD 100) • All copies of documentation provided from the country of incorporation of the Company are to be notarized and apostilled/legalized in that country (where possible), if any. Afterwards the documents are to be translated into Georgian and notarized in Georgia • Normally the translation costs amount of GEL 15-20 (approximately USD 7-10) per each translated standard page

Law on personal data protection • Georgia has adopted a law on personal data protection which regulates the requirements for processing personal data and data security, as well as the rights of the personal data subject in relation to processing the data • The law also regulates the transfer of data to other countries and international organisations 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.

41

Experienced Fresh candidates for candidates for IT&BPO IT&BPO

Approach for talent assessment

Below Middle Management

Existing fresh graduates from universities in Georgia

Experienced Unemployed

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

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

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

Middle mgt. candidates for IT&BPO

Approach for talent assessment

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

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

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 © 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.

43

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

10%

Top Management

20%

Middle Management

70%

Below Middle Management Employees

Recruitment Strategy of Personnel

Top Management includes CXO’s and the Head of Functions

Recruitment strategy is a leadership planning and road mapping exercise

Middle Management includes Account Managers, Heads of Projects etc.

Recruitment strategy involves sourcing from the middle management pool of the existing experienced talent pool

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

Recruitment strategy involves sourcing for 1. Experienced IT&BPO personnel from: 1. Existing experienced talent 2. Unemployed talent 2. Fresh IT&BPO personnel from: 1. Fresh Graduates 2. Existing experienced talent 3. Unemployed talent

© 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.

44

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

Fresh Graduates

Middle Management

Experienced candidates for IT&BPO

Fresh 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

Below Middle Management

Refer to pages 24-27

Experienced candidates will primarily be tapped from the age group between 30 and 40 years. This bucket needs to be carefully analyzed during recruitment by the IT&BPO company. While most of them are from the existing experienced talent pool, the unemployed talent pool also may be leveraged to a smaller extent.

 

Refer to pages 32-34

Refer to pages 35-36

Refer to pages 28-31

 

Fresh candidates for IT&BPO sector will be sourced from all the three talent pools.

© 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

Probable middle management talent for IT&BPO

Middle management

Talent pool (in 000)

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

Fresh Grads Experienced Unemployed

691

864

2 110 173

171 61

Total number of employees

Non middle management Non-relevant industries for Industries with higher IT&BPO median salary than IT& BPO

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

Some industries like Construction may not have a work culture which is comparable with the IT&BPO sector

Total number of experienced talents was adjusted for talents unwilling to relocate from regions to capital of GeorgiaTbilisi estimated at 40%

© 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.

46

Current employable middle management talent for IT&BPO

Middle management

Talent pool (in 000)

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

Fresh Grads Experienced Unemployed

23 33

6 1 Probable middle Lack of propensity for BPO management level talent pool for BPO sector

Propensity for IT&BPO was determined based on our assessment of the interest for IT&BPO and career opportunities in each industry in accordance with our analysis and perception

Lack of language skills

Lack of computer skills

Total number of talent employable for IT&BPO industry was adjusted for English language skills in accordance with the self reported statistics of the age group

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

Total number of talent employable for IT&BPO industry was adjusted for soft skills in accordance with our assessment based on experience

© 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.

47

Assessment of middle management talent for IT&BPO sector (1/2)

Middle management for IT&BPO

There is a pool of around 1.3 thousand experienced talent for the middle management level in 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

Rationale for the estimates

- The profession is considered to be not relevant for the IT&BPO sector

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

100%

80%

100%

60%

30%

34%

55%

70%

105

Average salaries are relatively high, also sales bonuses are common + Relevant skillset for IT&BPO, such as communication and interpersonal skills -

Average salaries are comparable Transportation -

Transportation and 56,765 communications

20%

100%

20%

100%

60%

30%

34%

55%

70%

54

Industry is not directly relevant to IT&BPO sector

Communication and tourism + Relevant skillset for IT&BPO -

On average salaries are relatively high

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

© 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.

48

Assessment of middle management talent for IT&BPO sector (2/2)

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

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

Rationale for the estimates

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

+ Low average salaries

Health and social work

67,824

20%

100%

40%

100%

60%

30%

34%

55%

70%

129

+ Relevant skillset for Healthcare IT&BPO

-

Average salaries are relatively high, also sales bonuses are common

+ Relatively low average salaries

Providing utility, Social 57,326 and personal services

20%

100%

40%

100%

60%

30%

34%

55%

70%

109

-

Average salaries are relatively high

+ Relevant skillset for IT&BPO Financial 31,813 intermediation

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

Average salaries are relatively high and better career opportunities + Relevant skillset for IT&BPO Average salaries are relatively high, also sales bonuses are common

1,302

Source: GEOSTAT, 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.

49

Assessment of fresh talent for IT&BPO sector

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

Fresh candidates for IT&BPO

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

Considering the employment scenario, students from most faculties will be candidates for an IT&BPO job except niche faculties like Agriculture

Due to the current economic situation, there is a higher propensity to either pursue higher studies or move abroad

Unwilling to relocate from regions to IT& BPO hubs

Probable fresh talent pool for IT&BPO

We estimate that students studying in Tbilisi would prefer continuing to work there and 75% willing to relocate from the regions, resulting in around 88% students willing to work in Tbilisi

© 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.

50

Assessment of fresh talent for IT&BPO sector

Fresh candidates for IT&BPO

Economics and Business, Law and Humanities faculties are some of the areas from where fresh talent can be tapped Per the Ministry of Education and Science of Georgia, there are 72 registered and authorized higher educational institutions in Georgia (Research Universities-28, Teaching Universities-31, Colleges-13).

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

Total number of Bachelor graduates of HEIs, 2014-2015

12,223

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

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

Number of graduates Public Institutions

Private Institutions

Source:: GEOSTAT

TSU top programs graduates, 2012-2014 1,000 900 800

Number of Graduates

52 HEIs

2014-2015 2013-2014 2012-2013 3,718 3,346 3,138 3,338 2,693 1,935 3,278 2,746 1,849 6,807 6,731 5,332 17,141 15,516 12,254

Source:: TSU

4,918 20 HEIs

Fresh Grads Experienced Unemployed

879

840

782

663

700

639

600 500

388

400 300

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

Source:: TSU

200

131 112 145

137 125 127

86

2014

Economics and Business English philology Psychology

2013

2012

Law Computer Science

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113 101

100

51

Fresh candidates for IT&BPO

Assessment of fresh talent for IT&BPO sector

Over 17,000 fresh talent graduated HEIs in Georgia in 2015

Bachelor Graduates in 2014-2015

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

Less agriculture sector

(52)

(84)

(136)

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

Total number of graduates except agriculture sector

12,171

4,834

17,005

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

Faculties

TSU graduates Share in total

Extrapolated total bachelor graduates

Economics and Business

879

33%

3,718

Mathematics and Natural Sciences, except Computer Science

246

9%

Engineering, manufacturing and construction

n/a

n/a

Computer Science

118

4%

Law

789

30%

Medicine

n/a

n/a

Social and Political Sciences

418

16%

Journalism

111

4%

Tourism

84

3%

Humanities

n/a

n/a

3,278

Total

2,645

100%

17,005

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

1,041 1,264 499 3,338 1,274 1,768 470

 Total number of fresh talent employable for IT&BPO industry was adjusted with loss to higher education and migration abroad, based on statistical information obtained from GEOSTAT  Total number was adjusted for those unwilling to move to Tbilisi based on extrapolated data of students graduated in Tbilisi and students graduated from Universities in the regions and willing to move to Tbilisi  The adjusted number of 2014-2015 graduates by faculty was further adjusted based on our estimate of the propensity of the graduates to IT&BPO. Please see the calculations and assumptions on the next slide

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%).

Source: GEOSTAT, TSU, 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.

52

Assessment of fresh talent for IT&BPO sector

Economics, Business and Law are the key faculties in which the IT&BPO industry would find probable candidates Faculties

Extrapolated total bachelor graduates

Talent who do not Talent willing to pursue higher relocate to IT&BPO education or migrate hubs(%) abroad (%)

Probable fresh talent for IT&BPO

Economics and Business

3,718

74%

88%

2,434

Mathematical and Natural Sciences

1,041

74%

88%

681

Engineering, manufacturing and construction

1,264

74%

88%

827

Computer Science

499

74%

88%

327

Law

3,338

74%

88%

2,185

Medicine

1,274

74%

88%

834

Social and Political Sciences

1,768

74%

88%

1,158

Journalism

470

74%

88%

307

Tourism

355

74%

88%

233

Humanities

3,278

74%

88%

2,146

Total

17,005

Fresh candidates for IT&BPO

Fresh Grads Experienced Unemployed

Rationale for the estimates

Talent who do not pursue higher education or migration abroad - Many pursue higher education or migrate abroad Talent who do not pursue higher education and migration abroad is based on statistical information of Georgia Talent willing to relocate to IT&BPO hubs + Due to the lack of other options in the region, there is a higher willingness to relocate. We estimate that students studying in Tbilisi would prefer continuing to work there and 75% willing to relocate from the regions, resulting in around 88% students willing to work in Tbilisi

11,132

Source: GEOSTAT, 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.

53

Assessment of experienced talent for IT&BPO sector

Experienced Fresh candidates for candidates for IT&BPO IT&BPO

Around 8% of the employed workforce are probable candidates for the IT&BPO

Experienced Unemployed

Fresh Grads Experienced Unemployed

Talent pool (in ‘000s)

Split of probable candidates for IT&BPO

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

Non-relevant Industries with Industries with Non-relevant age group industries for higher median comparable salary than IT& work culture as IT&BPO IT&BPO BPO

Employees from Agriculture and Fishing industries may not be candidates for the IT&BPO sector

Some industries like Construction may not have a work culture which is comparable with the IT&BPO sector

Age group 2040 years old is considered the most relevant for the IT&BPO sector

Unwilling to Probable talent pool for relocate from IT&BPO the regions to IT&BPO hubs

Total number of experienced talents was adjusted for talents unwilling to relocate from regions to capital of Georgia-Tbilisi estimated at 12% of age group 20-30 and 40% of age group 30-40

© 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.

65.7

54

Assessment of experienced talent for IT&BPO sector (1/2)

Experienced Fresh candidates for candidates for IT&BPO IT&BPO

Education is the key industry in which the IT&BPO industry would find probable candidates

Profession

Agriculture, hunting, foresting Fishing Industry Construction

Experienced Unemployed

Talent between 20 - 30 Talent between 30 - 40 Talent who yrs (%) yrs (%) Talent with Talent Probable Talent in work in a Talent comparable below NonNonTalent experience industries similar Number of willing to middle median relevant relevant willing to d talent for work employees relevant for relocate to manageme salary as age group age group relocate to IT&BPO 1 culture as IT&BPO (%) IT&BPO nt (%) IT&BPO (%) IT&BPO (%) to IT&BPO hubs(%)2 to IT&BPO IT&BPO2 (%) (%) hubs(%)

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

Rationale for the estimates

- The profession is considered to be not relevant for the IT&BPO sector

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

100%

80%

100%

24%

88%

22%

60%

5,271

Average salaries are relatively high, also sales bonuses are common + Relevant skillset for IT&BPO, such as communication and interpersonal skills - Average salaries are comparable Transportation -

Transportation and 56,765 communications

70%

100%

20%

100%

24%

88%

88%

60%

2,727

Industry is not directly relevant to IT&BPO sector

Communication and tourism + Relevant skillset for IT&BPO -

On average salaries are relatively high

Source: GEOSTAT, KPMG Research and Analysis Note: (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

© 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.

55

Assessment of experienced talent for IT&BPO sector (2/2)

Experienced Fresh candidates for candidates for IT&BPO IT&BPO

Education is the key industry in which the IT&BPO industry would find probable candidates

Profession

Experienced Unemployed

Talent between 20 - 30 Talent between 30 - 40 Talent who yrs (%) yrs (%) Talent with Talent in work in a Talent comparabl Probable industries similar below e median experienced Number of NonTalent NonTalent work middle relevant for salary as talent for employees culture as relevant willing to relevant willing to manageme IT&BPO 1 IT&BPO IT&BPO IT&BPO age group relocate to age group relocate to nt (%) (%) (%) to IT&BPO IT&BPO to IT&BPO IT&BPO (%) 2 2 hubs(%) hubs(%) (%) (%)

Fresh Grads Experienced Unemployed

Rationale for the estimates

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

+ Low average salaries

Health and social work

67,824

70%

100%

40%

100%

24%

88%

22%

60%

6,517

+ Relevant skillset for Healthcare IT&BPO

-

+ Relatively low average salaries

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

Average salaries are relatively high, also sales bonuses are common

864,108

-

Average salaries are relatively high

+ Relevant skillset for IT&BPO Average salaries are relatively high and better career opportunities + Relevant skillset for IT&BPO Average salaries are relatively high, also sales bonuses are common

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 © 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.

56

Assessment of unemployed talent for IT&BPO sector (1/2)

There is a large pool of young unemployed people around 3% of which are probable candidates for IT&BPO

Experienced Fresh candidates for candidates for IT&BPO IT&BPO

Fresh Grads Experienced Unemployed

Experienced Unemployed

Split of probable candidates for IT&BPO

Talent pool (in ‘000s)

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

Age group 20-40 years old is considered the most relevant for IT&BPO sector

43.3 Probable unemployed talant pool

Considering the unemployment scenario, we estimate that 88 percent of talents between 2030 years and 60 percent between 30-40 years of the unemployed talent pool will be willing to relocate to the IT&BPO hubs

© 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.

57

Experienced Fresh candidates for candidates for IT&BPO IT&BPO

Assessment of unemployed talent for IT&BPO sector (2/2)

Large share of unemployed are in Tbilisi

Experienced Unemployed

Fresh Grads Experienced Unemployed

Unemployed by regions, 2014

Unemployed by age groups, 2014 in thousand persons

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%

Unemployed persons suitable for IT&BPO sector

Unemployment rate in Georgia (2014) Total unemployed persons in Georgia People outside labor force Total unemployed persons in Georgia (actively looking for work) Emigration estimate Talent pool who are graduates (%) Talent from relevant faculty of graduation (%) Unemployed persons from 20 to 30 Unemployed persons from 30 to 40 Talent between 20-30 years who are willing to relocate from the regions to IT&BPO hubs (%) Talent between 30-40 years who are willing to relocate from the regions to IT&BPO hubs (%) Probable unemployed talent for IT&BPO

12.4% 1,250,322 1,004,364 245,958 2.9% 39% 99% 36% 25% 88%

Shida Kartli 5%

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

60% 43,350

Source: GEOSTAT, Caucasus Barometer 2013, 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.

58

Probable below middle management talent pool for IT&BPO

There is a pool of around 120 thousand fresh and experienced talent for IT&BPO Experienced candidates for IT&BPO

Experienced Fresh candidates for candidates for IT&BPO IT&BPO

Experienced Unemployed

Fresh Grads Experienced Unemployed

Split of probable candidates for IT&BPO

Talent pool (in ‘000s)

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

Fresh candidates for IT&BPO Talent pool (in ‘000s)

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

The ratio of probable experienced candidates and probable fresh candidates for IT&BPO is 1:2.3 which helps us build a better pyramid structure of an IT&BPO organization

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59

Assessment of current employability of fresh talent in IT&BPO sector

Graduates from Mathematical and Natural Sciences, Social and Political Sciences, Engineering and Humanities are more likely to choose IT&BPO Faculties

Talent who Talent with Probable have a requisite talent for IT&BPO propensity for Language Skills (%) sector IT&BPO(%)

Talent with requisite Computer Skills (%)

Talent with requisite Soft Skills (%)

Talent who are readily employable in IT&BPO sector

Fresh candidates for IT&BPO

Fresh Grads Experienced Unemployed

Basis for our estimate of propensity to IT&BPO

Economics and Business

2,434

15%

60%

80%

50%

88

+ Skills in finance and accounting - High competition from banks, insurance companies, different international/local companies, better career development and higher salaries

Mathematical and Natural Sciences

681

70%

60%

80%

50%

114

+ Computational skills + Low competition from the industry

Engineering, manufacturing and construction

827

60%

60%

80%

50%

119

+ Computational skills + Low competition from industry

Computer Science

327

50%

60%

80%

50%

39

+ IT skills, however insufficient as per business representatives + Moderate competition from the industry

Law

2,185

15%

60%

80%

50%

79

-

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

No relevant skills for IT&BPO High competition from the industry, higher salaries

Medicine

834

15%

60%

80%

50%

30

Social and Political Sciences

1,158

60%

60%

80%

50%

167

Journalism

307

60%

60%

80%

50%

44

Tourism

233

30%

60%

80%

50%

17

+ Communication and interpersonal skills - High competition from hospitality and tourism sectors with higher salaries

Humanities

2,146

60%

60%

80%

50%

309

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

Total

11,132

+ + + +

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

1,006

Source: GEOSTAT, KPMG Research and Analysis

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60

Assessment of current employability of experienced talent (1/2)

Experienced Fresh candidates for candidates for IT&BPO IT&BPO

Largest pool of experienced talent is expected to come from education Talent between 20-30

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 between 30-40

Talent with Talent with Talent with Talent with requisite requisite requisite Soft requisite Soft 3 3 Language Skills Computer Skills 1 2 Skills (%) Skills (%) (%) (%)

Talent who are readily employable in IT&BPO sector

Wholesale and retail trade; repair of motor vehicles and personal 5,931 and household goods

30%

71%

64%

50%

74%

47%

50%

366

Hotels and restaurants

5,271

30%

71%

64%

50%

74%

47%

50%

325

Transportation and communications

2,727

30%

71%

64%

50%

74%

47%

50%

168

Real estate operations, renting 3,278 and providing business services

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

Source: GEOSTAT, KPMG Research and Analysis

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61

Assessment of current employability of experienced talent (2/2)

Experienced Fresh candidates for candidates for IT&BPO IT&BPO

Largest pool of experienced talent is expected to come from education Talent between 20-30

Profession

Probable talent for IT&BPO sector

Talent who have Talent with Talent with a propensity for requisite requisite IT&BPO (%) Language Skills Computer 1 2 Skills (%) (%)

Experienced Unemployed

Fresh Grads Experienced Unemployed

Talent between 30-40

Talent with Talent with Talent with Talent with requisite requisite requisite Soft requisite Soft 3 3 Language Skills Computer Skills 1 2 Skills (%) Skills (%) (%) (%)

Talent who are readily employable in IT&BPO sector

Education

30,666

30%

71%

64%

50%

74%

47%

50%

1,890

Health and social work

6,517

30%

71%

64%

50%

74%

47%

50%

402

Providing utility, Social and personal services

5,508

30%

71%

64%

50%

74%

47%

50%

339

Financial intermediation

764

30%

71%

64%

50%

74%

47%

50%

47

Public administration

5,000

30%

71%

64%

50%

74%

47%

50%

308

Total

65,662

4,047

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

Source: GEOSTAT, KPMG Research and Analysis

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62

Assessment of current employability of unemployed talent

Experienced Fresh candidates for candidates for IT&BPO IT&BPO

There is a pool of around three thousand unemployed talent for IT&BPO Talent between 20-30 Description

Probable talent for IT&BPO sector

Unemployed persons suitable for 43,350 IT&BPO sector

Talent who have a propensity for IT&BPO (%)

30%

Talent with Talent with requisite requisite Language Skills Computer 1 2 Skills (%) (%)

71%

64%

Experienced Unemployed

Talent between 30-40

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%

Talent who are readily employable in IT&BPO sector

2,721

Source: GEOSTAT, KPMG Research and Analysis

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

Current employable below management talent for IT&BPO

There is a pool of around 8 thousand readily employable fresh, experienced and unemployed talent for IT&BPO

Experienced Fresh candidates for candidates for IT&BPO IT&BPO

Fresh Grads Experienced Unemployed

Experienced Unemployed

Split of readily employable candidates for IT&BPO 6% of total active population

Experienced candidates for IT&BPO

2, 26%

Talent pool (in 000)

Fresh candidates for IT&BPO 5.8, 74% 83.25 120.1 0.4% of total active population

10.96 36.89

Probable talent pool for BPO sector

Lack of propensity for BPO

Propensity for IT&BPO was determined based on our assessment of the interest for IT&BPO and career opportunities in each industry in accordance with our analysis and perception

10.38 25.93

Lack of language skills

Total number of talent employable for IT&BPO industry was adjusted for English and Russian language skills in accordance with the perception of business representatives interviewed and self reported statistics of the age group

15.55

7.77 7.77

Lack of computer skills

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

7.77

Talent who are readily employable in BPO sector

Total number of talent employable for IT&BPO industry was adjusted for soft skills in accordance with the perception of business representatives interviewed as well as our assessment based on experience

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64

Assessment of language and computer skills

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

Self reported knowledge of English by age groups, 2013 0%

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%

Self reported knowledge of Russian by age groups, 2013

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.

Self reported knowledge, some level of computer skills

Self reported knowledge, some level of English

63

32 27

33

32

35

37

54

39 Russian

47

25% 38

28

42

41

2011

2012

29 23 English

2008

2009

2010

Source: Caucasus Barometer

2011

2012

60%

2008

2013 2014E 2015E

2009

2010

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.

2014E 2015E

Source: KPMG Research and Analysis

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)

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

Russia FIZ

Black sea

Poti

Kutaisi Batumi

Financial Attractiveness

Sub-Category

Tbilisi

Tbilisi

FIZ FIZ

Turkey

Category

Georgia

Armenia

Azerbaijan

Potential Tier II cities: Kutaisi and Batumi

Employee Salary Cost

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

Real Estate Costs

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

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

Utility Costs

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

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

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

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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

Potential Tier II cities: Kutaisi and Batumi

New Talent Availability

9 public and 37 private HEIs in Tbilisi We estimate that 88% of total number of graduates are willing to stay/move to Tbilisi

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

Existing Talent Availability

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

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

Computer skills

59% of the population in Tbilisi reported to have intermediate or advanced computer skills in 2013 survey

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

Language Capability

35% of the population in Tbilisi reported to have intermediate or advanced knowledge in both English and Russian in 2013 survey

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

Higher, more active social life, larger expatriate community Significantly higher in comparison to Kutaisi and not significantly higher than in Batumi

Lower, less active social life (especially in Kutaisi), smaller expatriate community Kutaisi has significantly lower apartment rent prices and food prices compared to both Tbilisi and Batumi

Total office space in 2014 was 912 thousand sq.m Tbilisi international airport has 28 international destinations

Total office space in 2014 was 53 thousand sq.m in Batumi and 58 thousand sq.m in Kutaisi Batumi and Kutaisi international airports have 6-7 international destinations each

Social life suitability Quality of life Cost of living Real estate availability Inter & intra city connectivity Infrastructure Telecom infrastructure availability

Mobile and high speed internet is available in all Mobile and high speed internet is available in all three cities three cities

Reliability of power supply

All three cities have uninterrupted power supply

All three cities have uninterrupted power supply

Source:: KPMG Research and Analysis, Caucasus Barometer, Colliers

© 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.

68

City selection

Benchmarking

Summary

Takeaway Advantages of Georgia  Georgia

is

among

Weaknesses of Georgia best

 Georgia does not offer sector specific

countries for doing business

government incentives offered similar

 Georgia is leading in terms employee salary costs (slightly behind Egypt) and utility costs  Georgia

has

much

more

flexible labour laws and lower taxation rates

 All the cities have reliable power supply with hardly any power cuts  Telecom

infrastructure

is

comparable across all cities

to the benchmarking countries

While Georgia ranks high in Ease of doing business and is financially attractive, the main areas for improvement are: - Development of talent - Inter city connectivity - Government incentives

 Georgia has higher real estate costs compared to most of the European benchmark countries  Georgia is not well connected to the major destinations  All the benchmarking countries have existing

IT&BPO

experienced

existing

industry

with

talent

while

Georgia is doing its first steps. Also the number of graduates is much higher in most of the benchmarking

 No major business constraints were identified in any of the countries, except that no data privacy law is established in Egypt

countries due to the larger size of the countries  Georgia is still slightly behind in computer skills but ahead 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. All rights reserved.

69

City selection

Benchmarking

Assessment Model

Category Parameters Used Category

Financial Attractiveness

Business Environment

Sub-Category

Description

Employee Salary Cost

Manpower Costs in IT&BPO Sector

Real Estate Costs

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

Utility Costs

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

Ease of doing business

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

Business Constraints

Regulatory and operational constraints for BPO sector

Labour 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

Real estate availability

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

Inter & intra city connectivity

Airports, flights, passenger traffic, transportation

Telecom infrastructure availability

Major telecommunication players and services availability

Reliability of power supply

Availability of power supply

Infrastructure

© 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.

70

Benchmarking by categories Financial Attractiveness Business Environment Infrastructure

Benchmarking by categories Financial Attractiveness Business Environment Infrastructure

City selection

Benchmarking

Financial attractiveness – Salary trends

Georgia has the second lowest average gross salary but the highest inflation Average gross salaries, 2014 1,335 1,183 959

Czech Republic

Hungary

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

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 %)

■ Wage inflation is a critical factor in the evaluation of long-term Cost attractiveness of a location ■ In 2014 the lowest inflation (deflation) was recorded in Slovak Republic

Georgia

3.8

Czech Republic

2.4

Slovak Republic -0.2 Estonia Egypt Hungary

2.1 1.3 3.1

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73

Financial attractiveness – Real estate costs, utility costs

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

USD per sq.m.

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

■ Office rent costs in Georgia are slightly higher than in Slovak Republic, Hungary and Estonia ■ In Georgia average monthly office rent for A- and B+ offices amounts to USD 14.5 per sq.m. with the highest rent being USD 30 ■ The average office rent costs in the Czech Republic and Egypt are higher than in Georgia by 8% and 30%, respectively

Utility Costs

USD per sq.m.

48.83

2.5 Georgia

5.6

7.4

Hungary

Slovak Republic

Utility Costs per sq.m.

20.44

18.02

17.27

17.13

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

23.09

5.7

6.2

Czech Republic

Estonia

3.0 Egypt

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

Monthly Internet cost (broadband 6 mbps)

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

74

Benchmarking by categories Financial Attractiveness Business Environment Infrastructure

City selection

Benchmarking

Business Environment: Ease of doing business

Georgia is among the best countries for doing business Ease of doing business ranking  Ease of doing business ranking from 1-189 indicates regulatory environment is more conducive to the starting and operation of a local firm

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

o Trading across borders

 11.5 days and 6 procedures are needed in order to register a firm in Slovak Republic

o Enforcing contracts o Resolving insolvency

 In Czech 15 days and 8 procedures are required to register company  In Hungary it requires 5 days and 4 procedures to register a firm  In Estonia it requires 3.5 days and 3 procedures to start a business  It takes only 2 days to register a firm in Georgia and only 2 procedures need to be undertaken

Source: KPMG Analysis, The World Bank © 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.

76

City selection

Business Environment: Labour Laws (1/2)

Benchmarking

Georgia has simpler taxation system and lower rates Georgia Working hours per 8 day Working days per 5 week Holiday (minimum) 24

Minimum wage

Remuneration is defined by the counterparties

Social security tax

None

Czech Republic

Estonia

Hungary

Slovak Republic

Egypt

8

8

8

8

8

5

5

5

5

6

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

20-23 working days 20 21 depending on years of tenure CZK 7,955 (around EUR 355 (around HUF 105,000 (around 317 EUR (around Remuneration is USD 288) per month USD 396) per month USD 452) per month USD 421) per month defined by the counterparties

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

Social contribution Social security tax tax (employer) - 27% (employer) - 33% Vocational training Unemployment contribution insurance – 3% (employer) - 1.5% (employer -1%, employee -2%) Pension plan contribution (employee) - 10% Health insurance contribution in kind - 4%, health insurance contribution in cash - 3%

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 © 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.

77

Business Environment: Labour Laws (2/2)

City selection

Benchmarking

Georgia is more flexible in terms of employee compensation Georgia

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 © 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.

78

City selection

Benchmarking

Slovak Republic

Egypt

Business Environment: Business Constraints (1/2)

Regulations are similar and not restrictive in nature

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 оr 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

 For EU/EEA citizens, depends on bilateral agreements that exist between Hungary and the EU citizen's home country  Third country citizens require a residence permit and work permit

 No 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 employer’s 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

Business Environment: Business Constraints (2/2)

Regulations are similar and not restrictive in nature

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

 Foreign investors are  No legal restrictions on  No limitations exist guaranteed unrestricted the payment of returns concerning the repatriation of profits and on investments (e.g. distribution and capital dividends, interest, expatriation of profits repayment of loans) to by Czech Republic foreign shareholders subsidiaries to their foreign parent companies, other than the obligation of joint stock and limited liability companies to generate a mandatory reserve fund and pay withholding taxes (dividends and certain types of other sourced income is taxed at 15%)

 The Company has  The Company has to  The Company has to to be in be in compliance with be in compliance with compliance with Act No. 101/2000 Coll., Personal Data law of Georgia on on the Protection of Protection Act of personal data Personal Data of Estonia protection Czech Republic

Slovak Republic  No limits exist concerning taxes repatriation

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

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

Infrastructure: Real Estate Availability

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

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

Estonia

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

Source: Colliers country reports

Vacancy rate 20.0%

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

16.8% 11.8%

13.5%

7.0% 4.8%

Estonia

Georgia

Slovak Republic

Hungary

Czech Republic

Egypt

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

Source: Colliers country reports

© 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.

82

City selection

Benchmarking

Infrastructure: Power Reliability and Telecom Infrastructure

All cities have good telecom infrastructure and uninterrupted power supply Georgia

Czech Republic

Estonia

Hungary

Slovak Republic

Egypt

Broadband network Fiber optic network available

Fiber optic network available

Main telecom operators

Caucasus Online, Silknet, Magticom, Geocell, Beeline

T-Systems, T-Mobile, EMT, Tele2, Elisa Vodafone, O2, Volny, U:fon

Magyar Telecom, T- Slovak Telecom, TMobile, Vodafone, Mobile, Orange, O2 Telenor

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

Fiber optic network available

Fiber optic network available

Fiber optic network available

Fiber optic network available

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

Infrastructure: Inter and Intra City Connectivity

Georgia, Estonia and Egypt score poorly on overall connectivity Connectivity 124 99

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

62

24

28

31

Estonia

Georgia

Egypt

Hungary

Number of international destinations connected

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

Slovak Republic

Czech republic

■ Estonia and Georgia are far behind in terms of the number of direct flights to worldwide destinations ■ Egypt has 72 direct international flights, out of which 41 to less countries in Africa (except UAE which is a common destination among benchmarking countries)

Source: KPMG Analysis, airport 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.

84

Section 6 Investment proposals – Targeted IT&BPO segments

F&A Segment

F&A Market

42

F&A Market 2015-2020 Forecast (in Bn USD)

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%

• Current demand for F&A outsourcing is USD 26.5 billion • Most of the demand comes from Americas, however the demand from the EMEA region represents 35% of the total demand and stands at USD 9.3 billion • F&A sector is expected to grow 43% in the next 5 years

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 and Georgia’s competitive advantage

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

Talent availability and quality • F&A BPO in Georgia is in a nascent stage, however talent available among graduates and industry • Fresh talent in F&A is expected to come from Economics and business faculty which is the top faculty in Georgia, showing 38% growth in the last 2 years • Ability to tap fresh talent from the young pool of unemployed with 100% literacy rate and 92% of at least secondary education • Experienced talent in F&A is available in all industries • Quality of fresh F&A talent with basic skills is assessed as high by business representatives

Cost attractiveness • Lower wage cost compared to other locations in CEE region • Lower utility and internet costs compared to other locations in CEE region • Comparable office rental prices to CEE countries and high availability of A-, B+ class office stock • Opportunity to move to Tier II cities in the long-term, with even lower costs per FTE

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

Target operational and financial model

Operational

Processes – full range of low-end processes Accounts payable Travel and expense Credit Accounts receivable Billing/invoicing Collections Order capture, revenue accounting o Journal entries, accounting policies o Cost accounting, o o o o o o o

• 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

Source: KPMG analysis, SPI Research, CapIQ © 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.

88

CRM Segment

CRM Market

CRM Market 2015-2020 Forecast (in Bn USD)

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%

• Current demand for CRM outsourcing is USD 51.1 billion • Most of the demand comes from Americas, however the demand from the EMEA region represents 30% of the total demand and stands at USD 15.4 billion • CRM sector is expected to grow 32% in the next 5 years

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. All rights reserved.

89

CRM Segment

Georgia’s competitive advantage Competitive forces • CRM is a long developed IT&BPO segment with established market players all across the world and most companies having locations in CEE/CIS • Contact center outsourcing market is heavily fragmented with top 20 players accounting for less than 40% of the market share, but the market has seen consolidation over the last 18 to 24 months

Talent availability and quality • CRM in Georgia is the most developed among the BPO segments with a number of relatively large call centers (between 200 and 500 FTEs) servicing both local and international markets • Fresh talent in CRM is expected to come mostly from Humanities/Arts faculty which is in top 5 faculties in Georgia showing 77% growth in last 2 years • Ability to tap fresh talent from the young pool of unemployed with 100% literacy rate, 92% of at least secondary education and average English and Russian skills of 38% and 63% respectively • CRM experienced specialists are available in the BPO industry as well as in industries employing large call centers, such as banks, telecoms and insurance companies which are in the top 3 industries in Georgia by number of FTEs 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, , 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

Target operational and financial model

Operational

Processes – full range of low-end processes o Campaign execution (loyalty program management, coupon and gift card management) o Content management o Lead generation o Cross-sell/Up-sell o Omni-channel customer care (SMS/web chat/email/ social media/voice)

• Considering availability of experienced talent in CRM, Georgia can offer direct offshoring/ nearshoring to demand companies • Georgia might also target BPO companies with no current locations in CIS (for example Teletech which is expanding geography) to set up a location in Tbilisi • Full range of low-end processes throughout Marketing, Sales and Customer care may be provided in short-term • Due to low availability of IT talent, digital CRM should be tapped in the longer term perspective • Georgia should leverage talent in economics/ mathematics to couple voice/non voice customer care with data analytics for improved offering

o Search engine and social media marketing o Data cleansing and consolidation o Marketing and campaign analytics o Call center analytics o Customer analytics o Web development, ecommerce support

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

Source: KPMG analysis, SPI Research, CapIQ © 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.

91

HR Segment

HR Market

HR Market 2015-2020 Forecast (in Bn USD)

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%

• Current demand for HR outsourcing is USD 42.8 billion • Most of the demand comes from Americas, however the demand from the EMEA region represents 24% of the total demand and stands at USD 10.1 billion • HR sector is expected to grow 37% in the next 5 years

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

Georgia’s competitive advantage

• • • •

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

Talent availability and quality • HR BPO in Georgia is relatively developed with a number of small companies servicing both local and international markets • Fresh talent in HR is expected to come from Social and political sciences faculty as well as Economics and Business which are in top 5 faculties in Georgia. Social and political sciences faculty showed 90% growth in he last 2 years • HR experienced specialists are available in the BPO and other industries • Ability to tap fresh talent from the young pool of unemployed with 100% literacy rate and 92% of at least secondary education, as well as average English and Russian skills of 38% and 63% respectively 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 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

Target operational and financial model

Operational

Processes – full range of low-end processes background o Payroll interviews, exit administration: interviews, and wage Produce cheques, reviews handle taxes, deal with sick/vacation time o HR analytics o Employee benefits: solutions: Health, Medical, Life performance management, o HR management: employee satisfaction, Recruiting, hiring, and retention firing. Also

• Considering availability of some experienced talent in HRO, Georgia can offer direct offshoring/ nearshoring of low end processes to demand companies • Georgia might also target growing BPO companies with no current locations in CIS (for example Genpact) to set up a location in Tbilisi • In the longer term, given the increase in the number of available talent and increase in their experience level, as well as the increase in the demand from the CIS region, Georgia might target top BPO companies (for example NGA HR) to set up locations in Tbilisi as a better alternative to CEE and other CIS countries

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

Source: KPMG analysis, SPI Research, CapIQ © 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.

94

Industry Specific – Telecom Segment

Industry specific Market 2015-2020 Forecast (in Bn USD)

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%

• Current demand for industry specific BPO is estimated at USD 183.8 billion of which Telecom related demand is estimated at USD 45.9 billion • Most of the demand for industry specific BPO comes from Americas, however the demand from the EMEA region represents 28% of the total demand and stands at USD 51 billion of which Telecom related demand is estimated at USD 12.7 billion • Industry specific BPO sector is expected to grow 32% in the next 5 years

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

Industry Specific – Telecom Segment

Georgia’s competitive advantage Competitive forces • There are about 700-800 Telecom firms in the world, but only about 100 or so tier 1 firms in selected countries have embraced outsourcing of operations services. Now there is an opportunity to provide services to tier 2 and tier 3 Telecom firms too • India, Philippines and Hungary are the major locations preferred by Telecom firms for outsourcing and setting up captives • Top telecom specific BPO companies are all represented in CEE but on a smaller scale compared to other BPO segments. None of the top players has locations in CIS. Talent availability and quality • Currently there is no Telecom Specific BPO in Georgia • Fresh talent in Telecom specific BPO is expected to come from Economics and business faculty, as well as Engineering, manufacturing and construction which are top faculties in Georgia. Economics and business faculty has shown 38% growth in the last 2 years • Ability to tap fresh talent from the young pool of unemployed with 100% literacy rate and 92% of at least secondary education • Experienced talent is available in telecom industry which is in the top 3 industries in Georgia

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. All rights reserved.

96

Industry Specific – Telecom Segment

Target operational and financial model

Operational

• Georgia might target top Telecom focused BPO companies with no current locations in CIS and limited representation in CEE (for example Tata Consultancy Services or Tech Mahindra) to set up a location in Tbilisi • Full range of telecom processes provided by these BPO companies might be provided in Georgia • Automation is high on the agenda in the telecom operations services marketplace. In the longer term Georgia should develop IT talent to cope with the industry requirements

Processes – full range of telecom processes o Assurance – technical help desk, o incident and problem management, service level management o Billing – bill generation, validation, pricing management o Interconnect/roaming relations – o report generation, exchange between partners o Fulfilment – all back office functions pertaining to setting up a new o connection, such as order management, provisioning, activation, order fallout mgt

Network management – network design and planning, network rollout management, network inventory management, network performance management, e.g. monitoring downtimes Customer acquisition and support – cold calling, lead generation, sentiment analysis, customer support Data analytics – churn analytics, billing analytics, network and assurance analytics, etc

Financial

Source: KPMG analysis, SPI Research, CapIQ

20.0 18.0

2.4

16.0

2.9

EBIT

14.0 million USD

• Revenue per FTE for Telecom specific work is estimated at USD 13,000 per year • Cost per FTE excluding management overheads is estimated at USD 9,500 per year • Management overheads are estimated at 20% of Cost per FTE • Currently around 7,700 fresh and experienced staff are readily available for the industry from which 1,000 to 1,500 can be allocated to Telecom specific BPO segment • Average EBIT margin on similar companies in the industry in Europe ranges from 4% to 9% • EBIT margin in Georgia is estimated at 12%

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. All rights reserved.

97

Industry Specific – Manufacturing Segment

Industry specific Market 2015-2020 Forecast (in Bn USD)

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%

• Current demand for industry specific BPO is estimated at USD 183.8 billion of which Manufacturing related demand is estimated at USD 58.8 billion • Most of the demand for industry specific BPO comes from Americas, however the demand from the EMEA region represents 28% of the total demand and stands at USD 51 billion of which Manufacturing related demand is estimated at USD 16.3 billion • Industry specific BPO sector is expected to grow 32% in the next 5 years

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. All rights reserved.

98

Industry Specific – Manufacturing Segment

Georgia’s competitive advantage Competitive forces • India, Philippines, Poland and Singapore are the major locations preferred by manufacturing firms for outsourcing and setting up captives • Top BPO companies focused on manufacturing are represented in CEE but on a smaller scale compared to other BPO segments • The services offered by top companies in Manufacturing BPO span the functional areas of procurement, production planning, manufacturing operations, warehousing and inventory, and distribution and delivery across all manufacturing segments: industrial manufacturing, metals and mining, engineering and construction, high technology Talent availability and quality • Currently there is no Manufacturing Specific BPO in Georgia • Fresh talent in Manufacturing related BPO is expected to come from Engineering, manufacturing and construction faculty which is in the top 5 faculties in Georgia showing 56% growth in the last 2 years • Ability to tap fresh talent from the young pool of unemployed with 100% literacy rate and 92% of at least secondary education • Experienced talent is available in manufacturing industry which is in the top 3 industries in Georgia

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

Industry Specific – Manufacturing Segment

Target operational and financial model

Operational

Processes – typical processes to focus on o Supply chain management: Sourcing, purchasing, contracts, invoicing and payment o Deductions management: pricing discrepancies, freight discrepancies

• Considering the smaller presence of top manufacturing specific BPO companies in CEE as well as presence of Free Economic Zones in Georgia, these companies should be targeted for setting up locations in Georgia • Georgia can target any of the manufacturing segments serviced by the top Manufacturing BPO companies • However, considering the large size of the Metals & Mining industry in the CIS, Georgia could focus on the Minerals, Metals and Mining industry specific BPO and the related typical processes

• Revenue per FTE for Manufacturing specific work is estimated at USD 14,000 per year • Cost per FTE excluding management overheads is estimated at USD 9,500 per year • Management overheads are estimated at 20% of Cost per FTE • Currently around 7,700 fresh and experienced staff are readily available for the industry from which 1,000 to 1,500 can be allocated to Manufacturing specific BPO segment • Average EBIT margin on similar companies in the industry in Europe ranges from 6% to 14% • EBIT margin in Georgia is estimated at 19%

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

Source: KPMG analysis, SPI Research, CapIQ © 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.

100

IT Infrastructure management Segment

IT Infrastructure management Market 2015-2020 Forecast (in Bn USD)

IT Infrastructure management Market

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%

• Current demand for IT Infrastructure management outsourcing is USD 131.5 billion • Most of the demand comes from Americas, however the demand from the EMEA region represents 22% of the total demand and stands at USD 28.3 billion • IT Infrastructure management sector is expected to grow 25% in the next 5 years

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. All rights reserved.

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IT Infrastructure management Segment

Georgia’s competitive advantage Competitive forces • With the largest pool of skilled resources, and process maturity accruing from the established IT industry, India is a leading destination for any ITO. There is good competition from CEE countries as well. • Most of the largest IT infrastructure outsourcing providers have locations in CEE countries, as well as in CIS and in Russia • Apart from top international IT Outsourcing companies, local companies in CIS countries are also active in the local and European markets Talent availability and quality • ITO, and especially IT infrastructure management, in Georgia is in a nascent stage • Fresh talent in ITO is expected to come from Computer Science faculty which is not in top 5 faculties in Georgia showing a moderate growth at 11% in the last 2 years • Ability to tap fresh talent from the young pool of unemployed with 100% literacy rate, 92% of at least secondary education and an average of 37% with moderate or advanced level of computer skills • Experienced IT specialists are available in a small number of ITO companies and in all industries Cost attractiveness • Lower wage cost compared to other locations in CEE region • Lower utility and internet costs compared to other locations in CEE region • Significantly lower energy costs compared to CIS and CEE. Price per kw/h in the range of USD 0.032 to USD 0.061 • Comparable office rental prices to CEE countries and high 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, 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.

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IT Infrastructure management Segment

Target operational and financial model

Operational

Processes – typical processes to focus on

• Georgia has an anchor data center outsourcing project which should be marketed to achieve offshoring/nearshoring from tier 2 demand companies as well as bring in top ITO companies with no/little presence in CIS (for example Accenture) to set up a location in Tbilisi • Russian ITO market is in its infancy in 2015 but expected to grow fast. Georgia is well positioned to benefit from this. • In the longer term, given the increase in the number of available talent and increase in their experience level, European tier 1 market may be targeted both for direct offshoring and through attracting top ITO companies (for example CSC) to set up locations in Tbilisi as an alternative to CEE countries

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

Source: KPMG analysis, SPI Research, CapIQ © 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.

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:

• Well understood strengths and weaknesses

• Fewer global players than IT sourcing

• Established commercial models which can be customised

• Service providers tend to be functional specialists

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

• Less established complex commercial models • Many clients are still 1st generation, with some emerging 2nd 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. All rights reserved.

105

Appendix 2

Definitions of some key terminologies used in this deck

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

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

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. All rights reserved.

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Appendix 3

Glossary

(1/6)

Terms

Definition

ADM

Application development and maintenance

AMERICAs

North America and South America

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

Business Process Association of the Philippines

BPO

Business Process Outsourcing

CA

Chartered Accountant

CAGR

Compound annual growth rate

CC

Customer care

CEE

Central & Eastern Europe

CFA

Chartered Financial Analyst

CIS

Commonwealth of Independent States

CoE

Center of Excellence

© 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.

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Appendix 3

Glossary

(2/6)

Terms

Definition

CMMI

Capability Maturity Model Integration

Content Management

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

CRM

Customer Relationship Management solutions and services

CZK

Czech Koruna

EIU

Economic Intelligence Unit

ERP

Enterprise resource planning implementation and support services

EMA, EMEA

Europe, Middle East and Africa

EU/EEA

European Union / European Economic Area

F&A

Finance and Accounting services

FTA

Free trade agreement

FTE

Full time equivalent

GBS

Global Business Services

GDP

Gross domestic product

GEL

Georgian lari

GEOSTAT

National Statistics Office of Georgia

© 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.

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Appendix 3

Glossary

(3/6)

Terms

Definition

GIC

Global In-house Center

HDI

Human development index

HEI

Higher educational institution

HR

Human resources

HRO

Human Resource outsourcing services

HUF

Hungarian Forint

ICT Services

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

IOS

Internetworking operating system

IPO

Initial Public Offering

IPR

Intellectual Property Rights

IRR

Internal Rate of Return

IT

Information technologies

IT Consulting

Information technology consulting services

IT Infrastructure

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

IT Products

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

© 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.

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Appendix 3

Glossary

(4/6)

Terms

Definition

ITO

Information Technology Outsourcing

JV

Joint Venture

KB

Knowledge Base

KPO

Knowledge process outsourcing services

MBA

Master in Business Administration

Middle office

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

MES

Manufacturing Execution System

Mln

Millions

MoU

Memorandum of Understanding

MS

Managed services

NASSCOM

National Association of Software and Services Companies

Near shore

Within the same geographic region

NRI

Networked readiness index

Off shore

Outside of the same geographic region

OLA

Operating level agreement

© 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.

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Appendix 3

Glossary

(5/6)

Terms

Definition

On shore

In the same country

OO

Off shored outsourcing

OO

Off shored outsourcing

Outsource service provider

Provider of outsourcing service

Other IT Services

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

PaaS

Platform as a service

PIKOM

National ICT Association of Malaysia

PR

Public Relations

R&D

Research & Development

SA

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

SaaS

Software as a Service

SCADA

Supervisory Control And Data Acquisition

SEZ

Specific economic zones

SLA

Service level agreements

© 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.

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Appendix 3

Glossary

(6/6)

Terms

Definition

SMAC

Social, mobile, analytics and cloud

SME

Small and medium entities

SoA

Service-oriented Architecture

Sq.m

Square meters

SSC

Shared Services Center

STPI

Software Technology Parks of India

System Integration

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

TESDA

Technical Education and Skills Development Authority

Transactional Services

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

TSU

Tbilisi State University

VC

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

WOS

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

Y2K

Year 2000

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•

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•

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