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Releasing Cash from Captive Engineering Centers

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Executive Summary <ul><li>Companies today need a way to convert Fixed Costs to Variable Costs </li></ul><ul><li>Engineering Centres are a fixed a Cost </li></ul><ul><li>Companies need Offshore captive centers for furthering their needs for talent and regional growth </li></ul><ul><li>A Hybrid Model for achieving all of the above proposed in this document </li></ul><ul><li>Can result in release of $__Mn* per 100 people transfer </li></ul><ul><li>No resultant loss of IP or destabilization of the operations </li></ul>* Valuation parameters not outlined

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<ul><li>Higher savings </li></ul><ul><li>Knowledge retention – Vendors move people around </li></ul><ul><li>IP retention – Product Development key process </li></ul>Why Captive Center Vs Vendor relationship

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General Performance of Captive Centers All figures only illustrative To the CFO, Vendor Vs Captive Cost benefit has been blurring $1.5 $ $ 6 Captive Cost of Management NPM Establishment costs (Legal,Entity formation) 0.75 Cost of Attrition Cost of facilities Wt avg cost of resources across different locations $ 5 Cost of Labor Reasons Vendor

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Non-Financial realities of the Captive <ul><li>HQ wants to treat captives like Profit centre </li></ul><ul><li>Captive wants to be treated at Par with Employees in HQ- Cost Centre </li></ul><ul><li>Mismatch of expectations results in lack of clarity and trust </li></ul><ul><li>Growth of employees limited – leads to attrition </li></ul><ul><li>Availability of talent restricted due to limited Geo reach of captive </li></ul><ul><ul><li>Engineering Talent in India siloed by region </li></ul></ul>

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What does this recession mean for Captive Centres? <ul><li>Fixed Cost in Books </li></ul><ul><li>Less ability to flex manpower costs </li></ul><ul><li>Larger erosion of intellectual capital </li></ul>

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The New “Captive” Business Model Employees will be rotated on a min 2 year period. No more than 15% of rotation in one year Facilities No control Data and data centre Bulk of the staff Small Percentage People Vendor OEM

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OEM interests met? <ul><li>Data Security- Ensured </li></ul><ul><li>People Retention- Ensured to the extent of attrition which is lower than Captive </li></ul>

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Opportunities for Releasing Cash <ul><li>Value the captive for FCF for next 5 years </li></ul><ul><li>Upfront release of cash for the valuation Vendor relationship with XX </li></ul><ul><li>Rebadge current employees </li></ul><ul><li>Pre-agreed rotation % </li></ul><ul><li>Reverse transfer clause after 5 years </li></ul>

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Benefits for OEM <ul><li>Cash </li></ul><ul><li>No loss of IP – All IP with OEM </li></ul><ul><li>Secure environment </li></ul><ul><li>Non-Compete if value of deal large </li></ul>

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Why XX <ul><li>Largest Engineering Brand in India </li></ul><ul><li>Breadth of Engineering domain </li></ul><ul><li>Deep Pockets </li></ul><ul><li>Highest Ethical standards in the World </li></ul>