Embracing the Transformation: THE OUTSOURCING INDUSTRY IN BULGARIA 2016

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1 Embracing the Transformation: THE OUTSOURCING INDUSTRY IN BULGARIA 016 This report was commissioned by the Bulgarian Outsourcing Association (BOA) and prepared by, a consultancy delivering company profiles, market reports and analysis for the emerging markets. The views and opinions expressed in this report are those of the author and do not necessarily represent the views of the Association, nor does the report anticipate decisions taken by the Association.

2 GLOBAL OUTSOURCING INDUSTRY TRENDS Moving from Traditional Outsourcing to Transformational Outsourcing with focus on value creation Tactical vs. Strategic Operational vs. Business Focus Focus on Value Capture vs. Focus on Creating Value Operational Focus vs. Manage Uncertainty

3 BULGARIAN OUTSOURCING INDUSTRY TRENDS OVERVIEW Stable growth forecasted for the outsourcing industry in Bulgaria The differentiation between ITO and BPO is gradually fading because of the growing complexity of the processes and overlapping of activities performed by the company. The sector is expected to contribute more and more to the national economy in the period The outsourcing industry is becoming an increasingly important taxpayer.

4 OUTSOURCING COMPANIES Number of Companies in 015 Company Distribution by Number of Employees 100% ITO 153 BPO 11 HRO 76 Call centres 63 90% 80% 70% 60% 50% % FAO 14 Other BPO 58 30% 0% The most perspective outsourcing subsectors are shared service centres and cloud services. 10% 0% < > 51

5 3,0 REVENUE BY SEGMENT,71,5,37,07,0 1,59 1,81 1,70 bln EUR 1,5 1,0 0,81 0,91 0,99 1,13 1,39 0,88 1,00 1,15 1,31 1,49 0,5 0,0 0,71 0,6 0,58 0,5 1,01 0,88 0,77 0,9 0,33 0,37 0,4 0,51 0,58 0, Total ITO Total BPO Total Outsourcing Total Outsourcing Forecast

6 INDUSTRY DEVELOPMENTS Outsourcing Industry Developments mln EUR Number of Employees 1.71% of all employees in Bulgaria have jobs in outsourcing companies Language proficiency and IT skills remain crucial and outsourcing companies may need to hire foreigners to cover the shortage on the local labour market. Employees Number of Employees Employment cost Wages and Salaries Wages Forecast Employment costs forecast Operating Revenue Forecast Operating Revenue Forecast in 000 EUR Operating Revenue in 000 EUR

7 OUTSOURCING SHARE 3,0 Operating Revenue,71 Share of GDP:,5.1% 3.41% 6.18%,0 bln EUR 1,5 1, ,0 1,13 0,81 0,5 0, Bulgarian outsourcing industry is expected to reach more than EUR.7 bln and contribute over 6.0% of the country's GDP by 00. Outsourcing - operating revenue Forecast

8 TAXES Taxes Paid by Outsourcing Industry Taxes Paid / Operating Revenue: , 1.16% 0.69% 0.4% 30 5 > > mln EUR 0 16,0 Outsourcing All Companies Top ,6 13,9 Outsourcing companies paid 1.7% of all taxes in Total Taxes Paid by Outsorcing Industry Forecast

9 SOCIAL SECURITY CONTRIBUTIONS 50 Social Security Contributions 17, Outsourcing industry share of total social security contributions in Bulgaria mln EUR 100 8,9 8.74% 4.4% 50 63, , Outsourcing social security contributions Forecast.57%

10 DISTRIBUTION OF COMPANIES BY INCORPORATION DATE

11 YOUNG TALENTS International Prizes in 015: Mathematics: Informatics: A total of 97.4% of the population aged speak at least one foreign language. Nearly 40% speak two foreign languages and more than 0% speak three. The most popular languages besides English are German, Russian, French and Spanish. In 015 population aged 0-34 numbers more than 1,340,000, over half of which live in the six largest cities. Over 3,500 of the university students graduated in education fields that are suitable for the outsourcing industry. 165 Language Schools 143 High Schools of mathematics & science 51 Universities

12 TOP OUTSORCING DESTINATIONS Sofia 37 6 Gabrovo 4 11 Veliko Tarnovo Ruse 1 7 Varna Plovdiv Stara Zagora Burgas Blagoevgrad As more companies enter the market, the need for qualified personnel will lead to a growing number of companies relocating the capital Sofia in search of talent elsewhere.

13 FOREIGN INVESTORS UK Netherlands USA Germany Cyprus Austria France Israel Belgium Switzerland Virgin Islands Ireland Italy Slovakia Costa Rica Gibraltar Greece Hungary Romania Turkey Other Foreign Investors in Outsourcing Companies ITO BPO 44% of the outsourcing companies have foreign investors UK, the Netherlands, USA and Germany account for of all companies with foreign investors 51% Outsourcing companies invested more than BGN 38 mln in 015. UK's withdrawal from the EU may boost Bulgarian outsourcing industry, as companies operating in Britain come under increased cost-cutting pressure following the Brexit.