Much has been written about the Indian BPO
industry and there is no denying that today
it opens newer avenues. Indian companies
account for over 45% of offshore BPO revenues
($16 billion in 2006); however, akin to the IT
services market, the share of Indian companies
on a global platform is a meager 5%. From
an addressable market angle, there is great
opportunity available for the taking, and this
article tries to analyze the different approaches
taken by BPO service providers.
We have a medley of companies dotting the
service provider landscape, from captive centers
of multinationals to “pure-play” BPO players to
IT companies that are trying to integrate BPO
into their service portfolio.
Pure play BPO providers – accelerated growth
strategies
Providers focused only on BPO services have
also been aggressive in ramping up their
operations. In a sense, BPO companies are in a
hurry to mark their presence in the outsourcing
business. Take the case of FirstSource or WNS
– they have followed an acquisition strategy
to either gain specialized service or vertical
expertise or to expand geographically.
Unlike
integrated service providers, they have a stated
inorganic growth strategy right from the early
stages. Our take is that pure plays have the
added advantage of gaining best practices from the IT industry and capitalize on that learning to
fast-forward their growth.
Pure play companies have scaled up rapidly
through a series of bold moves. Consider
Genpact’s reported bid for Citigroup’s captive
BPO operations – this deal is worth $630 million
and it is hard to imagine IT services companies
considering such large deals in their early
years.
IT and BPO integrated service providers –
covering all bases
Tierl IT service providers have a readymade
prospect base available in their existing
customers and are leveraging existing
relationships successfully. However, they have
also broadened their focus to new customers
and geographies – TCS’ foray into Latin America
is a classic example. BPO revenues are likely
to be in the $250million range for most of the larger
IT service companies.
Clearly, large deals are sought after and
companies are taking necessary steps to prepare
themselves, including setting up delivery centers
in new regions and adding new services to their
portfolio. Also, IT service providers have been
open to inorganic expansion methods to scale
up. TCS’ Pearl deal, and more recently the
Infosys-Philips and Wipro-Infocrossing deals,
display the intent to grow quickly. In fact, this is an important reason behind TCS’ leapfrogging
peers despite a late start.
Providers will go after large deals and adopt
inorganic methods to grow, such as acquisitions
and takeover of client captives or existing centers
in different geographies.
Captives – best suited for specific roles
Multinational companies such as JP Morgan,
Goldman Sachs, AOL and Tesco, to name a
few, have set up large captive centers chiefly to
handle back-office processes and leverage low
cost resources and wider talent pool. Off late, we
see the trend to divest the captive holdings to a
third party entity and there are several examples
of this nature. It started with WNS and Genpact
to the more recent Unilever-Capgemini
and Genpact-Citigroup divesture. Typically, the
rationale behind these exits is to focus on core
competencies better and delegate the backoffice
processing to a more efficient partner.
In fact, according to a recent Forrester
report, close to 60% of the captives would be
implementing an exit strategy and there would be
a downward trend in the number of new captives
being set up.
Some interesting play outs
On a final note, Genpact is a classic example of
the transitions in the BPO industry – its genesis was as a captive which was spun-off into an
independent entity which has embarked on
an inorganic strategy buying independent as
well as captive centers. A similar case is that
of Intelenet which has been through several
interesting business models – it started as a JV
between TCS and HDFC and transitioned to a
semi-captive venture between Barclays Bank
and HDFC.
Recently, it has been bought over by
Blackstone – a private equity firm. Interestingly,
Intelenet has also been active on the M&A
front and has bought Sparsh, a call center with
domestic focus.
According to latest media reports, Intelenet is
bidding for Dell’s captive BPO arm also.
Prayag’s view
Based on our read of the market, we feel the
battlefield will be dominated by the pure plays
and integrated players with each offering their
own set of advantages and therefore each
carving out a share of the pie. Captives will not
be a popular choice except where regulation and
IP rule out the alternative of working with a thirdparty
provider. Consolidation will continue until
there is a clear tier structure established like the
IT industry.
