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Offshore
Outsourcing Providers Scenario.
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According
to the latest report by global research firm Forrester,
'Offshore providers BPO services have benefited from their
ability to start small and build relationships from the bottom
up. In the context of finance and accounting, offshore BPO
players can start with image capture and reconciliation,
moving up the value chain toward more strategic offerings.
However, offshore BPO players are recognizing that without a
broader geographic footprint, they face a 'ceiling', above
which their customers will not feel comfortable engaging with
them.'
With
perception of operational risk acting as one of the principal
barriers to offshore BPO, the providers in many cases were
being limited to relatively low-level BPO engagements where
labour arbitrage became a key ingredient. Now as the limits to
pure labour arbitrage became visible, these offshore providers
are seeking a broader geographic footprint with which to offer
higher levels of service with lower perceived
risk.
In
addition, large outsourcing contracts are getting broken down
into smaller deal sizes and parcelled off to `best of breed'
vendors; thus, multiple vendor contracts are slowly becoming
the norm.
Hence,
average IT contract sizes ($100-500 million) are coming down,
mid-sized vendors such as Keane, Perot, Atos Origin or
Affiliated Computer Services are beginning to bag a good share
of deals that were typically cornered by the leading global
multinational (MNC) vendors.
Since
most outsourcing deals, said to be well over 75 per cent,
include an offshore component, there is a compelling need for
most MNC vendors to establish a scaleable offshore presence in
low-cost locations such as India. Some of the
large multinational vendors, such as IBM Global and Accenture
(and some smaller ones such as Sapient or Xansa), have
organically built their employee base to a competitive size
vis-à-vis the Indian vendors.
Some
large vendors, such as EDS, and several mid-sized vendors,
such as Cap Gemini, Atos Origin, Keane or Bearing Point, have
significantly lagged their peers in this
respect.
Secondly,
the operating margins of most mid-sized vendors have been in
the 6-8 per cent bracket, offering considerable scope to
improve them through an India-based
presence.
Most
of the Indian mid-sized vendors are enjoying mid-to-high
double digit operating margins. No wonder, the Chief Executive
of the French IT services provider, Cap Gemini has said that
it is interested in acquiring mid-sized Indian companies in
the 200 to 300 million-Euro
bracket.
The
pressure on Atos Origin, another French IT player, or the
US-based Keane has also been mounting on this score. As most
of these players are looking to record at least a three-fold
rise from their existing offshore employee base of
2,000-3,500, acquisitions may be an inevitable route to quick
employee ramp-up and high revenue /margin
growth.
India's
Large Players
While
the Indian larger Players are recognizing the need for broader
geographic footprint for enhanced client comfort, Indian
offshore business process outsourcing (BPO) players, including
Tata Consultancy Services (TCS) and Genpact, are going
aggressive on initiatives including geographic expansion,
acquisitions, outsourcing contracts, and partnerships to
evolve into consolidated offshore-onshore
players.
'Offshore
BPO providers are expanding their capabilities in different
geographies using a variety of mechanisms, including direct
captive centres, partnerships, and outsourcing transactions,'
it said.
It
is a general notion that alternative geographies represent a
substantial threat to the Indian offshore suppliers, but they
are moving aggressively toward mastery of these geographies
themselves. This transition is well under way, with suppliers
like Genpact having already established capability in
China,
Hungary,
Mexico, and
Romania. While
India is renowned
for its strength in English, it is not as strong in languages
such as Spanish or German, Forrester
said.
This
has prompted Wipro's recently announced move into Romania, where
European language skills are plentiful and where other
suppliers, such as Genpact, are already present. Other
suppliers such as TCS are also moving aggressively to expand
their global reach. Moreover, companies have embarked on
acquisition as a strategy to extend their BPO capabilities.
KPO provider OfficeTiger acquired MortgageRamp from General
Motors Acceptance Corporation to broaden its capabilities in
the U.S. mortgage
processing market.
TCS
also acquired Comicrom, a BPO provider based in Santiago,
Chile, which
provides services to banks, insurance companies, pension
funds, and other companies and government agencies. The report
noted that the offshore BPO players were addressing their
structural challenges. 'With the desire for international
presence growing, offshore suppliers are becoming more willing
to transfer employees like the multinational suppliers have
always done (and as TCS has done in the Pearl deal),' Forrester said. (
continued in the next week
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