Stretching the Pie

India’s BPO business seems to be going global shopping. Having ac quired
small to medium businesses in the US and Northern Ireland, Indian companies are
looking towards Philippines, which is ranked first in the availability of
knowledge-based job and workers worldwide.

The recent move by HTMT, Daksh e-Services and Msource to pick up majority
stakes in profit-making call centers in the Philippines delivers a strong
message to the global companies that Indian BPOs can also function as MNCs
outside the country.

Geographical expansion is entering the picture as a new key differentiator
for Indian offshore service providers, though application management and early
verticalisation of capacity planning, global process benchmarking and
enterprise-wide quality assessments had become a norm early in the game.

"We realised that India and Philippines can complement each other’s
strengths — India for its non-voice based capability and the Philippines for
its voice-based capability. We entered into a marketing tie-up with a company in
the Philippines to get a foothold there and later decided to acquire the
company," says R Mohan, president and CEO of HTMT’s IT Division, hinting
that Philippines will be looked at for setting up disaster recovery centers.

HTMT has controlling interest in 500-seat customer contact center c3, a large
offshore call center company in Philippines, for $3.90 million.

Earlier this year, Daksh became the first independent Indian BPO company to
start operations in the Philippines, when it launched its Manila facility. The
state-of-the art facility is spread over 2900 square meters. Daksh expects the
center to employ 1,000 people in the next 12 months, increasing the company’s
total strength to 10,000 by 2005.

The Philippines government recently announced plans to develop and promote
the country as a hub in the delivery of customer contact services, medical
transcription, animation, BPO and shared financial services.

With options to acquire management control on overseas call centers opening
up, the consolidation of financial results will help these pioneering ‘nearshorers’
boost their bottomlines which have been hit by high turnover rates, recruitments
and training costs.

Besides, joint ventures formed by overseas call centers with US consultancies
to service American companies will eventually swell the client list of the
Indian buyer.

c3, for instance, had a number of reputed overseas blue chip companies in
various domains like banking, credit card services, consumer electronics, media
and entertainment.

The Value-adds

Redundancy and disaster recovery centers are two value-adds Indian BPOs are
expected to bring to overseas acquisitions, not to mention specific strengths
like good voice capabilities, culturally fit, rugged telecom infrastructure,
cultural bonding and proximity to the US.

"Indian BPO companies bring in strong best-practices in process,
re-engineering, leveraging technology and process capability certifications like
COPC and Six Sigma. There are numerous clients that have experience in IT
offshoring that are looking to expand beyond BPO–Indian suppliers can be an
effective conduit here," points out Avinash Vashistha, CEO of tech
outsourcing advisory neoIT.

For BPO-ITeS firms in India which are slightly more risk tolerant, ‘nearshore’
destinations like the Philippines, Malaysia, Sri Lanka and Mauritius may provide
the right combination of cost savings, service quality and service options.
Cultural

affinity may not always be a strong point here, but the cost savings are
comparable.

While India still has the lowest ‘cost per transaction’ of any contact
center location in Asia, the others are not far behind. According to market
research firm Jones Lang LaSalle, comparison of cost in Asia is as follows:
India $0.3, Philippines $0.4, China $0.5, Malaysia $0.6, Thailand $0.6, Hong
Kong $2 and Singapore $1.3. The Philippines ‘nearshore’ charm lies more in
its ability to provide a closer trade framework via proximity to the rest of
South East Asia.

"Global sourcing of services is becoming a key business
requirement," says Vashistha. As firms outsource services globally to stay
competitive, clients will look at mitigating risks and offshore to countries
that offer the best value, he says. "Diversification is one way of hedging
client risk. Here, India and Philippines are strong sources of BPO
services," he adds.

Eastern Europe is fast emerging a strong supplier market with multilingual
capabilities. "If offshore companies need to stay competitive, they will
have to expand operations in other markets. For India, Philippines and Eastern
Europe are both

great options and vice-versa," adds Vashistha.

The bigger BPO players could look at acquisitions, especially acquiring
contact centers in the US for broadening the client base, says Mohan, adding
that the small and medium players will continue to rely on pricing.

Organizations which use domain knowledge to provide BPO services, are likely
to stay out of the overseas takeover route. Says Vipul Jain, MD of Kale
Consultants, a player in the airline and tourism space, "We use our own
products and processes to provide value to our customers. Such acquisitions will
not emerge as a trend in areas where domain knowledge is predominantly used by
organizations."

As per Nasscom estimates, the Indian BPO-ITeS industry grew by 59.1% during
2002-03 and is likely to grow by about 54% to reach US $3.6 billion by 2003-04.
Gartner has predicted that the total BPO business worldwide will grow up to $200
billion by 2005. As the global BPO opportunity grows, about $30 billion will
also move offshore by 2005.

As BPOs takes on higher value-added BPO work in healthcare, legal and the
publishing industry; building organizational capability will be key.
Acquisitions in the Philippines, Thailand or Malaysia will be to Indian BPO’s
advantage, given the tremendous growth in value terms. However, volume growth in
sectors like pharma, R&D, including the automobile and manufacturing
industry, are not necessarily assured.

"Also, the time lag for other industries to catch up on the experience
we gathered and develop these capabilities in a short time space will not be
long," Sharma cautions.

Ravi Menon in Bangalore

Capital Punishment

A key issue facing many of India’s BPO companies is lack of capital. In a
capital-intensive business, BPO companies have to invest in office space (and
$7,000-8,000 a seat), technology, redundancy, and communications. Indian
companies are finding that customers are more likely to give business to BPO
companies that have already invested in people and infrastructure.

The access to labor and quick and cheap connectivity are key deciding factors
in placing a contact center, often viewed by BPO execs as the difference between
success and failure. Office space leaders are currently based in Delhi and
Bangalore with secondary hubs being Mumbai, Hyderabad , Chennai and Pune,
offering relatively low cost locations.

Jones Lang Lasalle has said that in the first six months of 2003, office
space taken up by contact centers accounted for 82% of the total absorption of
office space in Delhi , 51% in Mumbai and 80% in Bangalore.