BPO

A sense of insecurity has gripped the IT industry and it does not have to merely do with terrorist strikes. Following two incidents of kidnapping in the last few weeks, the global headquarters of many IT companies are wanting to know whether the city is actually safe.

With elections being perceived to be close at hand, this feeling of insecurity is intensifying though the ripples of this are yet to reach the global headquarters. “Elections would mean that the law and order enforcement agencies will be lax. This will allow criminals to function. This is a cause of worry,” said an IT industry honcho.

Although a Cyberabad Security Council has been established in a private- public participation mode, this basically has a mandate to keep up surveillance of IT offices and prevent occurrence of terrorist strikes. “Kidnapping on the other hand takes place from near homes, schools and such places. These places are more vulnerable and may be outside Cyberabad,” sources said. It is understood that this concern arising out of instances of kidnapping has been conveyed by the industry to the state IT secretary.

A Satyam executive and a minor son of a techie couple were kidnapped recently in different incidents. Though the release of the two kidnapped were secured in a day’s time, techies seem not to be comforted.

“Suddenly we feel as if someone is tailing us or we worry whether our children are safe in school. Call it psychological if you like. But, the authorities are yet to give us any assurance that we are safe. This applies to any other citizen in the city and not just for techies,” Balaji, a senior executive in an MNC IT company, said. The pay pack in the IT industry have made several middle-class professionals join the ranks of the rich in the city. The changing lifestyles and the investments being made by techies seem to be drawing unwanted attention making them vulnerable. “The IT guys are the highest paid in the city and they are investing significantly in property and stock markets too. But, there are other rich people in the city too. One has to find out why the IT professionals become targets and not other rich guys,” Murali Krishna, another senior IT executive, said.

“Clients keep asking us about the safety factor in the city. Now, we are doing twice the amount of explanation about the city to the clients compared to any earlier situation,” A V Ramam, head of Invensys’s city operations, told TOI. He said the overall safety is the key issue the industry is finding hard to handle.

After the twin blasts and the flyover collapse, several companies are asking their operations heads to send across travel advisories to the executives coming to Hyderabad from various global offices. “We have to answer about 30 questions as part of our travel advisory protocol for every two days and send it across to all our offices across the globe. Overall, the impression about Hyderabad being a safe place for business has taken a beating,” a logistics head of an MNC BPO said.

UK-headquartered business process outsourcing (BPO) firm Vertex is looking at acquisitions in India. The company, which got acquired by a consortium led by private equity player Oak Hill Capital earlier this year, is looking at rapid organic growth.

“With private equity as an owner, there is always a need to grow rapidly. We are looking at doubling our business in the next five years and also at acquisition opportunities in India,” Vertex CEO Richard Graham told ET.

Mr Graham added that Vertex will look at small-and medium-sized companies as acquisition targets. Oak Hill Capital Partners, GenNx360 Capital Partners and Knox Lawrence International acquired Vertex for £217.5 million comprising cash, the repayment of intra-group debt and the retention by the purchaser of certain liabilities of Vertex from UK-based United Utilities.

US-based Oak Hill Capital Partners, which currently has $4.6 billion as assets under management, also has significant business interests in Indian BPO majors Genpact and EXL Services. With both Genpact and EXL Services listing on the US bourses, Vertex may also look at a public floatation at a later stage. “If you are owned by a private equity player, then you know one day you will get sold. It is yet to be decided by when will that happen,” added Mr Graham.

Vertex is also looking to move finance and accounting (F&A) and HR functions to its India back-office in Gurgaon. The company is exploring segments high-end work like engineering support services and IT infrastructure management. New capabilities like security services, data centre management, service desk provision and application maintenance are expected to contribute about 30% of its revenues in the next 12 months.

Recently, it transferred the work it was doing for British telecom major Orange to ExlService. “We don’t want to do plain voice-based, low-end BPO work. We want to do transformational kind of work. The Orange business was voice-based work and we arrived at an agreement with EXL and Orange to transfer that work to EXL. I don’t think we have more of such low-end work on our hands now,” said Mr Graham.

Vertex India has over 1,800 employees at its two Gurgaon centres. The company is also looking at an additional facility in India. The company’s head office is located in Liverpool and it has 9,000 employees based in 66 locations across the UK, US, Canada and India.

Health minister A Ramadoss’s plan to create a dedicated IT workplace health policy has run into opposition from the industry it was meant for, with Nasscom taking strong exception to the minister’s comments on the lifestyle of BPO employees.

Reacting to a TOI report, in which Ramadoss announced his plans to tackle the menace of excesses in a BPO employee’s life, National Association of Software and Services Companies (Nasscom) described the comments “as a generalised slur on the half-a-million youngsters working in the BPO industry.”

“These young people work hard, with sincerity and dedication, and are well and fairly paid for that. We do not see how this translates into wanting to make a fast buck, as the minister reportedly said,” the IT industry body said.

Taking strong exception to Ramadoss’s comments, Nasscom said “his allegations of bad diet, excessive smoking and drinking are exaggerations that demean BPO employees.” Ramadoss had told TOI that teenagers straight out of school and college, looking to make a fast buck, were collapsing in front of their computers. Executives in their early 30s were suffering heart attacks and a large number of them had frequent chest pain, high blood sugar and high cholesterol levels.

Ramadoss was planning to meet IT minister A Raja next week, while a national meet with industry partners was being planned in October-end to finalise the policy. Ramadoss had told TOI, “It is shocking to see 22-year-olds dropping dead on their desks, suffering heart attacks. IT is India’s flagship sector and it is the government’s duty to protect its image and its employees.”

But the BPO industry and Nasscom said they were deeply distressed to hear the health minister speak in this fashion.

Terming Ramadoss’s statements as an exaggeration, Nasscom said, “That they ‘party the rest of the time’, after working half the day is also a grossly unfair generalisation. In any case, it is our view that the personal lifestyle of adults is — as long as it is within the law — for them to choose. We do not think it is for companies or for the government to interfere in the personal life of adult Indians.”

Aviva Global Services (AGS), the outsourcing arm of insurance major Aviva Plc, is said to be in talks to sell its business process outsourcing (BPO) units in India.

It plans to put on the block call centres it owns and runs in Pune and Bangalore. Though specific details are still not available, industry professional says that the company has appointed bankers as preclude to the selling process.

A few local companies, including WNS and EXL, are said to have evinced interest in taking over Aviva call centres.

Recently, AGS deferred a previous plan to transfer staff from its partners in Pune to its own centres by three months. In an e-mailed response, an AGS spokesperson said, “The additional three-month time period will be used to review all potential business options, prior to making any changes or committing to any major developments.”

Aviva built its operations with a build-own-transfer (BOT) arrangement with third party BPO companies like 24/7 Customer, EXL and WNS. It has since transferred 4,500 agents from these companies to its own centres and had planned to take the tally to 7,800 agents by 2008.

Now, in recent times, two high profile exits by GE and Citigroup from running their call centres is forcing others to re-evaluate their business options.

The captive units are handing over their businesses to local firms as they feel that Indian third party BPOs have matured in their service offerings and stabilised operations.

In the recent past, companies like TCS, Firstsource and Infosys got captive businesses of their clients both in India and abroad. Industry sources estimate that the valuation of Aviva business will be based on the impending sale of Citigroup, which is expected to be decided over the weekend.

Cognizant Technology Solution’s business process outsourcing division sees a huge potential in pharmaceutical, healthcare and media/entertainment sectors, as it looks beyond the traditional financial services, telecom and manufacturing industries to drive its growth.

This underscores the growing importance of non-traditional sectors in Indian offshoring space, even as they open up opportunities for new types of services and shore up demand for a different set of talent pool.

Mr Ramesh Gudalur, Vice-President, BPO Practice, Cognizant said, while the company provided data analytics, equity research, fund accounting, order management and billing services in the traditional industries, it has also made significant impact in newer industries that are now strategically embracing offshoring.

According to an Evalueserve report released earlier this year, contract research organizations and bio-pharmaceutical services will be a $2.5 billion opportunity by 2010-11. Data management and analytics will be another $2.5 billion market by that time, while publishing, remote education and market research will offer a $1.5 billion opportunity.

In India, KPO (Knowledge Process Outsourcing) sector as a whole is expected to grow to US $11.2 billion in revenue by 2010-2011 and will employ about 255,000 professionals by March 2011, the report said.

For Cognizant, in fact it was pharmaceutical sector that helped it launch BPO practice two years back. Then, it won a deal from Pfizer Global Research and Development, for clinical data management and biometric services. “More than 300 doctors, pharmacists, statisticians and process teams at Cognizant are working in this area providing core processes for pharmaceutical companies including clinical data management and pharmacovigilance,” Mr Gudalur said.

“Adverse event calls” to help its pharmaceutical clients test newer drugs in accordance with drug safety norms by bodies such as the Food and Drug Administration (FDA) is an example of how it uses doctors and pharmacists. “If there is any adverse reaction to drugs, individuals call into a toll-free number, which is handled by qualified or certified doctors and pharmacists in our BPO practice,” Mr Gudalur said.

Likewise, Cognizant works in the area of “provider credentialing”, where it assesses over 200,000 doctors a year across 25 parameters to determine their empanelment with US insurance companies. “This is an integrated process combining voice, data processing and data management,” Mr Gudalur said.

Cognizant is also bullish about its media and entertainment practice. The company is working with large media houses, television channels and internet portals in areas of loyalty management, online data analytics and online ad operations analysis.

The earnings of Indian IT companies in rupee terms are dwindling with every upward movement of the currency. The domestic currency has risen by 11.6 per cent this year to touch a nine-year high today.

Moreover, with the global IT services players such as IBM and HP cannibalising the home turf by winning multi-million dollar deals, the Indian IT companies are taking a serious look at the domestic market.

The Indian domestic outsourcing market is estimated to be around $2.2 billion, if one considers only deal sizes above $50 million.

Hedging alone is not enough. “Margin pressures are affecting even large players. Hence, the domestic business is a viable proposition,” said Sudin Apte, senior analyst and country head, India, Forrester Research.

Large MNCs such as IBM “do not shy away from picking up work that only gives them 5-10 per cent margins”.

MNCs have an expertise in multiple verticals and emerging markets, while the Indian IT companies are experienced primarily in the North American markets, reasons Apte.

The scene is changing gradually, though. The Mumbai-based IT services provider Tata Consultancy Services (TCS) is a strong case in point as 9.4 per cent of its revenues (excluding CMC figures) in 2006-07 came from India.

Venkatramani S, VP and Head (India), said, “By design, we do not vend low-margin equipment. As the rupee has appreciated, the prices of hardware (servers, etc) have dropped since most of the equipment is imported. Hence, margins go down further. As 80 per cent of our domestic revenues come from the pure services business, the margins are not only comparable to offshore work, but are also on the upswing.”

TCS has done government work (MCA-21) and has prominent clients including the NSE, BSNL and Mumbai airport. “We understand both the application and domain side of the business,” said Venkatramani, adding that e-governance is “an interesting area” for the company.

Wipro Infotech (the India, Middle East and Asia-Pacific business), which contributes about 16 per cent to Wipro’s annual revenue, fetched about $658 million from the domestic market in FY07 as against $454 million in the previous financial year, an annual growth of 45 per cent.

Suresh Vaswani, president, Wipro Infotech, said, “Businesses are leveraging IT to transform and differentiate themselves through efficient operations, superior customer services and ability to launch new products and services quickly.”

Wipro Infotech’s Indian clients include HDFC Bank ($80 million over 10 years), Yes Bank, Dena Bank ($60 million over 10 years), Colgate Palmolive and Sanmar.

Satyam Computer Services too has seen its domestic business growing by 4 per cent in 3 years. HCL Technologies’ Asia-Pacific business accounted for 15.3 per cent of its revenues at the end of June 2007 (13.3 per cent in the corresponding period last year).

Infosys has raised its revenue share from India in the first quarter of the current financial year, from 1.6 per cent to 1.8 per cent ($928 million). The company is now banking on Finacle to increase its pie in the Indian market. The Finacle Core Banking product enjoys 70 per cent market share among the leading banks in India.

“We focus on markets where we get the best returns for our resources. India is just opening up and it could be an interesting market in the near future,” according to Balakrishnan, CFO, Infosys Technologies.

The Indian market is an important part of strategy for Mumbai-based BPO Firstsource too.

“While the domestic business accounted for a little over 2 per cent in end-March, 2007, we expect it to account for nearly 10 per cent in this financial year. We see the BFSI and telecom sectors driving the growth,” said CEO and MD, Ananda Mukerji. The company recently won a large contract from Hutchison.

“With the signing of a number of multi-million dollar deals last year, the domestic IT industry has come of age. The renewed interest in the domestic industry is a result of those deals. But the industry is still in its infancy, with growth rates lower than that of the export-based industry,” said S Sabyasachi, senior director, neoIT.

He, however, noted that most of the major domestic deals had been clinched by service providers which offer a range of services from hardware infrastructure to data centres and software services. The Indian IT companies seem to be taking the cue.