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Flavor of the Day: Grow Inorganic! |
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Prabhu Srinivasan, Chief Strategy & Quality Officer, Intelenet Global Services has
significant experience in the application of Six Sigma tools and
methodology for the Business Process Management and improvement.
Prabhu talks about how shifting paradigms in the BPO industry
necessitate an inorganic growth strategy. |
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Prabhu Srinivasan Chief Strategy & Quality Officer, Intelenet Global Services
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1.
What are the market trends that impel an inorganic growth strategy for
an Indian BPO?
The BPO market in
India is pushing to move to the next maturity cycle. Over the last 10
years, India based BPO companies have managed growth by selling the
‘India story’, i.e. great infrastructure and English speaking ability.
However, customer expectations have shifted now. The contracts have
moved from mere productivity driven metrics to business impacting
metrics.
Given the shift in expectations, customers are now looking for
geographies that have the desired skills to impact their businesses in
the immediate future. This is the reason, for example, that you find
large customers engaging in outbound sales out of Philippines, back
office out of India and collections out of Canada or South Africa.
Therefore it is fairly clear that if Indian BPOs have to stay in the
race, they need a global footprint. I am not sure having a goal of 10000
desks in India alone is a sustainable one going forward.
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" The contracts have moved
from
mere productivity driven metrics to business
impacting metrics." |
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Combined with the multi shore strategy it is becoming imperative
to have a multi lingual strategy. Large European and US based
customers now want one or two vendors who can deliver a global
solution across different languages. The concept of multi
vendors for multi languages is |
fading off as customers have
realized that a lot of money and/or effort is spent in vendor management, which could otherwise be spent on improving
efficiencies with a handful of vendor relationships. There are many
examples particularly in the financial sector where the customers are on
a drive to rationalize the number of vendors they have. Most clients
want to bring the existing number of say 50 down to 3-5.
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" Large Europe/ US based
customers want one or two
vendors who can deliver a global solution
across different languages." |
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While India
will continue to be preferred off shoring destination, companies
will not survive with just an India story. Hence the market
place is seeing a lot of cross border transactions - Global
players investing in India (EDS, Accenture, IBM) and Indian
players investing overseas (GENPACT, One source, HCL etc). |
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2.
What prompted Intelenet to adopt a blended strategy - organic +
inorganic?
Some drivers are:
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With increasing
customer/prospect preference for one vendor with multi shore multi
lingual capability, we are forced to look at acquiring assets to
help meet this requirement. |
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Intelenet now
has a BPO delivery model calibrated to the last level of detail and
we believe that this model is a "transferable asset" that can be
used in emerging markets. |
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India, China
etc., are emerging markets for delivering quality BPO work in their
respective local markets and we would like the seize the opportunity
sooner rather than later. Hence the acquisition of a domestic BPO in
India. |
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Also, over the
last few years the traditional offshore business (our core vehicle)
is self-funded and has necessary cash flow to sustain the projected
growth through internal accruals. Hence we have been able to divert
investor funds to inorganic growth. |
3.
How does Intelenet go about picking candidates for acquisition? Please
describe the process and the philosophy.
Our overall
philosophy has been two fold:
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It has to been
a "tuck in" acquisition as we want to continue to maintain that fact
that we are a large India based BPO outfit with a global presence.
For example, you would never find us going after companies that are
twice our size. |
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It has to add
capability in the industries we operate in
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"
Intelenet now has a
BPO delivery model calibrated to the last level of detail, a
‘transferable asset’ that can be used in emerging markets.
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I believe that
the philosophy of buying a non-profitable asset overseas and
making it more profitable asset by moving those jobs into India
is flawed. There is a specific driver based on which the
customer has decided to keep those jobs on shore and in most
cases they would not be willing to move the jobs to India. Also,
we are in the capacity business (pretty much like an airline
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where we sell seats) and the economics of
holding free capacity on shore is self-defeating. There are very few instances of companies who have been
able to move the jobs of the acquired company into India. In fact the
reverse has happened; they have had to grow capacity onshore post
acquisition.
One would also have to reconcile to the fact that the asset overseas
will make less profits that the India vehicle as traditionally onshore
work does not yield more that 5-8% profitability. The investment has to
be made keeping this in mind, as the overall revenue to profit ratio
would come down. However, this computation would have to account for the
potential loss of contracts by not having an onshore capability.
4.
What are the challenges in post merger integration? Please give examples
of practices that have worked.
I think in cases of
overseas acquisition, it is useful to retain core operations management.
However evolved we may be in our processes to run a BPO, we do not have
the skill sets to integrate cultures. It is quite difficult for an India
bred operations person to go and take charge of an asset we acquire
immediately as he/she would take time to understand the people
connection.
The work ethics overseas are very different from India and performance
measurement framework has to be more flexible unlike the
minute-to-minute monitoring we do of our associates here.
5.
Any recommendations, based on your experience, on what works and what
does not, with M&As?
Our belief is that
assets we buy need to tuck in and do not change the overall colour of
the parent company.
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