The domestic business process outsourcing industry is like a precocious child, which is facing significant problems as a result of growing up very fast. The opportunities ahead for further growth are enormous but there is also the downside of maturing too early.
This was the broad consensus that emerged at a key discussion by CEOs at the Nasscom-organised BPO summit, which sought to answer the question: 'Is consolidation the way forward for the Indian BPO industry?'
The acquisition of two leading BPO players, Spectramind and Daksh, essentially by industry outsiders (Wipro and IBM, respectively) indicated to Ananda Mukerji, CEO of ICICI OneSource, that there was "no classical consolidation of similar players."
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Edward Males, managing director of Broadview International, a venture capital firm, saw this as "more a case of concentration than consolidation." Under the latter, two similar players would merge to acquire greater market share.
James Hale, managing partner of FTV Management, another VC firm, echoed the same sentiment and noted that the Indian BPO industry was probably at the first of three or four stages of evolution.
S Nagarajan, co-founder and COO of 24/7 Customer.com, saw the current acquisitions "as entry strategies".
Raman Roy, managing director of Wipro Spectramind, took the discussion to another plane by posing a more fundamental issue: Mergers are taking place, but to what purpose? What assets are the companies in play bringing to the table?
Why are there only five 5,000 people plus companies and why is there a glass ceiling (1,200-3,500 people) beyond which companies find it difficult to graduate? He was worried that "we are not creating enough companies."
Roy saw a huge global BPO market sitting out there, with third party Indian BPOs accounting for no more than 0.6 per cent of it. There is an obvious space for more companies but they need the right skills and competencies. Few are taking advantage of the abundant opportunities and "we are busy cutting each other by reducing prices."
The Wipro Spectramind chief saw this as a result of the venture capital industry's focus on the topline. In such a situation, companies concentrated on price to boost the topline and not on quality and delivery.
He sharply observed that VCs' emphasis on the top line "made it difficult to walk away from deals. We need to agree on a strategy on the end game. VCs are not here for the long-term and we have to work round that."
Hale agreed that "we have different masters." Those investing in VC funds have to be given returns in 6-8 year cycles. But "VCs are not existing India. They are finding younger companies."
He felt there was "an enormous opportunity for entrepreneurs to create new companies." Mukerji also agreed, saying that "these were early days", and hence the big desire to gain scale. He saw the concerns aired by Roy as "growth pangs".
Key drivers were domain knowledge and skills. In particular, "management skills are in short supply." Roy also saw a "big void in middle and top management. We don't know how to do some of the things we have to do."
Hale felt the Indian BPO industry "is the victim of its own success." Hale posed the solution to the problem articulated by Roy by asking, "Can you build companies like IBM?"
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