Pure-play Indian BPO firms may be at risk, analysts said

These firms need new revenue streams in IT services for growth, according to these analysts

The proposed acquisition of an IT services company by India’s largest business process outsourcing (BPO) firm, Genpact, has fueled a debate on whether pure-play BPO firms in the country can survive independently.

A pure-play BPO firm has a strong value proposition for the first three to five years of an engagement, driven by cost arbitrage and operational efficiencies and effectiveness, and Genpact has been successful in riding this wave, wrote Saurabh Gupta, vice president of Everest Group, in a post on Wednesday on the research firm’s blog.

It is often difficult to drive the next wave of value from pure BPO, and often this requires integrated IT and BPO capabilities, Gupta added.

Genpact said on Wednesday that it had signed a definitive agreement to acquire Headstrong, an IT services company focused on capital markets and to an extent healthcare, for US$550 million.

Genpact will cross-sell its services to Headstrong’s customers in the capital markets and healthcare segments, the company’s president and CEO, Pramod Bhasin, said in a conference call on Wednesday.

Headstrong’s IT services customers want it to deliver services in business processes and analytics as well, both areas in which Genpact is strong, said Sandeep Sahai, CEO of Headstrong.

India’s pure play BPO firms are finding it difficult to stay that way because they need new revenue streams to sustain high revenue growth, and also because customers prefer their suppliers to offer a variety of services, said Siddharth Pai, a partner at TPI, a sourcing data and advisory firm.

Customers' preference to do business with a vendor that offers a variety of services has already driven an earlier phase of acquisitions, when IT firms like Wipro and IBM acquired BPO companies in the country, Pai said.

Genpact previously tried getting into IT services on its own, but its revenue from the business has been falling over the years, in contrast to its revenue from BPO services. The share of IT services in total revenue declined from 20 percent in 2008 to 16 percent in 2009, and 14 percent in 2010.

Having tried growing the IT business on its own, the company has now decided to acquire, said Sudin Apte, principal analyst and CEO of Offshore Insights, a research and advisory firm in Pune, India. Headstrong has strong domain expertise and intellectual property in the area of IT services for capital markets, he added.

Apte does not however think that all pure-play BPO firms in India need to get into IT services. “I don’t see a trend here for other pure-play BPO companies,” Apte said.

Pure-play Indian BPO firms can grow their revenue and profits by staying in BPO alone, if for example they move quickly from voice to high-value transaction processing, and also by investing in technology platforms that can deliver services more efficiently to customers, Apte said.

There are however limits to how much a BPO business in India can grow, Pai said. A number of companies outsourcing business processes to India still prefer to set up or expand their subsidiaries in the country, rather than outsource to a third-party provider, he added.

As service lines get commoditized for BPO companies, they are likely to look at new service lines in BPO, and new businesses like IT services, said Prakash Gurbaxani, formerly head of a large BPO company in India. IT services is a logical diversification, as the processes and systems, and project and people management skills tend to be similar, he added.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com

Join the newsletter!

Error: Please check your email address.
Rocket to Success - Your 10 Tips for Smarter ERP System Selection

Tags business issuesoffshoringMergers / acquisitionsIBMGenpactTPIwiproHeadstrongrestructuringEverest Groupservicesoutsourcing

Keep up with the latest tech news, reviews and previews by subscribing to the Good Gear Guide newsletter.

John Ribeiro

IDG News Service
Show Comments

Cool Tech

SanDisk MicroSDXC™ for Nintendo® Switch™

Learn more >

Breitling Superocean Heritage Chronographe 44

Learn more >

Toys for Boys

Family Friendly

Panasonic 4K UHD Blu-Ray Player and Full HD Recorder with Netflix - UBT1GL-K

Learn more >

Stocking Stuffer

Razer DeathAdder Expert Ergonomic Gaming Mouse

Learn more >

Christmas Gift Guide

Click for more ›

Most Popular Reviews

Latest Articles

Resources

PCW Evaluation Team

Walid Mikhael

Brother QL-820NWB Professional Label Printer

It’s easy to set up, it’s compact and quiet when printing and to top if off, the print quality is excellent. This is hands down the best printer I’ve used for printing labels.

Ben Ramsden

Sharp PN-40TC1 Huddle Board

Brainstorming, innovation, problem solving, and negotiation have all become much more productive and valuable if people can easily collaborate in real time with minimal friction.

Sarah Ieroianni

Brother QL-820NWB Professional Label Printer

The print quality also does not disappoint, it’s clear, bold, doesn’t smudge and the text is perfectly sized.

Ratchada Dunn

Sharp PN-40TC1 Huddle Board

The Huddle Board’s built in program; Sharp Touch Viewing software allows us to easily manipulate and edit our documents (jpegs and PDFs) all at the same time on the dashboard.

George Khoury

Sharp PN-40TC1 Huddle Board

The biggest perks for me would be that it comes with easy to use and comprehensive programs that make the collaboration process a whole lot more intuitive and organic

David Coyle

Brother PocketJet PJ-773 A4 Portable Thermal Printer

I rate the printer as a 5 out of 5 stars as it has been able to fit seamlessly into my busy and mobile lifestyle.

Featured Content

Latest Jobs

Don’t have an account? Sign up here

Don't have an account? Sign up now

Forgot password?