New Delhi : Several of India’s top business process outsourcing (BPO) firms including Infosys BPO, WNS (Holdings) Ltd, Firstsource Solutions Ltd and Aegis Ltd are considering opening new delivery centres or expanding existing ones in the US, the UK and other foreign markets.
Chief executives of these firms, speaking on the sidelines of the BPO Strategy Summit 2011 organized by industry body Nasscom, said the move is driven by factors such as rising protectionism, regulatory and compliance requirements of various governments and, to a large extent, by an increase in demand from clients for near-shore or onshore centres.
BPO companies typically service their clients almost entirely from low-cost destinations such as India and the Philippines while having sales offices in various countries, though information technology (IT) firms have been following a global sourcing strategy for some time now.
Business strategy: (from left) Swami Swaminathan, CEO and MD of the BPO arm of Infosys; Matthew Vallance, MD and CEO of Firstsource Solutions; and Aparup Sengupta, MD and CEO of Aegis. Photographs by Satish Kaushik/Mint.
Swami Swaminathan, CEO and MD of the BPO arm of the country’s second-largest software services firm Infosys Ltd, said the shift is also because the industry has matured from merely carrying out transactions to driving transformation for clients. “You can do transactions from anywhere in the world but when it comes to transformation processes you have to be close to the customers.” Infosys BPO, which earned a revenue of $427 million (Rs1,950 crore today) in 2010-11, is building its first on-shore centre in Atlanta, US, and evaluating opening one in the UK.
Firstsource Solutions Ltd, a BPO backed by ICICI Bank Ltd, gets 64% of its revenue from delivery centres in the US and the UK, though a bulk of its employees are based in India and the Philippines. The reason: The services it delivers in the US and the UK are comparatively high-end in nature.
Matthew Vallance, MD and CEO of the company, said the nature of many upcoming deals in the telecom, banking and finance spaces require technology firms to carve out and take over a part of their clients’ operations, which requires onshore capability.
“There are other factors also such as compliance, government legislation, unions and the nature of the work, which means there are certain kinds of services which cannot be delivered offshore,” he said.
Onshore or nearshore presence has become a major criteria for clients in selecting service providers, he added.
Such models, though, may prove to be an impediment to a company’s operating margin. Firstsource’s operating margin fell to under 10% in 2010-11.
Aparup Sengupta, managing director and CEO of Aegis Ltd, said an onshore strategy can result in operating margins of 14-15% for BPO firms. “But it ensures that the company is immune to any emotional decisions and is shore proof.”
BPO firms that do a bulk of their work offshore may enjoy margins of 18-20% but suffer from fluctuations in currency and other factors, he added.
Aegis Ltd, which has been following a strategy of servicing companies in different countries largely from the same location through a string of acquisitions, plans to expand in Manchester, Germany and France.
“Most of the companies in Europe are averse to the idea from sending work offshore, which means they have to be served from near-shore centres,” said Sengupta.
WNS, the third-largest BPO exporter in India by Nasscom rankings, is also planning a centre in the US apart from a new facility in the UK, chief executive Keshav Murugesh said.
Asked if near-shore centres will increase the cost of doing business and hurt margins, Murugesh said the company follows a blended profit approach, which means high profits from some locations offset low profits from other centres. “This is how we structure deals for our clients to prevent margin dilution,” he said.
However, Eric Simonson, managing partner at Everest Group Research, said though BPO companies are building an onshore presence, it will never be too huge. “These centres would be like added dots on their geography charts, which may show proliferation and provide complexity in operations.”