Moving up the value chain

Some Indian BPO companies are specialising in niche, high-margin services, says Atanu Kumar Das

While the Indian BPO/ITeS industry is growing at a staggering rate of over 50 percent year-on-year, most of its growth has come from voice-based services. Due to pricing pressures, Indian BPO players want to move into the niche and high-margin services. Take the case of Wipro Spectramind. It has hired PhDs in molecular biology to maintain a database for a genomics knowledge management company in the US. Spectramind is not the only company in India trying to walk a different path. ICICI OneSource has tried to move into the high-end space through the acquisition route. The high-margin game is not restricted to large companies. Ugam Solutions focuses on the data analytics space while players such as Tricom India and Datamatics have domain expertise in the document management segment.

Specialisation—the name of the game

With our acquisition of Pipal (a high-end analytics firm), we have propelled ourselves into the area of business research and collections Ananda Mukerji, MD and CEO ICICI OneSource	Moving up the value chain is not just about getting a better rate per transaction. It is about getting closer to the core of the client's business S Nagarajan, Founder and COO 24/7 Customer	I see great potential for high-end services being outsourced for the same reasons (quality and cost savings) that have been responsible for the growth of the BPO industry Sunil Mirani CEO Ugam Solutions

The intent, to get into value-added services, is apparent from the recent acquisitions made by Indian companies. In August 2004, ICICI OneSource acquired a 51 percent stake in the US-based research firm, Pipal. The latter specialised in providing high-end customised business research, analytics and information services. As business and information research becomes a specialised field, many global firms are recognising the value in outsourcing the same to experts.

Says Ananda Mukerji, managing director and chief executive officer, ICICI OneSource, “Our stake in Pipal gives us strong capabilities in this field that will translate into added value for our customers.” Continuing its acquisition spree, the company went on to grab Account Solutions Group (ASG), an Amherst, New York-based consumer collections agency in October, 2004. Buying out ASG fitted with ICICI OneSource’s strategy to aggressively expand its services.

“With this acquisition we can offer a full suite of collection capabilities—customer acquisition, billing, customer service and collections. Collections represent a $16 billion opportunity in the United States alone,” Mukerji points out. ICICI OneSource, ended the financial year 2003-2004 with revenues of $42 million. To get there it grew by 134 percent year-on-year making it one of the fastest growing BPO outfits in India. Similarly, Datamatics Technologies acquired US-based CorPay Solutions, a firm specialising in finance and accounting

services. Another acquisition was completed by Secova eServices, a specialised Indian HR BPO firm when it took over EmpactEBS, a New Jersey -based health benefits processing firm. It is the same old story. What happened in the software services space is now happening in BPO as companies broaden their portfolio of services to get additional business from the same set of clients.

Says S Nagarajan, founder and chief operating officer, 24/7 Customer, “We are adding services that are related to our current services. Moving up the value chain is all about getting closer to the core of the client’s business from the peripheral services that they outsource initially.”

The likes of WNS Global Services have built their business models around the non-voice segment. This BPO firm operates in the knowledge services business segment and offers high-end services such as market, investment and business research. Last year, its revenues grew by 84 percent and this year it expects to grow at 60 percent.

Leading by example

While existing players are trying to expand their services portfolio, smaller BPO firms have realised that they need to focus on niche markets right from day one. For example, Ugam Solutions started its BPO operations by concentrating on high-end data analytics. Says Sunil Mirani, CEO, Ugam Solutions, “We are one of the few Indian BPO companies that has never earned revenues from traditional voice services.” Unlike other companies that jumped on the call centre bandwagon by offering voice-based services, Ugam decided to go against the tide. Mirani says that his company foresaw great potential for “high-end” services being outsourced for the same reasons (quality and cost savings) that led to the boom in the traditional BPO segment. However, unlike the current work being outsourced, the higher-end work required significant domain expertise and a clear-cut focus upon the chosen area. While this strategy was risky, the company realised that the high-entry barriers of this sub-segment would earn it better margins.

Says Mirani, “Our domain expertise, process metrics, quality and pricing model are very specific to the chosen area and I believe that it will require a focussed approach to succeed in this space.” Ugam Solutions has seen a 100 percent year-on-year growth over the last four years and expects it to continue for the next five years. The soaring fortunes of the high-end analytics space is reflected in Ugam’s increased headcount. The company, which had 75 employees two years back expects it to increase to 400 people for the fiscal ending March, 2005. With unabated growth, the company expects its employee strength to rise higher and touch the 3,000 mark within the next four years.

With falling billing rates and increasing competition, Indian BPO companies are starting to provide value-added niche services. As non-voice services are technical and need greater expertise, the revenues generated from such services will be greater than those from vanilla voice services. They will also be easier to sustain in the long run.

atanu@expresscomputeronline.com