Indian Outsourcing Prime for Consolidation
Experts see a run on specialists, as big vendors get bigger
February 11, 2008
At least once a month, neoIT, an outsourcing consultancy in San Ramon, Calif., gets an unsolicited message from a newly minted business process outsourcing (BPO) entity in India seeking clients. These are companies that undoubtedly know how to deliver the services they offer, says neoIT head of research Dean Davison, but are unable to drum up the business they need to survive in the BPO space--an area that has become so saturated, experts don't see any option but consolidation.
It isn't just the newer information technology service providers and BPO ventures that are facing pressure to bring on clients. More established Indian vendors are also trying to remain competitive, Davison says. That drive to stay at the forefront is one of the main reasons why mergers and acquisitions are likely to increase this year.
"While niche providers can be successful," it is a tenuous position to be in, asserts Davison, "particularly as the economic downturn takes hold in the U.S. and corporations are likely to become more conservative about the vendors they engage with." If the situation in the U.S. worsens, companies will probably turn away from providers with limited skill sets and toward the larger, more established names that can offer a range of services, he says.
This doesn't mean, he adds, that there is no room for specialists, but the impending wave of M&A activity will result in the big players getting even bigger.
A service provider's ability to add overall, sustainable value to its clients' businesses is what will ultimately determine whether it survives, says Venkatesh Roddam, CEO of Bangalore-based Satyam BPO, an arm of technology consulting firm Satyam Computer Services. The quest to provide clients with holistic services, he says, will change the nature of acquisitions from a reflection of a growing market into a more targeted business strategy.
Case in point: Satyam Computer Services announced Jan. 21 that it had entered into a definitive agreement to buy Chicago-based consultancy Bridge Strategy Group for $35 million. The transaction will add clout to the company's strategy consulting and business transformation capabilities and will enable Satyam to offer higher-value services and bridge some of the competency gaps it may have faced.
Satyam founder and chairman B. Ramalinga Raju said in a statement that Bridge Strategy, which had $17 million in revenue last year, gives Satyam "an immediate influx" of 36 strategy consultants and bolsters the company's "ability to provide the entire spectrum of services to global customers. At the same time, Bridge Strategy Group clients gain access to Satyam's world-class business process and technology skills and global resources."
He added, "As we deepen our relationships with long-standing customers, they expect us to provide highly strategic counsel." Bridge Strategy, which will operate as a Satyam subsidiary, will help the firm "deliver superior, end-to-end transformational solutions with even greater speed and efficiency."
Roddam foresees more acquisitions of this nature, not just by Satyam but by other outsourcing heavyweights. "Over the last ten years, there have been an incredible number of BPOs that have only been able to grow to a certain strength level and not beyond," he explains. As smaller providers reach that point, "they provide attractive opportunities for companies like ours to see what we can buy to enhance our services."
