Source: www.business-standard.com

Market research and analytics, a relatively new entrant into the knowledge process outsourcing (KPO) industry, is expected to witness a spate of mergers and acquisitions (M&A) in the coming days.

The M&A activity in the area will see companies acquiring small and niche players in the US and Europe to improve their front-end capabilities and consolidation in the domestic market, largely dominated by over 110 small-size companies in the revenue bracket of $2-$10 million.

The domestic market research outsourcing (MRO) and analytics industry, pegged at $300 million, is growing at a rate of 50 per cent on a year-on-year basis. Larger BPO firms including WNS, Genpact, TCS BPO, Wipro and Infosys BPO offers market research and analytics service to global corporations as a part of their KPO offerings.

Besides, pure play market research and analytics service firms including CrossTab, Ugam Solutions, Annik Systems and Dexterity are also growing at a good pace with the rise in demand for their services both from the US as well as Europe.

Though many industry veterans complain that KPO firms are being overvalued, most of them are also keen on acquiring such companies. Offshore BPO services provider EXL Service which has acquired Inductis, a research and analytics company in 2006, is looking at couple of more acquisitions in this space to add to the capabilities.

Wipro BPO, which also provides data analysis and market search services, has already made its intention clear at the recent Nasscom BPO summit. Ashutosh Vaidya, Head, Wipro BPO, had said the company was considering suitable candidates for acquisitions.

Ugam Solutions, a pure-play MRO service provider, is actively looking for prospective candidates in the US for acquisition. Jointly owned by Avalon Consulting and KVS Group, Ugam Solutions is presently ninth out of the top 25 market research companies across the world.

The company which is estimated to be in the revenue range of $35-40 million, has already appointed a local investment bankers Avendus Advisors to help it in the acquisition process. The acquisition is expected to happen in the next 1-2 months.

“The analytics market in the US is highly fragmented. The company we are looking at in the US, is in the revenue range of $5-15 million and will bring us news skills like statistical modelling, advanced analytics and data mining. This will also help us in improving our front-end in the US as a hook into the new clients,” said Sunil P Mirani, CEO of Ugam Solutions.

According to a recent study by ValueNotes, the competition in the offshore MRO space will be tougher in future with the entry of BPO players in the space. “MRO industry might witness some mergers and acquisitions post 2009.

The global survey research market is about $10 billion at present, of which 40 per cent of the works which are more operational in nature are outsourcable. The operational market research works include designing of survey questions, conduct the survey, write the report after analysing the survey, and its interpretation.

Analytics play a major role while conducting a behavioural data analysis which play a key role in containing customer churn.

ValueNotes estimates that India’s revenues from off-shored MRO services stood at about $150 million in FY 2007 and expected to reach $800 million by FY 2012. The industry is expected to employ about 33,000 people by 2011-12 from the current level of about 9,000.

Apart from India, countries like Romania, Philippines, Costa Rica and China also provide market research and analytics outsourcing services.

Source: sify.com

Chennai: A ship’s journey is complete when it returns home. Having sailed through the Americas, Europe and some parts of Asia-Pacific, Indian BPO companies in recent years have been heading home to dock their businesses.

“From a few domestic (BPO) operators in 2003, today the number of players is in thousands,” says Anish Zaveri, Associate Director, Sourcing Advisory, KPMG.

A strong rupee and recession in the US market (which contributes over two-thirds of total Indian BPO exports) have pushed companies, who were hitherto reluctant to start Indian operations, to look inward. If this momentum continues, the dip in overseas revenues will be offset by the rise in domestic revenues, he says.

HTMT Global Solutions chose to go domestic in 2004-05 when the US Presidential elections were around and there was a wave against outsourcing. “At that time we chose to de-risk and look inward. This model has been successful and we have been consolidating operations,” says Viswanath Rao, Senior Vice-President, Operations, HTMT. From bagging its first domestic client in September 2005 and closing the year with Rs 25 crore in revenues, the company today earns over Rs 100 crore and has about 6,000 employees dedicated to the Indian business.

About 25 per cent of Intelenet Global Services’ revenues come from the domestic market. With 15,000 employees the company provides services in 15 Indian languages for over 40 clients in telecom, banking, retail, consumer durables, aviation and public sector.

More complex processes

Radhika Balasubramanian, Chief Operating Officer Intelenet - Domestic BPO Services, says revenues are growing at 40 per cent (year-on-year), and the complexity of work has increased – processes are becoming more end-to-end as opposed to being purely voice-based.

Unlike the offshore BPO industry which works on cost arbitrage, the domestic industry is more focused on managing non-core processes. Anirudh Prabhakaran, Executive Director and President, South Asia, 3i Infotech, says clients are asking for process capability, efficiency and domain-specific value additions. The company focuses on customer acquisition operations in the BFSI and telecom verticals and has a dedicated employee base of 5,000. It reported revenues of about Rs 100 crore last fiscal, a 50-per cent growth over the previous year.

In 2003, most deals were a year-long discreet customer relationship management contracts valued between $50,000 and $1,00,000 (Rs 20 lakh- Rs 40 lakh), subject to quarterly reviews. Today, they range between $2,50,000 and $5,00,000 (Rs 1 crore- Rs 2 crore)and extend over 2-3 years, says T.J. Singh, Research Director BPO, Gartner Research. “Today if you are not in (the domestic market), you are late. For companies with extra capacity (manpower), the best option is to deploy personnel for Indian clients,” he says.

But can servicing a growing domestic clientele compensate for the losses incurred in overseas business?

Yes, say industry players, albeit margins in the domestic business are lower than those in international business.

What is important is that seat utilisation is higher. For many, the day shift is dedicated to domestic business while night shifts are for overseas business. To maintain margins, employees working on domestic business are paid at least 20 per cent lower than those servicing foreign clients. This is because domestic recruits do not undergo the same technical, domain, socio-cultural and accent training as recruits for foreign business. Employee wages form 45- 60 per cent of BPO company revenues and the lower the cost, the higher the profitability margins.

Prabhakaran of 3i Infotech says his employees are paid only marginally higher wages for servicing foreign clients. The company is able to achieve comparable margins from domestic and international businesses because of robust in-house technological platform and well structured processes. This, industry players say, will become the key to grow a successful domestic business and achieve an optimum revenue mix of 40(domestic): 60 (international). Developing proprietary technology and systems that can be customised for clients and innovative delivery mechanisms will help companies make the most of their buck in India.