Today in Tech: Philippines, new back office to the world; Infosys & acquisitions; and INR

NS Ramnath
Updated: Oct 1, 2012 01:31:57 AM UTC

I have been with Forbes India since August 2008. I like writing about ideas, events and people at the intersection of business, society and technology. Prior, I was with Economic Times. I am based in Bangalore. Email: ns.ramnath@gmail.com

The new back office to the world Eleven years ago, Economist wrote about a trend - of American companies getting business support services such as customer interactions, transcription, billing etc done from India, making use of its low cost manpower. The title of the piece: Back office to the world.

Its most recent issue has a story on how some of those jobs – especially voice based services - are now moving to Philippines. “Last year Philippines even overtook India, long the biggest call-centre operator in the world, in “voice-related services. The country now employs about 400,000 people at call centres, India only 350,000." The big question is whether the Philippine BPO industry can now move up the value chain, it asks.

I think, that’s where it gets interesting. And it’s interesting because of two big trends. The first is the integration of IT and BPO services. Earlier, many IT services companies were running their BPO business under separate brands - Infosys had Progeon, Wipro had Spectramind and that was true of a few other smaller IT/BPO companies as well. However, about six years ago, they started bringing their IT and BPO businesses closer – and the most visible sign of that was the changes in the brand names. Wipro dropped its Spectramind tag, Progeon became Infosys BPO. Some others – like TCS and Cognizant – were offering the services under the same brand from the beginning. The reason: clients don’t care whether it’s from an IT or an ITeS company, they are just looking for ways to use technology / outsourcing to do things better. It was true then, and it’s true now - a reason why Genpact, India’s largest pure-play BPO, is trying to get into IT services.

The second trend is that the delivery of services is getting more global. Indian IT/BPO companies are setting up centres in more countries. Their move to Philippines started happening a while ago. Initially, many said they were doing it to spread their risks. But soon, they found it made sense to scale up in multiple geographies to tap the talent from across the world. The rise of Philippine BPO industry was in some ways driven by the growth of Indian IT/BPO companies, and represents a natural progression. In the context of these two big trends, the issue is not really about India Versus Philippines, but it’s about how two countries can work together - using each others comparative advantage. That, after all, is the promise and hope of globalization.

Should Infosys make a billion dollar acquisition?
A report in Times of India says: ‘After Infosys's annual general meeting on June 9, (Infosys chairman KV) Kamath had a serious chat with key leaders at Infosys and advised them to use the company's massive cash reserve for a buyout with a minimum ticket size of $1 billion.’

The report doesn’t attribute this particular information to anyone, and doesn't have any named sources. So, let’s keep the story aside, and look at some of the underlying factors that might drive a company to go for a big acquisition. The strongest argument for an acquisition is that the industry momentum is down, and the only way to grow is either by grabbing market share or by acquiring companies. JP Morgan said in a report last week that the buoyancy is down. “Players growing ahead of the market (such as TCS and Cognizant) are doing so by winning share against peers and eating their lunch, in a manner of speaking. ... We note that this is unlike FY04-08, during which period players grew 30%+ aided by the buoyancy in the industry without eating into each other’s market share.” Since Infosys is keen on margins and might not want to get into a market share game, the best option is to go for acquisitions. However, acquisitions come with risks. According to a McKinsey analysis, of the five types of growth - introducing new products to market, expanding an existing market, increasing share in a growing market, competing for share in a stable market, and acquiring a business – the last one adds the least to shareholder value. Besides, big acquisitions come with big risks - and might even erode value. Infosys has always been aware of the risks in making such a move. Going for smaller acquisitions, however, might help the company sprint forward in certain specific areas. In any case, more than acquisitions what must be playing on the minds of Infosys top management today is the upcoming court case related to Visa program in the US.

Gains from a weakening INR
Indian Rupee might slide down further to 58-60 a dollar, according to a report in Business Standard. Another report in the paper says for every one percent fall in the rupee, net earnings of software companies will go up by 50-110 basis points. HCL Tech will benefit most, and Tech Mahindra the least among the top players. A friend who works for an IT firm had only one question: Does this mean we will get a bigger hike, if at all?

Also of interest

  • Nasscom may decide on Som Mittal's extension today - Economic Times
  • Sexual harassment in IT companies is on the rise but what are they doing about it? - Business Line
  • Why we owe it all to Alan Turing - GigaOm

The thoughts and opinions shared here are of the author.

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