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Home > Business > Business Headline > Report

Small BPO firms may go bust if. . .

Ishita Russell in New Delhi | December 06, 2007 10:27 IST

As the $8.4 billion Indian ITeS-BPO exports industry braces itself to touch the $24 billion-mark by 2010, according to Nasscom, smaller players may not be a part of the party.

"The BPO game is all about volume," opines Anish Zavery of KPMG. He adds, "In order to survive the smaller players will have to provide very niche services which add value to a company's business, on the lines of a KPO."

However, smaller companies in the knowledge process outsourcing space may not be able to survive this wave of consolidation in the industry either.

"The companies have to have a specific growth plan, and a strong sales team, without which, the smaller companies are bound to be under pressure to sell out to larger companies, who intend on expanding their portfolio by providing niche services," said Evalueserve CEO Marc Vollenweider.

Identifying one of problem areas among the smaller players in the KPO field, Anil Kaul, ceo, Absolutdata says, "Most companies in the field are set up with investments from outside parties, who expect returns after a certain amount of time, and if the companies are unable to provide the returns, smaller companies opt for a buy out or they are led to shut down the company."

Marc Vollenweider further explains that there are three types of companies in the outsourcing space; first is the one which are scalable and witness organic growth � however, these companies are in minority.

The other two categories comprise of companies that can sell out after a reaching a certain point in growth, while the third category, the majority of which are small companies that will fade away with time or get acquired.

"Indian market is still at a nascent stage, with sufficient number of players growing, in the next five years one in ten companies will survive and grow," predicts Jaswinder Chadha, president & CEO, co-founder, marketRx.

The bigger fish in the sea are also comfortable with the option of expanding their portfolio through inorganic means to get their share of this lucrative market.

With a high profit margin and a rise in demand for specialised services, a series of mergers and acquisitions are expected to be visible in the future.

Though some might be sceptical of the feasibility of this option, as Marc Vollenweider says, "Even if the larger companies acquire, it is not an easy task to integrate the functions. Synergy will be the key to integration. Consolidation will happen but at a slow pace."

Nasscom president, Kiran Karnik opines that for KPOs size is not critical in contrast with BPOs where scalablity is the most important. He further says, "There will be temptation on the part of larger players to acquire or partner with such specialised service providers."

He, however, says that survival in the BPO area will become tougher as scalablity becomes the key issue, thus smaller players in the BPO may be led to sell out or merge."

"Earlier, there came this whole outsourcing boom, especially in the voice segment, where anyone and everyone wanted their share of the pie," says Zaveri. "The growth was, however, not sustainable, due to which many of the small players have had to shut shop." he adds.

With a consolidation in the market expected in the near future, it is yet to be seen how many small standalone players survive.

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