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Consortium - The new mantra for BPOs - Views on News from Equitymaster
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  • Mar 29, 2011

    Consortium - The new mantra for BPOs

    Formation of consortium in the industry is not a new phenomenon. You often come across individuals, companies, organizations or governments (or any combination of these entities) making an association to participate in a common activity. In the process they pool their resources for achieving a common goal. That's the idea of consortium. It seems to have now caught the fancy of the Indian Business process outsourcing (BPO) industry.

    In the BPO industry, the era of simple solutions is over. Simple solutions means merely replicating inefficient business processes of an organization by some other party at lower price points. There is no analytical, strategic and customized approach involved in those solutions. But now there is a growing demand for value added BPO services. Clients are moving away from their traditional focus on cost savings. They want to know the breadth and depth of the services a vendor has to offer. Also they look for the credibility, security certifications and service standards.

    There are only a few large players like TCS , Infosys and Wipro which meet these criteria. This helps them win larger deals. But when it comes to small or mid-sized vendors, few make the cut. In fact sometimes even the larger players need to look expertise outside the organization.

    And there arises the idea of the formation of consortium in BPO industry. This brings in a larger geographical presence, credibility and a niche expertise all together. Also the arrangement serves well in case of larger projects where higher equity investments are required. As most of the times smaller firms specialize in a niche area they tend to remain undercapitalized. Hence the consortium structure suits them.

    Big players in this business have already started joining hands with small niche players for their expertise. For example, Infosys BPO has formed a partnership with American insurance institutes to expand the company's insurance vertical. According to Infosys BPO's statement, the consortium between them and the American Institute for Chartered Property Casualty Underwriter and the Insurance Institute of America will enrich Infosys BPO's domain expertise. Also that will help learning and development of Infosys BPO's employees.

    Other mid-sized and smaller players are also in the race. The consortium of HCL Infosystems, Accor Services and Virgo Softech has bagged a contract from the Government of Madhya Pradesh (MP) to set up food coupon-based targeted public distribution system (TPDS) in the state. Patni has made bids for some deals in a consortium to have a local language partner or a platform vendor to provide internet based solutions. Aegis has been providing customer lifecycle management (CLM) services for a healthcare client with a help of a consortium of service providers in the Americas.

    There is a definite advantage of forming consortium as it brings synergies in many ways. But this also throws up a lot of challenges. Who will lead and manage the synergies? Who will assume the risk, liabilities and service level agreement (SLA) commitments? These kinds of questions start arising. After all these, it becomes difficult to get synergy at operational level due to overlap of services, different approaches to the client delivery of different partners etc.

    Despite all the problems, the idea of forming a consortium of small and mid-sized BPO companies is being considered for winning big orders. It is now the need of the hour. Just being a small niche player or sometimes even a larger player, who provides plain vanilla BPO services, does not help these days.

    This kind of consortium formation also gives clients more options. Earlier clients used to choose different vendors themselves for their different requirements on the best of the breed basis. Now they can go for a big player or a consortium for their bigger projects.

    Good days for big players seem to be getting over in BPO industry. Now big deals are not restricted to big players alone. Consortia of mid-sized & small BPO firms are going to give them a run for their money.



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