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Merge, get bought out, or die

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    SANJAY BANGROO
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    CALL CENTRES

    MERGE, GET BOUGHT OUT, OR DIE

    In the early 1980s, McKinsey & Co told American telecom monolith AT&T that only 900,000 mobile phones would be in demand in the US by the turn of the last century. McKinsey, today, would perhaps want to forget the forecast — by 2000 a million phones were being added every two working days in the world.

    It is unfair to laugh at McKinsey. At the fledgling stage of any industry, the probability of under estimation or overestimation while making projections is high. So at the risk of having egg on my face a couple of years down the line, let me talk about two trends that are sweeping through India’s information technology (IT)-enabled services and their impact. These, I think, will alter the basic structure of the industry in the years to come.

    The first is the entry of deep-pocket sponsors into IT-enabled services, notably at the top end of the business process management space. Instances: ICICI Bank’s call centre arm recently bought out CustomerAsset for nearly $20 million. Progeon, Infosys’ business process outsourcing (BPO) arm, drew $20 million funding from Citigroup and already has at least two clients in place. Polaris is reportedly talking to FirstRing for a buyout; the venture-funded FirstRing had spoken to ICICI before the CustomerAsset deal.

    Established software players are moving into the BPO space primarily because their customers would like to get processing assistance, in addition to the software services that Indian companies bring to the table. Besides, of course, the Indian sponsors see a business opportunity here.

    The independent call centre or BPO or IT-enabled services companies, on the other hand, are facing a supply problem. They find that they cannot scale up operations to the expectations of the big, global 1000 companies. Typically, such call centre companies are venture funded. This has its limitations when it comes to expanding quickly. Even those well funded are capitalised at less than $10 million. That means at a ballpark cost of $1 million for 50-100 seats (the industry lingo for the number of call centre professionals), companies have 500-1,000 employees.

    The global 1,000 companies have call centre requirements of much more chunky proportions. Typically, they look for some 800-1,000 professionals to execute a single, long-term contract, and in some cases even more. Look at General Electric, which has around 4,000 kids working at its Gurgaon centres.

    The General Motors’ or Wells Fargos of the world would laugh out an Indian venture-funded call centre company that approached them for business. Only well-funded call centres with access to healthy balance sheets can meet their requirements.

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