The Wall Street collapse will take the most toll on the knowledge process outsourcing (KPO) business in India , according to industry experts, but firms are optimistic that the meltdown will still create opportunities for outsourcing. The filing of bankruptcy by investment bank Lehman Brothers has hit its KPO services provider eClerx Services, hard. The KPO firm earned around 13% of its business from Lehman Brothers.
“Lehman Brothers was one of our top five clients, and their collapse will definitely affect the business in a negative way. But it will be a short-term affect,” commented PD Mundhra, executive director, eClerx Services.
Mundhra also added that the fall of such investment firms are more like to affect KPOs rather than the business process outsourcing firms (BPOs).
“Since investment banks are more likely to work with KPOs. In such a cenario, KPOs are more likely to get affected,” said Mundhra. However, according to an industry analyst, things are not as gloomy as they seem to be.
“The service providers dealing with the investment firm will definitely be affected. But on the other hand, if the company gets taken over by someone else, the same businesses would need to be dealt with.
Hence, the KPO and BPO services will be required as before. Whether the projects stay with the same service provider or go to competition is a different issue,” commented the analyst. “The outsourcing work will stay, only it might go to some other provider,” he added.
eClerx is hopeful that the buyer of the US business of Lehman Brothers will continue with eClerx’s services.
“We are hoping that the buyer of Lehman’s US business will continue with our services. We’ll come to know about the situation in a couple of weeks,” said Mundhra.
Industry experts are also hopeful that during such a financial meltdown, outsourcing assignments are more likely to increase as the companies overseas are keen about cost cutting.
“During such a financial turmoil, companies will be looking at every opportunity to save cost, since this is the time where more and more work should be outsourced,” commented an analyst.
September 30, 2008 at 1:50 pm
Although companies will look to cut cost so india may get more outsourced work. But due to credit crisis a lot of companies have shut their shop including some hedge funds, this situation may effect some financial KPOs.
Besides this due to credit crisis US economy is facing slowdown, so some other industries are also affected indirectly, that might dampen the growth of outsourced work.
October 23, 2008 at 4:19 am
In the short term, there is bound to be pain for the KPO’s as the retrenchment in the western markets for financial services companies leads to cuts in the offshore centers (either captives or contracted outsourcing). But there are some structural shifts that i think will drive long term growth of the KPO sector. These are:
1. Investment banks have usually been “fat-cats” and though the top tier firms have had substantial offshore presence through captives, the layer below (mid-tier and small tier) have not had much much of a global workforce. Now, with the financial crisis hitting hard on consumers and businesses, there is going to be additional scrutiny by investors on the costs and profit margins of the banks (including these investment banks that have become commercial banks now). After the excesses of compensation and greed that has been evident to the market (and the reason for failure), investors are going to demand more austerity. They will not want to pay so much for research. They will also demand more research (productivity), higher quality research (depth and connection with reality) while forcing the banks to keep costs down. This is going force the banks of all sizes to think deeply on the composition of their workforce for the future with greater global component to it. The parting comment here is that we might see the equivalent of the Microsoft business model where there is grassroots adoption of outsourcing across all tiers of banks, not just bulge or large bracket. This will drive the volume and breadth of work.
2. Traditionally we have seen “back-office” outsourcing for KPO. Examples are external financial reporting, fund reconciliation, internal reporting and analytics to support decision making and many other such activities where the primary driver was cost arbitrage (just like Y2K was for IT outsourcing). I think the BIG shift you are going to see is that global sourcing will come into play for front end support now. As an example, my firm SG Analytics (www.sganalytics.com) is involved in client projects that range from M&A diligence support, analytics support for restructuring business divisions, strategy projects for acquisitions (sector analysis, identifying targets, building business case studies etc). I think this is still the tip of the iceberg. The opportunity (and now the willingness of banks to actually outsource this type of work) will only increase. I would like to hear what other analytics KPO’s are seeing in their markets such as pharma, legal, business analytics and others.
3. Lastly, the pendulum of investments is (and will continue) to shift to wards emerging markets like China, Brazil, Russia, South Africa and India. As more money flows in from institutional investors of all type (HNWI, PE’s, Corporate funds, Sovereign funds etc), you will see the need of quality investment research work being done by local KPO’s in these countries for local investment. The one’s that will be successful are the one’s who will leverage their experience gained serving the global markets to their local markets now.
I maintain my own blog at http://adityakhandekar.wordpress.com/ and work for SG Analytics (www.sganalytics.com) as Head of Research.
I look forward to comments from the investment community.