The Tectonic plates of the telephony world are shifting

Microsoft buys Skype.

By Martin Conboy, President – Australian BPO Association

The cost of using telephony has always been a major concern for BPO players as they look to lower their operating costs to remain competitive. In the past, telephone costs for Asian-based BPO players used to be as high as 40% of their costs. This has come down dramatically and using VoIP has become a mainstream standard for most BPO facilities operating in the Asia Pacific and many management telephone conversations that used to happen via the traditional networks now happen via Skype. Margins in BPO are razor sharp and its hard to beat the cost of telephone or video calls that are free. Telephony companies have always seen BPO companies and call centres as a very lucrative part of their cash cow revenue so moves into the VoIP space are bad news for Telcos.

Microsoft has just announced that it bought Skype for US$8.5 billion, in an all-cash deal. Skype has about 170 million users, which is a substantial community.

Skype has been up for sale for some time, Facebook and Google were said to have displayed interest in Skype, and Microsoft was a late entrant and has walked away with the prize.

Skype gives Microsoft a boost in the enterprise collaboration market, thanks to Skype’s voice, video and sharing capabilities, especially when competing with Cisco and Google.

• It gives Microsoft a working relationship with carriers, many of them looking to partner with Skype as they start to transition to LTE-based networks.
• It would give them a must-have application/service that can help with the adoption of the future versions of Windows Mobile operating system.
• However, the biggest reason for Microsoft to buy Skype is Windows Phone 7 (Mobile OS) and Nokia. The software giant needs a competitive offering to Google Voice and Apple’s emerging communication platform, Facetime.

The plays and counter plays are fascinating among the big companies in the telecommunications space, so vital to all of us in the BPO space.

Apple is now the second most valuable company after Exxon Mobil, after it shipped nearly 19 million iPhones and iPads during the last quarter. Apple’s ascendancy has produced many losers including Microsoft, who it has dethroned as the worlds most valuable technology company. Another major loser is Nokia Corporation who recently announced that it is slashing 7,000 jobs through layoffs and outsourcing as it struggles to compete. Nokia still sells more phones than anyone else but it is losing market share to Apple.

Guess Who’s the Big Winner

The biggest winner of this Skype deal could actually be Facebook. The social networking giant had little or no chance of buying Skype. Had Facebook been public, it would have been a different story. With Microsoft, it gets the best of both worlds: It gets access to Skype assets (Microsoft is an investor in Facebook) and it gets to keep Skype away from Google.

Facebook needs Skype badly. Among other things, it needs to use Skype’s peer-to-peer network to offer video and voice services to the users of Facebook Chat. If the company had to use conventional methods and offer voice and video service to it’s 600 million plus customers, the cost and overhead of operating the infrastructure would be prohibitive.

Facebook can also help Skype get more customers for its SkypeOut service, and it can have customers use Facebook Credits to pay for Skype minutes. Skype and Facebook are working on a joint announcement, and you can expect it shortly.

Why Did Skype Want To Sell? 

Skype had filed for an Initial Public Offering (IPO), was going to do about a billion dollars in revenues, and was on its way to becoming profitable. So why sell? Some sources also believe Skype’s revenues had stalled.

The company had bet heavily on is video sharing service. The premium version of video calling and sharing was a way for Skype to increase its average revenue per user and move into the enterprise market. However, given Skype’s DNA is that of a consumer Internet company, the challenges aren’t a surprise.

Software developer VanceInfo buys Chinese business outsourcing firm

Software developer VanceInfo Technologies Inc. said last week that it has purchased LW International Holdings Ltd., a Chinese business outsourcing services company.

China’s VanceInfo will pay $5.6 million in cash and stock for the company, with further payments based on LW International’s performance during the next three years.

LW, also known as Lifewood, was started in 2004 and serves clients in the U.S., Europe and Asia Pacific regions, mainly in the health care, publishing and financial services sectors.

VanceInfo said there are increasing synergies with between the business outsourcing and information technology businesses.

Lifewood reported about $4.5 million in net revenue last year.

Source: CanadianBusiness

Ariba a leading provider of collaborative business commerce solutions including spend management announced it will sell its sourcing and procurement BPO business to Accenture for US$51 million.

The deal will strengthen Accenture’s supply chain management (SCM) expertise, bolstering its existing outsourcing and procurement services “by adding deeper category expertise, highly scalable global sourcing service delivery operations, and proprietary sourcing databases, benchmarks, and technologies,” said Accenture Group Chief Executive Mike Salvino in a prepared statement.

The deal is expected to close by the end of the year, the companies said. It calls for all 160 employees of Ariba’s Spend Management Services organization, as well as those employees in its Global Services organization associated with category execution and market-making, to join Accenture. Ariba’s BPO business is on track to generate US$40 million in revenue and US$7 million in net profit in fiscal 2010, the company said.

The uncertainty in US and European markets about a global recovery is suppressing the value of outsourcing contracts and buyers are not confident about committing to longer term contacts due to the fluctuations in currency markets especially the US dollar as that is the main currency used to strike BPO contracts.

Infosys CEO S. Gopalakrishnan said in a recent interview at the World Economic Forum in Tianjin, China. “They are cutting large contracts into smaller contracts. They are willing to commit only for the short term.”

Bangalore-based Infosys, which employs about 2,600 people in China, plans to localize overseas by hiring more people in countries where it operates.

Amid woes from the Indian outsourcing sector, China is speculating that India is becoming increasingly wary of the competition from China.

According to KPMG partner Egidio Zarella, “the Chinese outsourcing sector is bound to see the same curve the Indian industry had before — they are in for incredible growth.”

There are however challenges, The factories that make Apple products have recently given their workers a 7% pay rise and the Chinese government is under extreme international pressure to revalue their currency. The wages challenge is not new, four years ago, Business Week ran a story, “How Rising Wages are Changing the Game in China” that noted that in 2005 wages surged 40 percent.  In 2007, the wages in China rose another 30 percent and have continued to rise an average of 15 percent a year since a 2008 labor contract law went into effect January 2008.

Makers of toys, trinkets, Christmas trees, and cheap shoes have folded by the thousands or moved away to Vietnam, Indonesia, or Cambodia.   However, even with higher wages, Chinese wages are estimated to be about 3 percent of manufacturing wages in the U. S.

There are rumours that Genpact Ltd may be up for sale reflect a stark new reality for those BPO companies that are not part of a larger information technology (IT) business.

Genpact listed on the New York exchange is a global BPO company. It was formerly a GE owned company called GE Capital International Services. It operates from India, China, Guatemala, Hungary, México, Morocco, the Philippines, Poland, the Netherlands, Romania, Spain, South Africa, and the United States. Currently it employs over 41,000 people in various locations providing services in 30 languages on a 24/7 basis.

Its services cover areas like Financial Services, Sales and Marketing, Analytics, Supply Chain, debt Collections, Customer Services, IT, Healthcare and learning and Content management.

The rumour reported in the Indian Financial Express is that New Jersey based Cognizant Technology Solutions Ltd is looking to buy Genpact. The report may or may not be true, but it didn’t come as a surprise to analysts who say the era of stand-alone BPO firms may be coming to an end. As many BPO deals are global buyers are looking to only deal with one-stop shops.

Clients’ preference for integrated IT and back office deals is driving this trend. “Pure-play BPOs are facing the heat,” said Vijay Gautam, senior IT research analyst at Jaypee Capital Services. “They have limited options, either offer more integrated services like IT services players or face the risk of being edged out slowly over a period of time.”

Large enterprises in markets such as the US and Europe are going through a vendor consolidation process where they just want “one neck to choke” and not multiple technology vendors supplying bits and pieces of their corporate IT requirement, he added.
“Lots of private equity (PE) players, who had reached the end of their planned investment horizon nearly two years ago, were out in the market looking to exit when the economy slowed down,” said Amit Singh, executive director and head of technology group, and co-head, BPO (business process outsourcing) group, at investment bank, Avendus Capital, “Now that the market conditions are improving, those players are again looking at valuations and exit options.”

Vertex Business Services, an international Business Process Outsourcing (BPO) and Customer Management Outsourcing (CMO) company, announced its acquisition of PCI, an Australian-owned contact centre and IT outsourcing provider.

Upon PCI’s acquisition, it will be rebranded as Vertex Business Services. Led by PCI’s previous CEO Phil Allan, PCI’s strength in multilingual inbound and outbound customer contact services will add to Vertex Business Services’ existing global offerings in financial services, retail, and utilities. The new business will make further developments in client relationships and use its experience to take advantage of the Asia Pacific market’s great potential.

Vertex Business Services’ CEO, Paul Sweeny, said, “This acquisition will allow us to enter markets where we can make a real difference to the way organizations interact with, and manage, their customers’ experiences. It also gives us direct access to a growing regional market that is an important element of our global growth ambitions. I am especially delighted that Vertex Australia will be able to offer increased, added-value solutions to its clients and enhanced opportunities for all our people.”

Phil Allan added, “We are excited by opportunities unlocked by the wider Vertex Group, its global infrastructure, people and technologies. There is considerable potential in our market and we are in an excellent position to capitalize on this.”

Other plans include building a new site in Ballarat and further investment in the Philippines.

Teleperformance announces the acquisition of 75% of the Metis Group, a leading outsourced contact centre in Turkey and works with major clients from different industries. The BPO service provider sees Turkey as a strategic market, because it is one of the largest economies in the EMEA region.

Beto Varas, CEO of Continental Europe, Middle East, and Africa, and member of the board of directors of Teleperformance SA, says, “We plan to use synergies between Metis and Teleperformance Group to develop both the local market and nearshore solutions. This new acquisition strengthens our footprint and already solid position in the EMEA Region,” says Teleperformance SA CEO for Continental Europe, Middle East, and Africa, Beto Varas.

Alishan Tan, Founder and CEO of Metis, has this to say about the acquisition: “The need for outsourced contact center services is evolving rapidly in Turkey. The investment by Teleperformance, will allow us to provide a first class, client-oriented service based on the latest technology and best-practice operations. It is good for us and our clients to be part of the #1 worldwide industry leader,” says Alishan Tan, Metis CEO and Founder.

Metis operates in Istanbul and Usak, and is expecting to close 2010 with a revenue of 12 million Euros.

The Ayala Corporation is set to increase its investment in the Philippines’ Business Process Outsourcing sector, taking advantage of the industry’s projected growth possibilities for the coming years. Alfred Ayala, CEO of Live It Solutions, Inc. (the BPO holding company of Ayala Corporation), has revealed that they have started meeting with other companies following their successful investment of $200 million in the industry over the past three years.

“We don’t have a specific [budget for acquisitions] anymore, but we’re definitely looking. It’s more opportunistic at this point”, said Mr Ayala.

Ayala Corporation’s recent BPO investments consist of controlling interests in Integreon Management Solutions, Inc., a knowledge process outsourcing (KPO) in the US, graphics and design firm Affinity Express, Inc., Stream, and owner of HR outsourcing firm HR Mall.

Ayala said, “Healthcare is an area we’re interested in. It’s a large part of the US economy and there’s new legislation that will spur for the need of electronic records.” This was due to the approval of the universal healthcare reform law in the US, which opened more doors for BPO investors. He also said that Ayala Corporation was currently expanding Integreon’s local operations, with the help of a new investor from the UK.

Aside from being CEO of Live It Solutions, Inc., Alfred Ayala is also Chairman of the Business Processing Association of the Philippines (BPA/P), former Chairman/CEO of e Telecare and former Chairman of SPI Global Solutions. He will have a public presentation in the Asia CEO Forum this coming 20^th April, with HR Mall president JP Orbeta. The Asia CEO Forum will be held at the Tower Club of Manila, the top private business club in the Philippines.

For more details about Alfred Ayala and JP Orbeta’s presentation, please click here http://www.asia-ceo.org/events/HRMall_Fred_Ayala.htm .

The Asia CEO Forum is the most awaited event for the international business community in the Philippines.  For more information, visit http://www.asia-ceo.org/ .

Genpact, New Delhi’s biggest business process outsourcing firm has acquired Hello Communications, Inc, a wholly-owned subsidiary of Hikari Tsushin Inc (First Section of Tokyo Stock Exchange). The deal, which will take from three to five years to mature, and will involve providing services from customer service and finance and accounting to IT infrastructure support and back office processing.

Although the firm is based in Japan, the services will be supplied from Genpact’s delivery centres in China. While Pramod Bhasin, president & CEO of Genpact, declined to disclose the financial aspects of the contract, he said it would require a few hundred people initially and would ramp up as the contract matures. He said that, “This deal is strategic for us as we will be completely servicing this client from China. Moreover, we could look at opening another centre in China by the end of this year to service this client.”

The affiliation with Genpact would permit Hikari Tsushin Inc to provide cost-effective services from China to its customers in Japan while enabling the company to make forays into the fast-growing China market.  Shigetaro Toyoda, CEO of Hello Communications  said, “We are delighted to partner with Genpact and leverage their strong process discipline, quality rigour and business process reengineering expertise to offer best-in-class services to our customers.”