Posted by: Manjeet Krpalani on June 15, 2006
The tech outsourcing business is going mainstream. Far from being a service that only big and mighty players like IBM and GE could master, its benefits are more obvious and it’s becoming accessible to a larger number of companies both as beneficiaries and providers. That means the industry’s pioneers have to change their business models and move faster than their new rivals, anticipating what the upcoming challenges and opportunities are, and seizing them.
One such firm is California-based NeoIT, one of the early advisory firms in the business. Neo-IT, run by former techies from companies like Nortel, discovered a niche for itself as a match maker, identifying tech services providers in India for the big multinational global players who were then new to the game, and hadn’t figured out the landscape.
Problem is, the outsourcing industry has been demystified. So that means there isn’t much use for matchmakers anymore, Avinash Vashistha, Neo-IT’s founder. “Everyone is smart about who to join with, what their expertise is, what the requirements are, which countries, which players offer what, who the legacy systems experts are, the enterprise services, the insurance experts. It’s all there on the Nasscom Web site. That edge of information is gone just by Googling,” he says.
What’s the next level, then? Four months ago, Vashishta started a new firm, Tholons, to lead the new wave. The large firms are starting to integrate their offshore outsourcing and onshore outsourcing models, he explains. The big ones are doing a mix of both, and so Vashistha will partner with consultants like TPI, Everest and even Boston Consulting Group to help big firms identify performance standards, and potential acquisition targets which can be a good fit for the company’s outsourcing needs. “Normally they’d go to the investment bankers,” says Vashistha. “But we bring more value because we are insiders in the business, and know which players will benefit from being acquired or acquiring.”
But the most interesting part of Tholons’ strategy will benefit small and medium sized companies, which have not been able to take full advantage of the outsourcing game. “Now the small guys will have a chance to play the big game,” says Vashishta. Because small firms can’t pay Tholons’ fat fees, Vashistha asks for a piece of their equity in lieu of payment, and promises them doubled profits by advising them what to offshore and how to save costs. So if Tholons takes a 50% stake in a small, $10 million in revenues firm that needs to offshore its business to survive, Tholons helps them navigate, watches their performance, and then when business grows to $20 million in revenues, they split the profits.
Tholons has raised $35 million from the hedge funds, and Vashistha says they can have more. So far, there have been no deals, but the firm expects to do four over the next 12 months.