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JUNE 10, 2004
By Manjeet Kripalani India's Outsourcers Turn West Aiming to expand their reach and customer base, they're buying U.S. and European companies -- often hiring more workers there In recent years, Western companies have rushed to India, outsourcing their back-office operations, call centers, and software development -- or in some cases flat-out acquiring Indian outfits that do such work. Now it's turnabout time. In the past two years, Indian businesses have snapped up a dozen U.S. call centers and business-processing companies. "Indian companies are looking to build a global model quickly," says Kanarath P. Balaraj, partner with WestBridge Capital Partners, a Silicon Valley venture-capital firm that invests in outsourcing companies. Why the reverse migration? As India's outsourcing sector matures, companies there need to increase their industry expertise, geographic reach, and, most of all, their customer base. That's where takeovers of U.S. concerns come in. Indecomm Global Services, a health-care and financial-services outsourcer based in Bangalore, recently paid $5 million for Simpata Group, based in San Francisco. Simpata manages human-resources software for clients such as health-care provider Anthem and some Blue Cross/Blue Shield insurers. CHEAP BUYS. "The deal gives us unique expertise in the global HR software and services industry and opens up huge opportunities for us," says Naresh Ponnapa, Indecomm's chief executive. In October, Bombay's Datamatics Technologies bought Detroit-based accounting outsourcer CorPay Solutions, in large part for its blue-chip roster of auto-industry clients, including Ford Motor (F ), General Motors (GM ), and DaimlerChrysler (DCX ). Another reason for the buyouts: Smaller U.S. call-center operators can be had on the cheap. Profits at most of them have declined 8% to 10% annually in the past three years, according to Bombay investment bank Edelweiss Capital. And because these companies can't match the cost structure of their Indian rivals, they're selling for just one-fifth to one-half of revenues, says Edelweiss Chief Executive Rashesh Shah. For instance, Bombay's Essar Group in November teamed up with Deutsche Bank and paid just $28 million for Irving (Tex.) call-center operator Aegis Communications Group, which last year generated sales of $140 million serving big-name clients such as AT&T (T ) and American Express (AXP ). "Not a lot of the U.S. companies have found an answer to scaling up and cutting down their costs," Shah says. "Indian companies have those skills." "TRANSITIONING THE MIDDLE." Are the Indians buying up their U.S. competitors simply to close them down and shift most of their operations overseas? Not at all, the Indians insist. While Aegis' new owners say they won't cut jobs in the U.S., they plan to relocate back-office functions, such as human resources, accounting, and tech support, to India, saving 15%, says Essar President Neeraj Gupta. Datamatics has shifted some of CorPay's data-entry work to India, cutting costs by some 25% and leaving the U.S. staff more time to drum up new business. "We're transitioning the middle part to India, leaving the beginning and end work in the U.S.," says Datamatics Chairman Lalit S. Kanodia. And Bombay's Godrej Group has added has added 100 more U.S. employees to Upstream, a call center focused on the U.S. corporate-travel business that it bought in November. The Indians aren't buying only in the U.S. Tracmail, an Indian call-center operator with $5 million in sales, acquired Toronto's Webhelp and its 430-seat call center in Montreal last year to boost its profile in the North American market. But thanks to Webhelp's multilingual team, Tracmail soon started to serve European customers as well, and in May it hired 100 additional operators. LESS UPROAR? And New Delhi-based HCL Technologies, an Indian tech hardware and software major, paid $11.6 million for Belfast-based Apollo Contact Center in 2002. At the time, Apollo handled phone queries for telecom, retail, and financial-services clients in Britain and Ireland. Since HCL bought Apollo, it has added clients across Europe and more than doubled in size, to 1,030 employees. If all of India's overseas buyouts work out so well, it might calm some of the uproar over all those Western jobs moving to Bangalore.  Kripalani is BusinessWeek Bombay bureau manager Edited by Patricia O'Connell
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