BPO markets are underpenetrated – Pramod Bhasin
DATE: Feb 6th, 2008
I listened in today to Pramod Bhasin, Genpact CEO’s speak in New York at the Sanford Berstein investor luncheon… The topic of the discussion was growth and opportunities in BPO markets of tomorrow. He was joined by Rod Bourgeois, Sanford analyst who talked about the BPO, IT Services markets in general and what they are recommending to investors as buys.Pramod is a dynamic speaker who brings in a lot of passion when he is talking about the company and the growth.
I am going to put out a brief on the Thomas Weisel conference presentations sometime later this week but I found that there are very similar trends in what Genpact is looking at the current market place and where other outsourcing vendors believe the market is.
Key takeaways from the conference seem to be that Genpact is well positioned to leverage the under penetrated BPO market and the current market conditions although cautious are not going to slow down the companies growth. Pramod believes that only 5% of the BPO market is yet penetrated so the upside is tremendous.
The message over the last month has been very similar in the marketplace although the stock prices for these company’s (Pure BPO players like WNS,EXL,GENPACT and IT services players like Infosys, Wipro etc..) have been hammered in the market.
Rob believed that the market sentiment is more to blame for the stock price and there is an upside in these stocks.
What I believe is happening in the marketplace is that the larger vendors are gearing up and identifying all the potential levers they have to fight the margin compression and revenue slowdown in 2008 and believe that they are ready to meet the challenge. (More on this in a later post)
One thing which I have been saying all along and Pramod seems to confirm is that the
Market will be broken into three categories of companies when it comes to who will leverage offshoring in a slowdown scenario:
The first set of companies are those which have built excess capacity and are looking inwards to either leverage the capacity to do additional work or optimize that more effectively. Basically that these firms will not do a big push on offshoring.
The second type of companies is those which have a fairly mature offshoring program and are comfortable with the global footprint and will leverage offshoring more aggressively. These are typically Fortune 100 companies and in the sweet spot for the larger Indian vendors. Companies like Genpact have taken a go to market approach where they have created anchored clients in each vertical and are leveraging those to go deep (Nissan, Wachovia, and GE).
Larger organization looking at strategic roadmaps and delaying their offshoring plan. These companies will delay their outsourcing and offshoring road map.
Genpact also believes that they have over 85% visibility into the customer budget and most of their customers will not slow down the type of work which they do as it required to keep the ‘lights on’. F&A work Procurement, HR, IT help desk support etc.
Genpact is also exploring growth strategies to grow domestically in India and China and penetrate the European markets. From a vertical expertise perspective Remote Infrastructure management is an area where not only Genpact but all vendors see a huge potential for growth (although the margins and the offshorable work get limited).
Genpact’s around 7-10% revenue is affected by discretionary spending. Another challenge facing the players today in the market is how you reduce the payback cycle for investments in offshoring. Genpact timeline on payback is around 18 months for US and 30 months for UK, European firms. This elongated period of payback will be a challenge for firms looking to do new deals in the offshoring space.
I believe that most of the players are going to focus on existing relationship and going deeper in their existing relationship rather than build new relationships.
There is a lot of talk about Convergence in the market place, not that Genpact talked a lot about that but as all players start looking at mid market deals to expand their customer base the competition is going to intensify. Now you have Unisys, EDS, ACS and other SI firms along with the traditional offshoring vendors and the consulting firms like Accenture, IBM all competing for the same type of clients.
With a lot of talk about technology supported BPO (platform BPO) Genpact does not look at that as their core strength.
Seems like Genpact is leveraging its GE, lean, six sigma, and process improvement heritage to create a unique USP.
Under penetrated or not seems like Genpact is fairly optimistic of continuing to grow in the BPO space. Only if the stock price will reflect that!
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