‘Economic benefits of outsourcing are compelling’ – EXL CEO
SOURCE: DNA
DATE: March 28th, 2009
ARTICLE
In 2007, business process outsourcing firm EXLService Holdings witnessed an attrition rate of 41%. By December 2008, the rate had corrected to 34%, with headcount at 9,500. However, the Nasdaq-listed firm’s worries were far from over as forex losses and project cancellations snapped off 65% of its net profit for the quarter ended December 31. In an interview to DNA Money, the company’s president and CEO Rohit Kapoor talked about the opportunities and pains facing his company and the BPO sector at large. Excerpts:
Which are some of the challenges impacting EXLService’s clients?
Our clients are operating in a very tough and challenging environment. The situation demands companies to manage their costs strategically to remain profitable or, in some cases, even to sustain their business. While their employees are seeking job security, investors want the company to be profitable. On one hand, stringent regulatory compliance requires companies to allocate more and more resources, and on the other, expectations of customers are changing with the fluctuating economic environment.
In addition, all their stakeholders expect the company to be transparent in their reporting. Meeting all these expectations is a big challenge. In addition to cost-cutting solutions, clients are looking for service providers who are transparent and trustworthy so that there is surety of a long-term relationship. They are seeking “execution discipline” and “financial strength”.
What kind of price changes are your clients seeking?
Clients want price stability and want to renew contracts for a longer period. Another thing that is extremely important is our approach to managing foreign exchange risk — we are working with customers for sharing risks arising from the market volatility. Another area is the acceptance of outcome-based pricing, which has elevated the client-service provider relationship to the partnership level.
Are your clients looking to move from capex to opex models?
We have not experienced such demand from most of our existing customers. However, some clients in the pipeline are exploring a “total outsourced solution” or “rebadging” which is an apparent shift from the capex to opex model. However, it is too early to say whether it as a trend.
What are the challenges?
Forex management and client diversification are two important challenges for us. However, we have not seen any new challenges in the recent past that can be ascribed to the environment (downturn). We have seen a decline in our transformation business, which has been balanced by growth in our outsourcing business. We have recently acquired many new clients in the insurance and utilities domain. We are scaling up the infrastructure to support these new businesses.
What are the possible impacts of the recent announcement by the US President on tax breaks?
The question of whether outsourcing of business processes to locations outside the US leads to loss of jobs has been analysed in various studies in the recent past. The studies showed that outsourcing creates more jobs in the originating country, which is just the opposite of the commonly held perception.
As the level of unemployment rises in the US, we can expect a greater emphasis on creating more jobs and retaining onshore jobs. We believe the right economic strategy is to focus on creating new jobs in the US rather than putting up protectionist measures that make US companies uncompetitive. Any protectionist measure will only provide marginal short-term benefits and weaken the long-term fundamentals of the US economy.
Moreover, the economic and quality benefits from offshoring are much more compelling than the tax incentives of retaining jobs in the US.
We would expect US companies to make decisions that allow them to become strategically competitive and improve their market position. In addition, many companies would find it difficult to wind up operations outside the US. This might result in more outsourcing of jobs to cheaper locations to make up for the losses on account of the tax breaks. As a result, the demand for outsourcing services may get a boost. However, it is too early to jump to a conclusion and clarity would emerge only if the fineprint on this policy is read and analysed.
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