Flavour of the Month: The KPO impact

CIOL.com, Pune, October 22, 2008

Everyone was dreading the R word and with major banks and financial giants in the US tasting the dust, fears turned into reality. From Merrill Lynch, Lehman Bros, Bear Sterns to AIG, the US financial sector is on a rough patch – a patch that is showing its signs on the Indian IT and ITeS Industry.  

Among other service players that are looming under the worry lines, there is the KPO breed of Indian vendors that also come under the lens of doubt. This is because a KPO is typically considered a caterer to the banking and financial part of the pie that a high-value outsourcing industry like this commands. 

While theoretically, the range of KPO services is vast enough covering a wide gamut that includes research and development, business and technical analysis, learning solutions, animation and design, business and market research, pharmaceuticals and biotechnology, medical services, writing and content development, legal services, intellectual property (IP) research, data analytics, network management, training and consultancy etc. 

However, on a practical side most of the KPO vendors and their offerings have been in the financial and accounting space. And that means the industry could be a direct injury candidate with the US financial turmoil. 

Is that a myth, or is some other reality lurking around there? 

How direct and deep is the impact on this industry, which has been posited as one that will capture more than 70 per cent of the KPO outsourcing sector by 2010 as per a report by Evalueserve? Another report by the Associated Chambers of Commerce and Industry of India pegs KPO worth $10 billion by 2012 with a growth of 25-27 per cent. 

Are the numbers still as rosy? 

There is no doubt that the financial crisis is showing its impact on KPO players, as some of them admit. Customers of KPOs are going in the slow or wait-and-watch mode, both from the financial and non-financial segment.  

With the deferring of decisions and elongated deal cycles, the impact is showing. It's hard to say how much and how long would this impact be as everyone watches and waits for the dust to settle down. 

The impact, however, would vary from short-term to long-term and from soft to hard, depending on the kind of clients a KPO serves and their individual strategies. 

It would be a big, direct, immediate and severe impact for companies serving the large bulk bank side of the deals. But not for middle multiple business model companies, as Srinivas Macha, VP, Aranca, a financial and business research KPO, tells.  

"We have from long shied away from large side of the market and focused on the middle and diversified genre. It's not just the US, UK markets but about two and half years back we have entered and served the Middle East market and have been doing well," he says. 

The hedge, which was originally triggered as an unexplored territory in view of competition in a mature market like this, is now paying off in a scenario that the whole industry is currently going through. "The weather is not as gloomy for us and our pipeline and business is seeing a good traction."  

Another KPO Major, Integreon, that operates in outsourcing market for research and analytics, legal and financial document services, legal and discovery services, and finance and accounting services, shares the same sentiment. The impact on KPO cannot be ruled out completely, but it would be a mixed one, more pronounced in some companies than others. 

Lokendra Tomar, Senior VP, Integreon shares that it would be bigger companies that will survive better than smaller KPO firms that might face difficult times.  

"Companies that have direct and dominant revenue links to BFSI clients added with client concentration on overall roster would face a more severe impact compared to companies that have a well-balanced portfolio of customers." 

The time is also opportune for a diversified vertical mix. For Aranca, for instance, that had added two more business lines to the existing ones. Its existing lines were equity and investment research and business research, which have respective contributions of about 40 per cent and 35 per cent respectively. New lines are private company valuation services and IP research.  

"The first two lines are determined by market forces while private valuation falls more on the regulatory side. IP is still in a development mode. We have just added it."  

The portfolio makes sense for a KPO like Aranca, as all lines are de-risked from the others.  

De-risking is the mantra that seems to have paid off KPOs in the present tough environment.  

For Integreon too, no single client, including the biggest one, contributes more than five per cent to revenues. That has saved it from major or direct losses.  

Dr. Ganesh Natarajan, deputy chairman and managing director of Zensar tells that he won't panic much on the KPO part of the US impact. "The story is different for outbound call centres and traditional voice-based BPOs. However, this is a time for deepening relationships."  

The scene is not all shadow; there is bright light ahead as most prefer to see it as.  

The current environment is tough as most companies are occupied with bailout and survival efforts.   

"The priorities are different now, but it would possibly stabilize in a month or two and then quickly the attention would turn to cost savings and thus outsourcing. The tremendous pressure on cost cutting would change the scenario. From just a tool, outsourcing would become pivotal and that would mean new opportunities for KPOs," says an upbeat Tomar.  

Once the environment stabilizes, overall business volume of financial giants would shrink but outsourcing as percentage of revenue is expected to go up too, he believes.  

As to the political impact of national and government-led bailout plans for US financial sector, he denies any untoward impact on outsourcing prospects to India.  

"Not so in specially a capitalist economy like the US. More so because the economic reasons for outsourcing are much stark than ever. There might be talk about the political concerns but in real world the effect won't be that negative. Stopping jobs won't happen. The pressure would be on tax incentives, at the most." Tomar explains. 

It is a trying time for KPOs no doubt but KPOs should tighten up, consolidate and look at their capabilities in a new light and sharpen up. Also as Tomar reckons, the Indian vendors would face competition from other geographies increasingly as future outsourcing would be more on a global delivery mode more inclined on an offshore, onshore combination. 

Macha's advice is simple and strong. "These are times to be weathered and to stay put.  The current crisis will lead to the next upside that will come for sure in a few quarters. That would mean more and new business as companies cut costs and thus look for outsourcing."

Big offers for IIT Madras management grads

By Bindu D. Menon, THE HINDU Business Line, Mumbai, January 15, 2008

New Delhi, Jan. 14 : The techies were always in demand from the hallowed portals of IITs. However, this year the management programme at IIT Madras is also attracting big ticket multinationals. The highest foreign offer stood at $65,000 per annum. The average domestic salary at its B-school registered a 8.9 per cent jump at Rs 8.5 lakh per annum this year as against Rs 7.8 lakh last year.

Of the 35 companies that came calling at the campus, at least 25 companies lapped up students in the first three days itself. The current batch consists of 61 students. For the second year in a row, the IITM's Department of Management Studies (DoMS) saw participation from Barclay and CSEM (UAE) among others. Last year, Bloomberg topped the list and had made salary offerings of $90,000 a year. Lehman Brothers, Fidelity, Deloitte, MarketRx, Irevna, Aranca and Firstsource were some of the key new recruiters this year. IBM, KPMG, Wipro, Infosys and MarketRx made the highest number of offers.

The offers were made in investment banking, equity research, valuation services, banking operations, business consultancy, project management, modern trade sales, operations research, supply chain management and IT advisory. "The number of offers made from the domestic market companies was 76, while four offers were made by foreign companies. The number of lateral offers stood at 22," Prof L.S. Ganesh, Head of Department (Management), IITM, told Business Line. The highest domestic salary offered was Rs 14 lakh per annum, while the median salary stood at Rs 8 lakh per annum.

Caterpillar, Schlumberger and Henkel picked up students for marketing and supply chain management profiles, while MarketRx, Hewlett Packard and Genpact chose students for roles in analytics. Several students bagged multiple offers. No particular sector or profile could be seen as dominating the placements. With the batch having a significant proportion of prior work experience, a large number of students received lateral offers from companies such as Avalon, Deloitte, Wipro, IBM, and Infosys. On an average, the number of offers per student stood at 1.48, Faculty Coordinator (Placements), DoMS at the IITM, Ms Sanghamitra Bhattacharya added

Powerful show

By Jitendra Kumar Gupta, Business Standard, Mumbai, January 14, 2008

Power utility stocks have seen good gains in recent months, further upside depends on their ability to deliver on promises.

Power utility stocks have been a hit with investors since the last few months with stocks of nearly all major companies beating the BSE Sensex by a good margin.

The outperformance comes as a surprise, considering that stocks of power utilities are typically valued on a price-to-book value basis, since they earn fixed returns and a steady or a predictable cash flow and, there has been no unusual jump in their earnings recently.

Traditionally, stocks of power utilities have been valued between 1-2 times their respective book values. In terms of costs, including fuel expenses, interest and depreciation, all of it is pass-through and are passed on to the consumers so as to ensure that power utilities earn the fixed rate of return of 14 per cent on the shareholders funds (return on equity or RoE).

What's changed?
To know the factors responsible for this up move and to know if there is still power left in these stocks, read on. Much of the action was started with the announcement of ultra mega power projects (UMPP), followed by the controversy over nuclear power in the country.

By that time, the market was convinced that the government is not only aiming for the ambitious capacity additions of 78,577 megawatt (MW) during the Five Year Plan ending 2011, but also, a large part of it is very likely to be achieved.

Their belief was further fuelled by the government's initiatives such as allocation of coal mines and allowing merchant power. The listing of Power Grid at premium valuations instilled more confidence among investors.

However, the most recent trigger in the sector, says Deepak Jasani, head of retail research, HDFC Securities, "For the last few months, there has not been any fresh trigger for the re-rating of the power utility sector apart from the hype built over the Reliance Power IPO. Re-rating of stocks in this space is happening based on relative valuations with respect to various parameters like capacity (existing and planned), book value, etc, when compared with the Reliance Power valuations."

Relative parity The forthcoming IPO of Reliance Power (RPL) has had a big rub-off on valuations. To give some numbers, based on Reliance Power's IPO price, at lower-band, of Rs 405 per share, the market is valuing the company at Rs 91,530 crore, in terms of market capitalisation. At the IPO price, its price to book-value per share works out to over 7 times.

There is nothing exceptional in the case of RPL, which justifies a premium valuation over others. Analysts say, for the six projects totaling 7,060 MW and estimated to cost Rs 31,789 crore, for which the funds are being raised in the IPO, the RoE for RPL is unlikely to be significantly higher than the usual 14 per cent. That's even after considering some upside potential in the case of the 3,960 MW Sasan-based ultra-mega power project and merchant power capacity.

Now compare this with NTPC, India's largest power producer and the sixth largest coal-based producer in the world, which currently has an installed capacity of about 28,000 MW (including about 1,000 MW through joint ventures) and a RoE of 14.9 per cent (for FY07). For NTPC, the price to book-value works out to 4.6 times.

Notably, NTPC has already undertaken various projects, which will see its capacity increase to over 50,000 MW by 2012. And by 2016, its capacity should stand increased to over 75,000 MW. Notably, NTPC's cash generation too, estimated at over Rs 10,000 crore in FY08 (and likely to grow at over 10 per cent annually), is sufficient to fund its growth plans, with little contribution from loans.

This gap in the valuations not only exists vis- -vis NTPC, but to a large extent with other players as well. So, either RPL is over valued or the other power utility stocks are under-valued. Notably, as other stocks are catching up, at this point in time, based on historical valuation methods (price to book-value), all of them appear to be over-valued.

Says Srinivas Macha, vice president, Aranca, a global investment and research service provider, "In India, there seems little justification for such rich valuations as there is very little to show by way of performance. All the issues that dog the power sector in India such as high technical and commercial losses at 50-60% -- among the highest anywhere in the world, less than 50% of realisation of all power that is generated, inept state-run utilities with poor record of recovery, populist measures such as subsidies and so on, persist." While things are improving, it's still a long way to go.

Growth story
There are other things that seem to partly support the rising valuations. For one, the power sector is now being perceived as a growth sector, especially after many power projects have started to roll. In each of the last three five-year plans viz. 1992-97, 1997-2002 and 2002-07, the average total capacity addition has been 51.33 per cent of targeted capacity.

But, in the current plan (2007-12), key plant equipment (boiler, turbines and generators) for over 60% of the planned addition of 78,577 MW has already been ordered. So, there is greater visibility in terms of what is aimed and what is likely to be achieved. These developments too are playing positively on stock valuations, as it should result in higher earnings growth for companies.

Among other key fundamental changes that are responsible for the rally in the stocks of power utilities, says Amitabh Chakraborty, president, equity, Religare Securities, "The power utility stocks have been re-rated because of huge demand-supply mismatch and increased attention from the government. Utility returns were earlier capped and linked to the bank rate. So, there were no incentives to perform. Now, there is potential to earn higher returns by setting up merchant plants. Secondly, the ultra-mega power plants provide scale of economies for new power generation companies, and gas availability has also improved. Overall, all this is good news."

Adds Krishna Kumar, fund manager and head of research, Sundaram BNP Paribas Mutual Fund, says "developments such as better fuel linkages, de-blocking of the coal mines for the private and public sector power generation companies and allowing merchant power generation, have improved the outlook of these companies."

Not to forget, India is a power deficit country, especially when it comes to the energy requirement of the country. In the light of rising GDP thus, there is a long way for power generation companies to scale up their businesses. This has also led the private players to share the growth, and their participation is seen rising.

Merchant power
The focus on merchant power, where power producers can earn higher returns compared to the traditional 14 per cent RoE, is also viewed as a key development, as it provides greater incentives to set up capacities.

With respect to merchant power, power producers can sell power at market determined prices, which in current scenario, may go up to as much as Rs 7 per unit on spot-basis, as compared with Rs 1.50-2.50 per unit, thanks to the huge demand-supply gap.

On the flip side, while the equation looks favourable now, it could change in a situation where supply exceeds demand and, buyers refuse to pay a high premium. Secondly, since the profitability will depend on market dynamics, besides, offtake commitment and timely payment by the buyer (of power), the lending community (banks, institutions, etc) too needs to be comfortable with lending to such projects.

Simply because, in case of merchant power plants, the risk will tend to be relatively higher. And due to such reasons, analysts believe that it will be difficult for any company to have an exposure of more than 15-20 per cent of their power generation portfolio, in merchant power plants.

Says an analyst, "For a company like NTPC, dedicating a 2,000 MW plant on merchant basis seems possible, as it has a strong balance sheet and equally robust profits, which can be used to service the debt, should anything go wrong. But, for a smaller company, debt servicing could become an issue in such an event."

In the best case scenario (and considering a RoE of 25 per cent for merchant power plants), the blended RoE is unlikely to go beyond 17 per cent. In short, profits are unlikely to rise significantly, purely based on this factor alone and, will hinge largely on the fresh addition to existing capacity.

Is the power run over?
While there's no doubt that these various developments are positive for the sector, the run up in share prices also suggests that the market seems to have already factored in the growth that is expected to accrue over three to five years from now.

But, there are many who continue to be bullish on the sector, Says Amitabh Chakraborty, "We are positive on the sector." While some others believe that current valuations are either fair or on the higher side, they also suggest that further moves will depend on the listing of RPL and subsequent moves.

As per analysts estimates, factoring in the future growth plans of the bigger companies, the price to book-value for NTPC works out to around 2 times, while for Tata Power its about 1.8 times and for Reliance Energy (only power business) its about 1.6. These are close to fair values as per traditional valuation methods.

To sum up, in the short-to-medium term, there is little upside, if any, left from here on. But, going forward (long run), further upsides should come based on events including companies securing new projects, companies reporting satisfactory progress with regards existing projects and the government continuing to give attention to the sector.

IIT-M management students get more visitors, pay packages

Economic Times, Mumbai, January 9, 2008

IIT Madras' (IIT-M) management programme, often sidelined in favour of the institute's popular BTech stream, is drawing attention on the placement front. Prominent finance and consulting firms debuted during the placement season this year, instilling confidence in students of IITM's six-year old management stream. "It was difficult to get companies for placements in the first few years. Our seniors have helped in getting more companies to the campus this year," a student placement co-ordinator said.

The new recruiters on campus were Lehman Brothers, Fidelity, MarketRx, Irevna equity research, Aranca, and Firstsource, seeking candidates in investment banking, business consulting and research analysis space.

Consulting, IT, and finance retained their popularity among the students. Companies such as Avalon Consulting, ICRA management Consultancy Services, KPMG, IBM, Infosys, Wipro, Citibank and Kotak Mahindra Bank represented these sectors.

On the operations side, the recruiters were Caterpillar and Schlumberger. International profiles in marketing were offered by a UAE-based company, CSEM. Totally, 25 companies were present this time, to recruit from a pool of 61 students. The average domestic salary offered stood at Rs 8.5 lakh per annum, a 9% jump from the Rs 7.8 lakh per annum last year. The highest domestic salary offered was Rs 14 lakh per annum while the average foreign salary was $65,000.

Interestingly, Lehman Brothers and Schlumberger visit the BTech stream of IIT-M also for recruitment each year. When asked if this didn't create a conflict of interest, the student co-ordinator said, "In the BTech stream, they recruit analysts and seek students with good number-crunching skills. In our case, the profiles veer towards marketing and consulting functions."

However, recruitment from prestigious business houses may have picked up in the last two years, but entrepreneurship hasn't. In the current batch, for instance, only one of the 61 students, opted to start up a venture and skipped the placement jamboree. "After my engineering, I opted to work independently and I'll do the same after management. I will start a venture in the education services space, because I believe there is a lot of scope for business there," said N Sathyanarayan.

Moving Toward Meaningful IT

Network Computing, Mumbai, December, 2007

When Nicolas Carr wrote his (in)famous piece titled 'IT Doesn't Matter' in the May 2003 edition of the Harvard Business Review (HBR), he may have put a finger on one of the most burning issues of our times. In the process, he also infuriated a lot of IT vendors. Much like other 'infrastructural technologies' such as railroads and electric power, which facilitated business growth, he argued that the ubiquity of IT, over a period of time, could decrease its value to enterprises. Yes, possibly, but does the cookie necessarily have to crumble that way?

We have seen the IT industry grow from $450 billion in 2003 to over $700 billion in 2006. In the process, it has matured considerably. Enterprises have not only increasingly adopted IT, but some smart ones have thrived due to its intelligent application. Many see IT not merely as a differentiator but also as a value creator. Across functions, IT has helped in streamlining, making processes efficient and collaborative, and bringing them all onto a single page.

However, more needs to be done Unless the right choices are made, technology adoption is fraught with dangers. Moreover, technology pieces that can be theoretically integrated on paper seldom work in the real world. CIOs, CTOs and senior management handling IT must continually and consistently walk a tight-rope in terms of balancing business requirements, adopting new technology to expand the business, and aligning all technologies in synchronization with rapidly changing business demands.

Little wonder then that 'aligning IT with business requirements' has emerged as the dominant theme of the Infrastructure Agenda 2007 survey. This is an issue that CIOs and CTOs across the globe are grappling with. Making IT available, reliable and secure on the hour, even as business demands change, and concurrently pushing the envelope bordering tech frontiers so that the business benefits, are not just functions of additional investments in technology. Rather, they constitute the strategic approach to IT that does not validate Carr's opinion but creates value. After all, over the last 10 years, most organizations across the world have doubled the amount of money they spend on IT.

Aligning IT with Business
Gartner's list of CIO priorities for 2007 confirms key findings of the Infrastructure Agenda 2007 survey. CIOs worldwide are increasingly focusing on helping their companies achieve growth while improving business processes. In some sense, this effort has moved beyond traditional strategies such as improving operational efficiency, reducing IT costs and banking on me-too strategies. While the flavor of monolithic, centralized and integrated applications is giving way to modular, decentralized, distributed and often Web-enabled computing, it is the focus on ROI that is driving IT adoption. However, in segments such as the server side, maintaining stability and running applications smoothly must gain precedence over the adoption of new technology.

CEOs would like it no other way
In a recent Conference Board report, 'CEO Challenge 2007: Top 10 Challenges,' nearly 42 percent of the CEOs who were surveyed indicated that they are staying focused on execution. They expect their CIOs to do the same. The fact that 'Aligning IT with business' dropped to 18th place from 13th place last year clearly points to the emphasis on execution of strategy rather than its creation. Technology did not even figure in the top 10 list. So does this mean that CEOs do not care much about the technology and alignment bit?

According to research, about 40 percent of CIOs report directly to their CEOs. This implies that roughly 60 percent report to people not spearheading strategy and execution (like CFOs, for instance). Companies where CEOs and CIOs work together have performed well in comparison to those where CIOs are managed or influenced by the CFOs. Clearly, the case for CEOs and CIOs to work more closely is strong, not just from the perspective of aligning IT with business but also gaining an edge in the marketplace while keeping a lid on IT costs.

The Alignment Paradox
The flipside to the theory of 'aligning IT with business' is the inflexibility that sets in after a rigorous round of alignment. When enterprises align their IT with strategy, they risk locking themselves into a particular way of doing business. This rigidity makes it difficult for companies to stay agile. According to Paul Tallon, a professor at Boston College who coined the phrase "alignment paradox," nearly 70 percent of companies reduce costs or improve sales after increasing strategic alignment. However, Tallon's research also showed that 30 percent of companies saw no improvement. Some, in fact, actually recorded declines. This was more pronounced in fast-paced verticals such as electronics, pharma and financial services, where IT flexibility is vital for survival.

Does this put a question mark on almost everything the illustrious CIOs said to us during our Infrastructure Agenda survey? Far from it. The fact that IT must work for and with business is a given. Alignment, and indeed, any new technology adoption, must never come in the way of flexibility and thus endanger the business. Keeping options open yet meeting business demands may perhaps be the most important and yet hidden challenge faced by CIOs today.

Moving To Meaningful IT
While strategic IT may have moved the agenda at corporate budget meetings, perhaps it is time to think of 'meaningful IT' to make things happen at the ground level. Combining sensible IT investments in a componentized application architecture with a framework that facilitates reusability of logic, business continuity, collaboration, unified communication and technologies extracting more from existing investments is likely to be the order of the day in 2008 and beyond. Some of the tools that make this possible have been available for a while now. Some are beginning to appear on the horizon.

Several tools have passed the acid test of proving themselves in the real world. Business continuity and disaster management have emerged as the fundamental barriers to strategic IT planning. The same is true for collaboration that gets people, teams and groups on a single page by providing a seamless, uniform and real-time view of matters. Unified communications, having pushed the envelope a little further from 'convergence,' has emerged as a driving force in many companies that are widespread and keen on reducing communications costs.

While the integration of discrete applications through Enterprise Application Integration tools has had its share of problems, newer concepts such as service-oriented architecture promise to solve that issue on a fundamental level. Virtualization is yet to acquire wide acceptability in server rooms or data centers, especially for mission-critical applications. The lure of milking the existing hardware some more, and cutting costs significantly, is an attractive proposition. The outsourcing of low-complexity, end-user-focused support services has been another important business strategy to save costs while rapidly mobilizing or rolling out services and standardizing operations. Facility management services are set to grow. The possibility of outsourcing some core functions of network management and application management are also being investigated seriously. In fact, many companies are even considering a combination of Software as a Service and managed services as a means to a rapid rollout with little or no capital expenditure.

In Sync with the World
The fact that the strategies mentioned above resonate among Indian CIOs just as they do with their counterparts worldwide indicates just how mature Indian companies have become. Several leading Indian companies have deployed cutting-edge technologies to support their planning, operations, delivery, customer support and MIS. While a lot more needs to be done, it is clear that Indian companies have considerably moved out of their 'EDP department' mentality and into proactive IT planning and use. The Infrastructure Agenda 2007 survey reflects this and more. People are not letting their past experiences of failed IT initiatives get in the way of moving ahead with newer concepts. The thought of putting company data on third-party servers is not a deterrent any longer, nor is the concept of outsourcing the management of in-house servers, networks and applications.

IT Does Matter
The staff of HBR voted 'IT Doesn't Matter' as the best article to appear in the magazine in 2003. However, in hindsight, it appears that the exercise was aimed at provoking a serious debate, if only on a flawed premise, rather than making a contribution to the body of knowledge. If Carr had imagined IT to always trail business strategy, be reactive and merely enable automating routine matters, then he is probably justified. That way, IT can only get increasingly commoditized. However, four years after the article was published, the world has changed greatly. IT has emerged as a fundamental building-block for companies and a potent tool to differentiate, compete, deliver and exceed expectations. It is also heartening that Indian CIOs view IT the same way, given that India is at the cusp of becoming a globalized economy.

Sawaal jawaab aur Sa Re Ga Ma

By Kasmin Fernandes, Mid-Day, September 4, 2007

At business and research services provider firm, Aranca, one day you could be a Sa Re Ga Ma Pa contestant, a fairtytale writer, the next. Fun@work drops in to meet all employees and their alter egos.

Kaun Banega Crorepati is passé. If you want to do a quiz, make it "Aranca style". That's what the young team at the business and research services firm calls its weekly quizzing session, which involves sawaal jawaab, naach gaana, chocolates and even a kahaani mein twist!


On any one Monday afternoon of the month, every employee halts work to indulge in snacks and quizzing sessions, where the questions range from, "Who was the star of Page 3?" to "How many 9s between 1 and 100?"

To bag a chocolate, every winner has to break into a jig or sing like a Sa Re Ga Ma contestant, and add the next line of the quirky Mary Had a Little Lamb story their colleagues have created. So, at the end of the session, the story reads like a crazy Alice in Disneyland tale.

Saathi haath badhana
Each employee's handprint is stamped on this massive collage, in no particular order. "Besides the obvious visual appeal, this painting also symbolises the team spirit everyone is encouraged to cultivate," says Srinivas. Research Associate Aarti Krishnan joined just three months ago, and already knows each of the 160 people here, on a first-name basis.

"I came from a marketing background, and had no experience in finance, but my colleagues were supportive. I now have a fairly decent knowledge of private equity investments and am confident of talking numbers to any client," says the 26-year-old research associate, who also doubled up as quiz master this week.

Special b’day bumps by Secret Santas
It's not just on your birthday that you will get "Aranca-style" birthday bumps - refers to kicking the person. Someone's marriage and engagement are equally bump-worthy occasions. In fact, the person who is kicking you could well be your Secret Santa. It's a Christmas ritual involving a group of people exchanging anonymous gifts.

Participants' names are placed in a hat, and each person draws a name for whom they are to buy a gift. Presents are then exchanged anonymously, so no one knows who their Secret Santa really is.

Manoranjan committee ensures you let your hair down
The HR team blends in with the research analysts and project managers. Unlike at other research firms, there is no room for a stand-offish attitude here, which makes organising events and parties a united experience.

"People from all departments get involved with the Manoranjan Committee, which organises fun activities, before any event. That's why our in-house office parties turn out so much fun.

They are not just ice breakers, but help dispel rumours and pass on company information to all staffers," says project manager, Ashutosh Deshpande. Food and booze flow freely, as employees indulge in banana eating and biscuit smashing competitions at fresher, farewell and quarterly parties.

(Story courtesy: Mid-Day, September 4, 2007)

More UK Service Jobs 'Set to go to India'

BBC News, June 7, 2006

From movie making to information technology, no-one can take their job for granted these days.

That's because India's army of skilled workers is taking on work for British companies, while the country's colleges are producing 2.5 million graduates every year. The business outsourcing phenomenon was examined by Deloitte's director of research Chris Gentle in 2003.

The offshoring of manufacturing jobs to China was well documented - less so the transfer of service work to India. Mr Gentle predicted then that hundreds of thousands of service jobs in the UK would be affected. He has updated his forecast for the BBC, suggesting that another 150,000 will be affected between now and 2010. The majority of those will be outsourced to India.

'International competition'
"There is increasing eradication of people and paper in service industries," Mr Gentle says. "Service industries are now exposed to the full forces of international competition and globalisation. Anything that goes down a wire is up for grabs."

A company based near Delhi, NIIT Smartserve, confirms that outsourcing has moved well beyond call centres. It has a deal to work with British financial advisers. Accredited by the UK's financial watchdog - the Financial Services Authority - workers ensure advisers thousands of miles away are giving their clients the best possible guidance when it comes to pensions, life insurance and mortgages. S Viswanathan, NIIT Smartserve's chief operating officer, says increasingly sophisticated functions are being taken on. "When offshoring started, most work was recognised as voice-based," he says. "Today companies are looking more at work requiring processing and managing data, for example financial accounting."

Lower costs
Aranca, based in Mumbai, employs scores of graduates, many with MBAs. They produce research for investment banks, brokers and other businesses in the UK. "Because of the internet and low cost phone calls, its possible to get the same information in India as sitting in a UK office. It's a more cost effective location," says chief executive Hemendra Aran.

One of his customers is the UK technology investor Amadeus Capital. "Ten years ago we would always have used local researchers, now we always go offshore. The world is a village," says the firm's director, Richard Anton.

European challenge
Mark Kobayashi-Hillary is an expert on international business and author of "Outsourcing to India". He believes that this trend is a challenge to European workers, but not necessarily a threat. "You have to remember that not every job can be sent offshore - many types of service jobs need to be delivered locally," he says.

But he acknowledges that even a small percentage of jobs being offshored is still a lot. And there is the rub. Deloitte's predicted total for offshored work doesn't sound much against a UK workforce of nearly 29 million. But it will mean big questions for the careers of at least 150,000 skilled office workers.

Indian BPO Firms Opening Offices Outside Country

MoneyControl.com, May 24, 2006

The Indian outsourcing story is taking an innovative turn. Businesses are looking to open offices in multiple offshore locations to synergise operations. CNBC-TV18 reports that the low cost advantage is no longer India's only USP.

For three years, Aranca has been providing investment, business and economic research services to over 70 clients in the UK, US, Australia and Asia. But with increasing global interest in the Asian markets, they decided the best way to study the businesses in South East Asia was to be there.

Madhusudan Rajagopalan, Head- India Operations, Aranca says, "We've been trying to tap the Asian markets for quite some time. And Manila being situated in that time zone, with that sort of location, helps us tap into the local markets as well as the Asia-Pacific markets. So it will serve both as a business development office, as well as an operations delivering office."

Aranca is the first international firm so far, to begin research operations in Phillipines, branded as a low cost call centre destination. Manila based analysts like Alexander Gilles can hardly hide their excitement.

"I think it's about time, I have been waiting for this opportunity for five-six years. I knew it was going to happen, it was just a question of when, all the forces were coming into play and we just wanted to find out who was the best player, who could access the market and has a smooth running operation that we could observe and watch and join," says Gilles.

Job for Indians, jobs for Phillipinos and a sharper work profile. Chapter one of the Indian outsourcing story just got revamped.

research@india.com

K Yatish Rajawat The Economic Times, April 4, 2006

THE growing number of captive centres (or financial research being set up by global investment banking firms, combined with independent BPO firms providing this service, is creating a momentum for India-based global research outfits. JP Morgan. Morgan Stanley, Salomon Smith Barney, ABN Amro, HSBC and Lehman Brothers have set up captive units in India for financial research. Several large Indian BPO firms, including Prog-eon, ICIC1 OneSource and Gen-pact, also carry out financial research.

Smaller firms like Aranca and Integreon also offer number crunching and financial analysis to global investment banks. All of them are promoting their own brands in the global research market to compete against the global brands of US investment banks. The reason why Indian BPO brands are strongly impacting the financial research and analysis (FRA) industry is because of the way the industry is evolving in India. FRA is moving so fast offshore that a critical mass lor this industry segment seems possible, more than for any other BPO vertical. The rapid growth of the FRA business in India can be attributed to the desegregation of the equity research industry in the US from investment banking.

After New York district attorney Eliot Spitzer asked investment banks to delink research from investment banking, the former is no longer profitable on its own. Consequently, US investment banks have moved offshore to India to cut down costs and retain profitability. There has also been an exodus of US analysts from investment banks to the 'buy' side of funds or boutique research firms. These boutique firms in the US also outsource some of their low-end work to independent BPO firms in India.

SEC Hurdles May Restrict Growth of Branded Research

K Yatish Rajawat, The Economic Times, April 4, 2006

Financial research is fast becoming a big business for BPOs of global investment banks as well as independent centres in India. These centres have hundreds of analysts working in the Financial Research and Analysis area. HSBC. Morgan Stanley, Lehman Brothers and JP Morgan have some of the largest centres in India. These captives, combined with third-party service providers, are tilting the knowledge balance in favour of India - and within India, Mumbai, to some extent.

An indication of the talent pool for FRA can be assessed from the 50,000 students who appear for ICAI final exams every year. The talent pool in India for the FRA industry is comparable to the total analyst pool in US and therefore, the growth potential is huge. Industry observers say that like Detroit came to be the car capital of the world and Hamamat-su in Japan replaced it, Mumbai seems to be emerging as the hub for the global FRA industry. As of now, between 3,000 and 5,000 people are employed in the FRA industry.

The total number of staff is much more, but this includes support staff for IT and other functions. A wide range of activities, including editing, basic data modelling and data management work, is also undertaken. For instance, Thompson Analytics, Capital IQ, Lexis-Nexis and Reuters are all global providers of financial data products and have a sizeable back-office presence in India.

Genpact officials say: "Given the international exposure, the quality of resources and the experience of working in an off-shoring environment, a few of the large KPO companies are well poised to take their service to the next level, that is, branded financial research for global investors. These companies have proved their ability to provide high quality financial research over the past 5-6 years, and now need to quickly mature in terms of offering independent branded research."

Some of the back-end research outfits are already developing capabilities that are, in some instances, ahead of their US counterparts. For instance, ABN Amro's research centre in Mumbai already has more analysts capable of certifying other analysts' work as fair, transparent and in line with the jurisprudence required under the new guidelines for analysts in the US. Small firms like Aranca are already doing what they call "white label" or private label branding for some research. But there are some bottlenecks to branded research by Indian BPO firms. US regulatory body Securities and Exchange Commission restricts the distribution of stock recommendations to US-based and registered firms. There are other issues that prevent a completely offshore research model. US securities laws and practice guides (including compliance guidelines) have made it cumbersome to rely on recommendations issued by foreign analysts. However, these regulations do not apply to other segments like fundamental or industry research or research sold to hedge funds. Unless the SEC relaxes its rules related to disclosure of analyst names, there could be regulatory hurdles in getting the entire research done offshore, BPO firms say. But there are opportunities in UK, Europe, and areas like the hedge fund industry and industrial research.

ICICI OneSource acquired Pipal Research to develop an FRA practice. Ananda Mukherji, CEO of ICICI OneSource, says: "We feel that this industry has to move to a productised model, where the brand will be very important. We have started exploring co-branding opportunity with some of our customers." Pipal Research has also launched a product called Pipal Answers where analysts, individuals and institutional investors can pose queries.

Currently, offshored financial research in India involves only secondary data. If a full buy or sell recommendation has to be made, then the analyst is expected to visit the company, check channel, do retail audits and meet company management. These tasks cannot be done without the physical presence of analysts in the US. Therefore, a mix of senior analysts based in the US supported by plenty of associates in low-cost countries, is a more workable model, say BPO officials.

While the SEC restriction is there, alternative models of distribution are available through the internet. Subscribers can be given access to research data with or without buy or sell recommendations or fundamental research, which helps them make an investment decision. The flow of work to India is expected to raise the overall quality and capability of Indian analysts, while creating a critical number of trained analysts, industry observers say. Shiva Badruswamy of Aranca, says: "We are creating a whole new breed of world-class financial research analysts, the likes of which India-based talent hasn't seen before. For example, analysts directly covering global stocks from a remote location, speaking with fund managers on investment decisions."

Independent research firms like Zacks are also leveraging India. Zacks is an aggregator for information and analysis and provides it to individual and institutional investors. It has set up a captive unit in Kolkata. Its distribution model is internet-dependent and more scaleable than traditional investment bankers. Companies are working on evolving their brand in the long term. Prashant Chawla, CEO, Integreon, says: "Since it is strategically lucrative and differentiating, it is being considered in the long run. So yes, it is quite likely we will have a brand, but not for 12-18 months. That's a model we see ourselves evolve into."

Australia Missing Out on Services Boom

Emma Connors with Mark Jones, Australian Financial Review, February 28, 2006

When Shiva Badruswamy made his whistlestop tour of South-East Asia earlier this month, Australia was not on his itinerary. The head of US operations at three- year-old Indian services firm Aranca was in Manila, deciding where his company would set up a new delivery centre for clients.

Aranca supplies business and economic research services to international investment banks, stockbrokers, independent research providers, private equity funds and stock exchanges - including Nasdaq - in the US and Europe.

Its new delivery centre will be in either the Philippines, Sri Lanka or the United Arab Emirates. Australia is not in the running.

Despite Australia being a major player in international finance, when it comes to the "third wave" of outsourcing, the country is missing out on a slice of an emerging multibillion-dollar services industry.

First was information technology, then straightforward business processes. Now high-end analytical services are being sourced offshore by major companies.

"When our US clients look offshore, they look first to India. No one questions that. Australian equity research people may be 40 per cent cheaper than they are in London, but if they are only 20 to 30 per cent [cheaper] than the US, there would be a push back from our clients, wondering if offshoring to Australia was really worth the pain," Mr Badruswamy said.

Last year, demand from the global finance industry for these services generated $1 billion of business. By 2010, 130,000 full-time employees are expected to power a $US12 billion ($16.2 billion) industry, according to estimates from Baring Private Equity, Gartner and India's National Association of Software and Service Companies.

The Manila visit will cost Mr Badruswamy little more than an airfare and his time. The Philippines government will take care of his other expenses. After all, when you are pioneering an industry tipped to boom, governments come knocking.

"There is a lot more awareness about India and China than there was two years ago. That has caused heartbeats to skip in governments around the world," he said.

"The Philippines government is worried that India has become the preferred destination for financial services jobs. Sri Lanka is betting heavily on its position - Colombo has one of the greatest concentrations of chartered accountants in the world - and the United Arab Emirates is also making a play, as well as many Eastern European countries. They are all saying, 'Let's work with you'. We also have a request from the Mexican government who want us to take a look at their side of the fence."

These countries are tracking a trend that began with giants like JPMorgan. In 2003, the global investment bank established a centre in Mumbai that is an extension of its global research team and provides equity, credit and economics research to its operations around the world.

Now companies including MorningStar have taken the next step by buying research services from offshore companies.

India is on the ground floor of this new wave of outsourcing, and many other nations are queuing up for business, including Australia.

Victoria's Minister for Information and Communication Technology, Marsha Thomson, acknowledged Australia would not win on costs alone. But she believed a combination of cultural and economic advantages would be enough of a lure.

"We look at all those higher level, higher technical areas as potential areas for us to be an outsourcing point. There is apparently a uniqueness in the Australian way of thinking that makes us an ideal place for those more complex solutions and complex work. That's the story I get from the big multinationals, that's what comes back to us."

Due to increased demand for highly qualified staff in India, wages were rising there.

"Compared to a US, UK, or European pricing regime, we're not looking too bad. If you look at all costs, and the reliability of our services, we stand up pretty well," Ms Thomson said.

But this glowing endorsement of Australia is not shared by companies making decisions about where to extend operations.

While they are not hostile to the idea of doing more than simply selling services to Australian clients, they have yet to consider how the country ranks against others competing for a slice of this new knowledge industry.

Marc Vollenweider is chief executive and co-founder of Evaluserve, another Indian-based company that specialises in providing expert knowledge services. The company has a sales operation in Australia, but its delivery centres are in the Indian city of Grugaon and in Shanghai, China. Evaluserve would open new centres next financial year but they were unlikely to be in Australia, Mr Vollenweider said.

"To date, we have not considered Australia because English could be taken care of in India [and India was the point of origin anyway]. Our second base in Shanghai added a new time zone and several new languages simultaneously, and Australian costs were significantly higher than costs both in India and China.

"Being a young company with limited resources, we had to set clear priorities. Clearly, logistics to and from Australia did not help either in this decision," he said.

The company is still interested in the long term, thanks to Australia's educated workforce.

But the NSW government believes it is now well placed, arguing Sydney in particular has a strong skills base, a mature services economy, and experience with leading-edge financial products.

In fact, there is a view that India's emerging financial services industry will look to NSW in particular for industry expertise as it seeks to move up the outsourcing value chain.

Sri Annaswamy is a Sydney-based consultant who helped compile a report on analytics offshoring for Invest Australia. He said Australia had a good story to sell but warned there was plenty of competition.

"Given the intensity of the current skill-set crisis experienced by many in India, there is opportunity for NSW, Queensland and Victoria in particular to develop global service hubs.

"However, these companies have invested significant resources in identifying and developing alternative destinations including South Africa, Eastern Europe, Ireland and China, so Australian states cannot afford to be complacent."

Tata Consultancy Services (TCS) also expects to be deciding where to locate new centres of excellence as the knowledge process outsourcing (KPO) market develops.

So far, Australia has been good to TCS. The company has won some information technology work from companies such as Woolworths and Hutchinson. About 900 staff work for the firm's Australian customers, including 350 in Australia. TCS employs about 100 Australian nationals in its development centres in Melbourne and Sydney and expects to take on more staff as its business evolves.

TCS executive vice-president N. Chandrasekaran runs global operations and sales, and thinks Australia has a chance to shine in the next wave of outsourcing.

"We currently have development centres in India, China, Latin America and Australia. As the KPO market expands, we will look to set up specialised centres. Australia has the potential - you have good skill sets here - but we still have to see how the market develops. It's early days yet."

Caterpillar, Schlumberger and Henkel picked up students for marketing and supply chain management profiles, while MarketRx, Hewlett Packard and Genpact chose students for roles in analytics. Several students bagged multiple offers. No particular sector or profile could be seen as dominating the placements. With the batch having a significant proportion of prior work experience, a large number of students received lateral offers from companies such as Avalon, Deloitte, Wipro, IBM, and Infosys. On an average, the number of offers per student stood at 1.48, Faculty Coordinator (Placements), DoMS at the IITM, Ms Sanghamitra Bhattacharya added

FIIs to Invest $520 mn in Bourses Soon

PTI, Tuesday, February 19, 2006

The liquidity-driven rally of the Indian stock markets shows no signs of a halt in the near future with funds to the tune of $520 million soon expected to hit the markets, according to brokers.

Fund houses from Korea are expected to pump in $500 million and hedge funds in the US and Europe also have plans to put in funds to the tune of $20 million. "Many fund houses in Korea have collected India-specific funds worth $500 million that may come in at any time," a broker told PTI.

Though the brokers declined to name the funds, they said, US-based Tapestry Asset Management, Swiss-based GL Asset Management and Korea-based Mirae Asset Investment Management are some of the names buzzing in the market.

Funds prefer India over its cheaply valued peers despite worries of stretched valuations because of the wholesome development it has shown. "Give me a sector that is not performing well in India. Why would funds then invest in other sector-dependent markets," Indian operations director, Aranca, Madhusudan Rajagopalan said.

BPOs Visiting Biz Schools for Talent

By Chhavi Dang, TIMES NEWS NETWORK, Tuesday, February 14, 2006

A dearth of skilled professionals has forced BPOs to look for other avenues to acquire talent, one of them being campuses. For years, corporates and banks have been visiting campuses to recruit students for various operations, but BPOs have emerged as new visitors on the block.

BPOs like Genpact, Accenture and vCustomer are visiting campuses of top B-schools and recruiting management professionals for high-end work like analytics, research and legal processes. Also, niche BPOs like Hurix Technologies and Aranca, a Mumbai-based BPO specialising in financial research, have started visiting campuses of top-notch B-schools.

Piyush Mehta, senior VP-HR, Genpact, says that they recruit freshers for high-end jobs like F&A and analytics. This year, Genpact has recruited around 45-50 students and they plan to recruit 50 more before the recruitment season ends. Genpact has visited the Delhi School of Economics, FMS, IISc, XLRI and IIMs. The organisation has also hired students from Columbia University and Ivy League.

Hurix Technologies, a Mumbai-based publishing outsourcing and e-learning company, hires engineers for technical writing, literature students for creative writing and graphic designers for visual creation. Anand Lunia, executive VP-operations, says that the e-learning industry provides faster growth opportunities than any other industry. Hurix visits Presidency College, Women's Christian College and Loyola in Chennai, besides Sophia College, XLRI, Symbiosis and IIMs.

Similarly, Aranca visits campuses like ICFAI and SP Jain, besides the usual IIMs. They have also recruited students from Mumbai and Pune universities. "We have recruited nearly 5-10 students from each of ICFAI campuses (Delhi, Mumbai and Hyderabad)," says Madhusudan Rajagopalan, head operations - India, Aranca. Pune-based vCustomer visits ISB, Hyderabad to hire students, but prefers those with prior experience for jobs like insurance, claims processing and back office operations.

The advantage of hiring students from the campuses, says Mr Mehta, is that they are equipped with theoretical knowledge and know their job, so there is no need to put them through long training hours, which helps the company save cost, besides acquiring qualified professionals. Genpact is hiring 1,000 people per month on an average, of which 100-150 are picked up from the campuses.

"Campus hiring has become critical for us, and we have very aggressive campus recruitment plans," he adds. The real challenge for BPOs is paying higher salaries. Corporates offer high salary packages which BPOs can't match. An entry-level employee without any experience can expect to be paid Rs 5,50,000 per annum, plus the joining bonus of Rs 1,50,000, while a candidate with 1-2 years experience will be paid Rs 8 lakh per annum plus joining bonus.

In the e-learning segment, management graduates start from Rs 3-6 lakh per annum while literature graduates are offered Rs 1,50,000 at the entry-level' in the second year, the salary jumps by Rs 1 lakh. However, Madan Srinivasan, head-business development, vCustomer, says: "BPOs are offering packages at par with the corporates if not better." The attrition rate in the e-learning segment is as high as 30-40%. At BPOs, which handle high-end work, it is 25%, and at KPOs like Aranca, it is less than 10%.

Mum's the Word on Outsourcing Research to Mumbai

 By Tom Groenfeldt in eFinancialCareers.com


eFinancialCareers.com, Tuesday, October 5, 2004

"Research firm Aranca, based in New York, has 40 analysts working in Mumbai, two in the U.S. and two in London, says Shiva Badruswamy, head of U.S. operations. 'Banks that were in the lawsuit settlement with Spitzer are looking to outsource research; they have dropped a lot of coverage, but they still have to provide research, especially on corporations that are customers.'

At the same time, pressure on soft-dollar arrangements and corporate government regulations like Sarbanes-Oxley require banks to find ways to produce quality research economically. Badruswamy says, 'A company like us that can provide high quality levels and economies of scale is appealing to them."