'Pure' outsourcing model falls from favor

BANGALORE, INDIA -- The purely offshore outsourcing model is out of favor, and Indian business process outsourcing (BPO) companies are finding that they need U.S. facilities and staff to run operations for their American clients.

ICICI OneSource Ltd., a Mumbai-based BPO company, for example, announced Thursday that it acquired Account Solutions Group LLC (ASG), an Amherst, New York-based consumer collections agency with 500 employees. ICICI did not disclose the purchase price.

The acquisition of ASG gives ICICI the ability to offer its customers collections services, in addition to other related services such as customer acquisition and billing that it already offers from India, according to Ananda Mukerji, ICICI's chief executive officer. ICICI also gains access to ASG's client base, and it plans to cross-sell its other services to them.

ICICI's acquisition highlights a growing trend by Indian BPO companies of establishing U.S., U.K. Canada operations by acquiring companies in those countries.

Hinduja TMT Ltd. (HTMT), a Bangalore-based BPO company, announced earlier this month that it signed an agreement to acquire Source One Communications Inc., a BPO company in New York, in an all cash deal. Source One Communications currently operates 500 call center seats in the U.S., Canada and the Philippines. 24/7 Customer, another BPO company based in Bangalore, is setting up operations in Canada to address its U.S. customers.

An onshore presence is the next logical step for Indian BPO companies that have a strong offshore supply base in India, according to Ravindra Datar, principal analyst for IT services and BPO at Mumbai-based Gartner India Research and Advisory Services Pvt. Ltd., a wholly owned subsidiary of Gartner Inc. in Stamford, Connecticut.

Indian BPO companies are acquiring companies in the U.S. and other locations with several objectives, according to Datar. These include access to a new market beyond just a toe-hold, with ready resources, clients and revenues, he said. Datar also added reasons such as access to a new set of skills or domain and process expertise in the target market, access to a new technology or intellectual property and also greater credibility with target clients, by having a strong local presence beyond just a sales office.

Going forward, outsourcers must provide a blend of onshore and offshore delivery of BPO services to their customers, according to Mukerji.

"Users are looking at blended delivery from both ends," he said. "U.S. companies that were outsourcing in the U.S. now want to take advantage of the lower cost of offshore services, while companies that have outsourced offshore may want to keep some processes onshore in the U.S."

Having Indian and U.S. operations gives ICICI the flexibility to offer the customer what they require, Mukerji added.

As the ICICI starts offering U.S.-based services to its U.S. customers, it also plans to increase the staff at ASG. India, however, where ICICI employs 4,300 people, will continue to serve as the company's key location, according to Mukerji.