Cognizant Technology Solutions (Nasdaq: CTSH) is bullish on the growth potential in non-traditional sectors – such as Pharmaceuticals, Healthcare, Media and Entertainment. With high BFSI exposure and the potential volatility, the company is keen to diversify. Cognizant recently bought over MarketRx, an analytics and related solutions provider to global life sciences companies, which adds to its knowledge services capabilities in pharma and biotech.

Diversification strategies
The need for diversification has been felt in the industry for at least two years now – with the business becoming more and more mature and competitive. The sub-prime crisis has further mandated moving away from the US-focused BFSI business. BPO companies in general have been opting to diversify both in terms of geography, especially targeting non-US business, and simultaneously in terms of the number of industries / verticals serviced. For the former, greater investment in marketing, offices across the Europe, Asia Pacific, Latin America, adding language capabilities, etc. have been some of the strategies deployed.

In the case of service line expansions, companies are evaluating existing strengths and looking to leverage their capabilities. EXL Service, which had more than 50 percent of its revenue from BFSI has expanded into healthcare, media and utilities sectors. TCS, which is developing a leadership position in the pharma R&D and clinical trials space has recently signed a deal with Swiss company Roche to provide drug safety reports, biostatistics, clinical data management and clinical programming. TCS will perform data related work that goes into the process of clinical trials. Genpact and Infosys too have created partnerships with media companies to tap media offshoring business. Wipro started an animation and gaming practice.

Building Capabilities
The popular verticals for diversification are healthcare, life sciences, media and entertainment and utilities, industries that are rapidly embracing offshoring. Even in these verticals, while back-office functions such as human resources, finance and accounting have been offshored, higher value adding or knowledge-based services such as editorial offshoring, clinical trials, data management, revenue cycle management, etc are the next high growth areas.

With the entry into new sectors, companies get access to a fresh resource pool, where manpower shortages and attrition are not so pronounced compared with that in the BFSI and telecom domains. Competition, too, is not so intense at the moment and allows room for growth and differentiation. It also allows companies to gradually develop the range and complexity of services and build domain knowledge, as offshoring maturity grows.

Besides organic growth, companies are aggressively buying out specialized players with the required domain expertise to improve the depth of offerings. Patni Computers acquired New Jersey based consulting company, Taratec Development, serving the life sciences industry this year. Taratec provides regulatory compliance, integrated business and IT products and services. Cognizant’s buy-out of KPO player MarketRx and Firstsource’s acquisition of US-based healthcare BPO MedAssist, are other examples.

Going Forward
Newer avenues and services evolution will keep driving growth in the Indian BPO industry, as older, more mature areas start to show stagnation over time. Already, there is evidence of some of the lower cost work in call centers and BFSI shifting to other destinations, while India moves on to higher value-adding work and knowledge services, requiring a different set of capabilities.

ValueNotes Outsourcing Watch: Insights for Investors is a unique news and analysis service from the ValueNotes Outsourcing Practice, focused entirely on outsourcing; This weekly publication analyses events in outsourcing, outsourcing companies, trends in the sector, impact of global competition from offshoring to established US companies, and emerging investment opportunities.

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