| Research and Analytics offshoring – gathering steam |
| Written by The ValueNotes Team | |
| Tuesday, 06 November 2007 | |
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Cognizant (Nasdaq:CTHS) recently acquired marketRx, a niche firm that caters to specific market analysis needs of pharmaceutical and life science companies, for US$135 million. The rich product portfolio of marketRx will help Cognizant to widen its scope of services to the life sciences industry and strengthen its analytics unit. India – leading from the front Offshoring of research and analytics (R&A) is an emerging service area that has picked up steam over the last two to three years. The outsourcing industry in India, which is transitioning from business processes to knowledge services, is the leading destination for offshore R&A. The current market size for R&A offshoring to India is estimated at over US$400 million and is estimated to cross US$1 billion by 2010. The vendors in this space include large BPO vendors, upcoming KPO vendors and also pure play R&A firms. Most of the large BPOs such as Genpact, WNS, Infosys BPO, etc. already handle some research and analytics work aside from the regular business process outsourcing projects. These firms are looking to grow their R&A business both organically and inorganically. Cognizant’s acquisition of marketRx follows EXL Service’s acquisition of Inductis and the acquisition of Marketics by WNS. Some others like Genpact, Infosys BPO and Wipro BPO are building on their existing capabilities in research and analytics. The value-addition The high level of interest and the rising M&A activity further reflects the eagerness of larger BPOs to quickly complement/enhance specialist capabilities, and thereby adds high value services to their offerings. There are various factors driving BPOs to include R&A expertise: 1) Widening the services net: Large buyers typically have the need to outsource research and analytics services. For instance, the largest banks and financial institutions are amongst the biggest consumers of research and analytics. Many of these buyers are increasingly looking to engage with suppliers that can provide end-to-end services. Thus, BPO companies are finding merit in acquiring the capabilities to offer a broader spectrum of services. 2) Adding higher-end, specialized services: Depending on the type and level of expertise required for a service, billing rates in R&A offshoring range from US$20 to US$100 per hour. Large BPOs are looking to offer an array of services in a bid to de-risk themselves from low-priced, commodity businesses and improve margins. 3) Leveraging existing client relationships: Large BPOs have built strong relationships with corporates and have invested significantly and strategically in these relationships. Armed with more and higher-end service offerings, they can leverage these relationships to cross-sell products and reduce marketing expenses. 4) Leverage Analytics/Consulting Services to open up new business areas: Inductis was attractive to EXL because they engaged with similar clients, but provided a front-end consulting service. Many large BPOs believe that analytics capabilities will provide them the much-needed differentiator in terms of ability to analyze and provide a solution - and this could be across verticals. Going Forward Most BPO vendors started by focusing on the lower-value but higher-volume jobs within knowledge services. This way they were also able to build scale initially. Simultaneously they are focusing on building skill – intensive capabilities towards more complex knowledge services work (high margin, but typically of smaller value per project) to complete their portfolio of offerings. In the race to acquire capabilities and satisfy clients, more inorganic growth moves by ambitious BPO vendors are likely in the future – more so as some of the specialized KPOs reach a scale that makes buying them attractive. 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. No responsibility is accepted for errors of fact or opinion. Neither the analyst nor ValueNotes has a position in the stocks covered above, or has received any payment in any form for this report. ValueNotes does not own or trade in the stocks of companies under coverage. ValueNotes does not provide investment banking services or investor relations' services to preserve the independence of its research. Neither ValueNotes nor the analyst incurs any liability arising out of use of the above information/ report. Reproduction in whole or in part without written permission is prohibited. ValueNotes Outsourcing Watch articles are distributed through FinancialWire, an independent, proprietary news service of Investrend Information, www.investrend.com |
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