Changing dynamics of the Indian outsourcing Industry

Thursday, 17 July 2008

The business relationship between WNS Holdings Ltd. (NYSE:WNS) and Aviva Global Services evolved further as WNS purchased the business process offshoring company of insurance group Aviva. The deal was valued at US$ 228 million. WNS estimates earnings from this deal at US$ 1 billion over the next eight years. About a year and half ago, the BOT (Build-Operate-Transfer) agreement reached its concluding phase and Aviva took over its captives from EXL and WNS. This deal was the largest and among the first BOT agreements that was successfully transferred.

What’s in it for Aviva?
The deal resulted in WNS taking over the Aviva facilities in Pune, Bangalore, Chennai and Colombo (Sri Lanka). The agreement also has a clause of master services contract with WNS where the service provider will provide Aviva with offshoring services over the next eight years and four months. The businesses in UK, Ireland and Canada will receive services from WNS during the period. Some benefits that are expected to accrue out of the deal for Aviva are:

WNS completely understands the working culture and requirements of Aviva and the learning curve will be much shorter if at all needed
Improves scalability of offshore operations as WNS is already a well established service provider
Ability to build up further on an existing relationship with WNS
Hedging against inflation and exchange rate changes
With the master service contract, Aviva does not have to deal with multiple vendors
Reduced center management costs
Can avail of the benefits of third party offshoring such as cutting down on fixed costs and other issues such as attrition, training, etc.

With Aviva cutting down on its operations in India and still maintaining its presence, it is hoping for a win-win solution.

WNS stands to gain too
WNS is already an established player in the outsourcing industry. As it further looks to diversify in expertise and geography, this step appears logical. Some of the benefits that the deal will bring to WNS include:

Leveraging existing capabilities and experience
Expansion of market share in target industries
Expansion in target services
Further consolidation of scale and expertise with new service centers
Assured client over the specified period due to the master service contract

While the centers in Bangalore and Colombo were earlier managed by WNS, it also acquired two other centers in Pune and Chennai that were managed by other service providers.

Indian outsourcing thrives on changes
With each new deal, contract and modification to suit the requirements of the industry participants, changes in the Indian outsourcing have managed to keep the industry thriving over the last decade. Experiments by vendors and clients, some successful and others not so, have helped the industry to grow from providing ‘voice only’ services to forging partnerships with buyers.

Some of the recent challenges such as the slowdown in the US economy, strong Rupee, and rising inflation in India will have a wider impact and the Indian outsourcing industry is already beginning to face the brunt. While reducing presence in India is definitely not a choice for many, given the cost and the scope advantages, alterations such as these will go a long way in ensuring profits.

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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