Offshoring to be an integral part of the MRO value chain

Tuesday, 10 March 2009

Close to two-thirds of the research agencies are already offshoring to companies in India, Eastern Europe and Latin America, according to the recent survey of market research agencies from various international markets released conducted by ValueNotes. While the large multi-national research agencies have always been outsourcing, the smaller firms with revenues typically less than $10 m are rapidly adopting offshoring. The survey revealed that with rising competition, research agencies (especially the smaller agencies) are increasingly using offshoring to gain competitive advantage.

Smaller research agencies (revenues <$10 m) lack the scale required for offshoring and typically offshore services lower down the value chain like data collection and data processing.
Mid-sized research agencies (revenues $10 - $50 m) are open to offshoring other complex services like research design and report writing. Offshoring volumes are also higher as compared to smaller research agencies
Larger research agencies (revenues >$50m) not only offshore high volumes of services lower down the value chain but also offshore complex services in significant volumes. However, these companies like to retain client facing activities higher up the value chain like project management and research design.

While cost arbitrage has been a primary driver for offshoring, the survey brings to light that research agencies rate other factors like faster turnaround time, better quality of work as equally important. Further, quality of work and client confidentiality issues emerged as key concerns towards offshoring. While offshoring drivers and concerns remain similar across key markets like US and Europe, these markets differ significantly in their choice of offshoring destinations.

These were some significant findings that were discussed at an executive briefing session conducted by ValueNotes held at Regus Conference Centre in Mumbai on the 6th of March 2009. The session was attended by senior executives from Ugam Solutions, Dexterity, exevo, Annik Technology, Cross-Tab, TCS BPO, WNSGS, Integreon, IDC, and Datamatics among others.

The event started off with presentation by ValueNotes on the key findings and future outlook of the MRO industry. It was followed by panel discussions on the future of the MR Offshoring business and funding opportunities in MRO services.

The first panel discussed the state of MRO industry and its future outlook in current economic environment. Panel, which included Sunil Mirani, CEO, Ugam Solutions, Pravin Shekhar, CEO, Dexterity, Alok Tayal, CEO, Exevo and V K Raman, CEO, TCS BPO, discussed strategic options to negotiate the economic downturn.

“Marketing budgets have taken a hit. There has been retrenchment of work (volumes). However with some companies offshoring and some preferring not to offshore, net-net the equation will balance out.” said Sunil Mirani, CEO, Ugam Solutions commenting outlook for MRO services in recession. Alok Tayal, CEO exevo highlighted that “There will be significant opportunity areas due to increase in cost pressures”.

According to the panel, MRO industry will see a transition from merely offshore services provider to end-to-end provider with significant front end capabilities. “There lies an opportunity in ‘market decision support’ of which market research would be a smaller part”, said Pravin Shekhar, CEO, Dexterity. MRO service providers will look to work closely with their clients with a lot of hand-holding at the client end.

Overall the panelists agreed that MRO service providers will have to look at adjacent opportunities and focus on delivering technology driven solutions in near future.

The second panel discussion focused on the funding in the knowledge services segment and explored the reasons for comparatively lower funding in MRO services segment while analyzing the attractiveness and potential buyers of MRO service providers, rationale for MRO services providers to go acquire funding and various management issues arising after funding is received. The panelists included Rahul Sahgal, President and CEO, Annik Technology, Manish Modi, President, exevo and Ashwin Mittal, Director, Cross-Tab.

While exploring the reasons for lower level of VC funding, especially in MRO services, panelists agreed upon high valuations being a major deterrent with demonstrated scale in MRO weakening its attractiveness for funding. “Venture capitalists do not believe that the market is large. Typically, they are looking to invest large amounts (couple of millions of dollars) which is a very large amount for MRO service providers.” said Manish Modi, President exevo.

Rahul Sehgal of Annik opined that BPOs or larger MRO companies themselves will be a logical option to buy a MRO company if an investor looks to sell out its stake. However, according to Manish Modi of exevo, “The ultimate exit will be through an IPO”.

On attracting VC funding, Ashwin Mittal of Cross-Tab emphasized the importance to attract and retain best-of-the-class talent while Manish Modi brought out the need to identify opportunities which will be lucrative in the near future but something that people are not doing currently.

The MRO service provider landscape ranges from the captives of large research agencies to Pure-play MROs, full service research firms, KPOs and large and medium BPO service providers. The survey shows a clear inclination by research agencies towards using multiple options in offshoring. The larger research agencies have greater inclination to set up captives or employ specialized MRO service providers. Mid sized agencies prefer to work with Full service research agencies while smaller firms are most comfortable with service providers of comparable size.

Today, while the MRO services industry is on a rapid growth path with research agencies and corporates offshoring greater volumes and more complex work, the future growth will be largely driven by niche opportunities in adjacent areas, developing capabilities to serve the relatively smaller research agencies and taking up more services higher up the value chain.

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