Good Time to Buy?

Wednesday, 01 April 2009

In these recessionary times, companies across verticals are looking to cut costs and stay profitable. Corporates are looking for ways and means to reduce their costs across the board. The immediate concern of companies, irrespective of the size of their business, is to protect their profitability by focusing on cost control. The most immediate impact has been on employees in the form of layoffs. Apart from this, companies are also looking to optimize various administrative or marketing costs. While several companies are reducing their headcount, others are considering increasing their outsourcing/offshoring activities. Service providers are likely to gain if they understand and address the immediate needs of the corporates - reduce cost pressures and at the same time gain operational efficiencies. For instance, last week, Dell sold one of its two call centers to Teleperformance, a French outsourcing service provider for Php200 m (approx. $4 m). Teleperformance will manage Dell’s consumer technical support operations in Philippines to support US, Australia, New Zealand customers. With this deal, Dell has got liquidity at a time when the global economy is under tremendous pressure, battling the financial crisis while Teleperformance has bagged a long term contract. We believe that the acquisition is a good buy for Teleperformance as the valuation is approximately for Php200 m (approx. $4 m). With this deal, Teleperformance has also acquired a long term contract from Dell. Dell’s contact center has employee strength of 1,000 in the Philippines. Most corporates are under tremendous financial pressure over the last couple of months. A sale like this gives the company not only access to liquid funds but also relieves it of the increasing burden of running an offshore captive operation. Further, this deal has brought a much-needed cheer to the contact center outsourcing industry. Several companies will look at outsourcing contact center operations to cut costs. While in-house operations offer better control over quality of the output, several factors are in favor of these companies outsourcing/offshoring their businesses. Cost structures at many captives are not comparable - as they are not in a competitive environment, while third party vendors constantly figure out ways to reduce costs/increase efficiencies. Most of the large third party vendors today have developed capabilities to handle standard processes and there are several credible vendors available. Hence, the companies can focus on their core business. Captives are faced with similar problems of attrition, rising wage costs, etc., and moving work to third party vendors helps reduce this. Further, third party vendors have the benefit of even larger scale and constant learning from multiple client engagements. Finally, quick liquidity makes it attractive to spin off an ‘in-house operation’ into an ‘attractive buy out’. Given the current scenario of liquidity crunch in the market, availability of quick cash is an attractive proposition.   With companies looking at ways to transform from a cost center to a profit center, we believe that this is an opportunity for service providers to grab (especially so in these times!).

 

< Prev		Next >