Outsourcing Research by ValueNotes - Strategic Alliances And Joint Ventures: The New Way To Outsourcing

Strategic Alliances And Joint Ventures: The New Way To Outsourcing

Saturday, 10 February 2007

Infosys BPO, the business process outsourcing subsidiary of Infosys (Nasdaq:INFY) and HVS International, a New York based consultancy announced a strategic tie-up to offer outsourcing solutions to the hospitality industry. Hinduja TMT (HTMT) announced their joint venture, Centric LPO, with UK based business consulting and outsourcing organization, Centric. Fox Mandal Little, an Indian legal law firm is also associated with the JV. These are recent deals in the outsourcing sector catering to two diverse verticals. However, the common thread is that HVS and Centric were able to tap the Indian outsourcing boom without the hitherto popular merger and acquisition route, which would have required deeper involvement in a dissimilar industry.

The joint venture or the strategic alliance route is a more viable option when two companies from diverse fields are looking to work together. For instance, HVS International, a consultant in the travel and hospitality industry leveraged its niche with top of the line Infosys to develop a solution for the hospitality outsourcing industry. Similarly HTMT was able to foray into a new vertical altogether as it combined resources with experts in legal field. The move enhanced its onshore delivery capabilities. The legal expertise of Fox Mandal Little has helped Centric LPO to expand the current client base and provide to the huge markets in the US and UK. The move also enables high-end legal deliveries. Such ventures enable the companies to service clients across the world.

The alliances also address other issues that have hindered the growth of outsourcing or have resulted in failures. This is an effective tool to tapping markets that are traditionally hesitant in opting for offshoring, such as Australia and New Zealand. The presence of a local partner allays their fears about completely handing over control to outsourcing companies. The presence of a local company in any undertaking eliminates the risk of cultural issues that may crop up otherwise. Such problems typically arise when western countries are looking for business in Asian countries or vice-versa.

Other companies that have opted for the JV and strategic alliance route are for varying reasons are:

Tata Consultancy Service (TCS) and three Chinese companies, Beijing Zhongguancun Software Park Development, Uniware and Tianjin Huayuan Software Area Construction & Development have formed a JV to provide billing and customer relationship services to Saudi Telecommunication Company. TCS’ outlook was that it sought to strengthen its position in China.
Allsec Technologies, a Chennai-based BPO tied up with SalesForce, an Australian contact center service provider to gain access to Australian and New Zealand markets for call quality monitoring services. This also worked well for SalesForce, which was facing a shortage of call center employees.
Tech Mahindra, an Indian software company entered into an agreement with Servista to gain foothold among European clients. Servista, a customer care and billing solutions provider has a strong presence in the European telecom market.
Quintek Technologies, an outsourcing and technology consulting services provider entered into sales and marketing tie-up with BPO Management Services (BPOMS), a BPO on demand services provider. The combined offering will now be spread across verticals like human resources, enterprise content management, and IT outsourcing (provided by BPOMS), financial and accounting services, mortgage processing and healthcare (provided by Quintek).

So far, so good. Alliances and JV can work without the legal complexities of take-overs. They can be used as short-term options to serve as a testing ground for certain types of markets or services. Moreover, certain hurdles that can crop up in the form of decision making issues and clash of corporate cultures can be handled with minimal disruption and the companies can continue on their separate ways. The financial involvement is also limited.
Considering the growth that the outsourcing industry has seen over the last few years, a number of issues have cropped up. Vendors and clients are looking for smoother transition to the outsourcing option. These alliances allow them an option that is less risky albeit with all the benefits. So long as the apparent pros outweigh the cons, this model of outsourcing will gain traction. However, it is too early to mark it as a trend while its sustainability remains to be seen.

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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