A wave of consolidation is sweeping the $20-billion global market for human resource outsourcing (HRO), and India is expected to reap the benefits. HRO includes the entire range of services from payroll and employee data management, benefits administration and HR consulting. The country stands to gain as the merged entities tap India?s large pool of IT professionals and competitive labour. However, it also promises stiff competition for home-grown giants in IT and BPO segments like Tata Consultancy Services, Infosys Technologies and Wipro.

Low margins and few large customers in HRO have triggered global consolidation, with four big M&As this year itself?Aon-Hewitt, ADP-Workspace, NorthgateArinso-Convergys HR and ACS-Excellerate.

North American companies are the biggest clients for these companies, accounting for three-fourths of the global HRO market. HRO industry leaders have started targetting the Indian market as well, pitting them directly against Indian IT-BPO firms.

On July 12, insurance brokerage Aon acquired HR firm Hewitt Associates for $4.9 billion, the largest deal this year. This is the first integration in the recent past signifying conglomeration of HR outsourcing and consulting. Other deals mostly involve integration of HR back office and IT, apart from some consulting work.

Aon will acquire 8,000 employees at Hewitt?s five India locations. ?We have a strong presence in India, where our domestic HRO business services around 265 clients out of a total of 320. We continue to grow rapidly in the region and have some aggressive plans in the coming years,? said a Hewitt spokesperson. The Indian market, he noted, has started maturing, as evidenced by more clients seeking services beyond payroll and benefits (P&B), progressing to employee data management and other HR transactions.

Said Rajesh Ranjan, research director, HRO practice at Everest Group, a management-consulting firm: ?These acquisitions help Indian delivery centres, as global players will now expand in the country. Aon did not have a presence in India, but the Aon-Hewitt combined entity will now leverage India operations.? The acquisition of Excellerate by ACS is also expected to drive expansion in India.

The Excellerate acquisition will provide ACS the opportunity to grow further by serving diverse clients around the world with a bigger bouquet of services.

?We will be better positioned to serve the under-served mid-market, while continuing to provide outstanding service to the large enterprise market,? said Rohail Khan, executive managing director, Total Benefits Outsourcing, ACS .With this acquisition, ACS can shift some of ExcellerateHRO?s back office support functions to ACS?s more efficient platform in lower-cost geographies, he adds.

Back office work is seen as one of the reasons behind NorthgateArinso ― an HR software arm of American private equity KKR― buying the HR arm of Convergys for $100 million. Said Darcy Lalonde, executive president for Asia-Pacific at NorthgateArinso: ?We did not have a big presence in India prior to this, but this step has helped us to do offshore HR work from India. We also want to be more active in the national market and do more work for MNCs here.?

NorthgateArinso has 450 employees in India, out of which 360 are from Convergys. The acquisition also got it 20 Convergys clients including Johnson & Johnson, among other North American clients. In India, the company caters to MNCs in various sectors.

Eric Simonson, managing principal (research) at Everest Group explains that in HRO, an enterprise outsources only when it has not invested much in systems for HR, finance, payroll and supply chain. This is why IT and BPO work in

HRO deals are interlinked. HR systems are relatively expensive and their complexity to deliver value proposition has made the market challenging.

What about the Indian vendors? perspective? Chandrashekar Kakal, senior vice-president and global head, enterprise solutions/platform, Infosys says that bundled IT-BPO HRO deals are most seen in payroll, recruitment and HR information systems. Combining the IT and BPO aspects helps the client move from capex to opex. Infosys has a BPO platform solution for such deals.

David P Prosperi,vice-president, global public relations, Aon Corporation, explained the dynamics behind the deal: ?Hewitt will bring their strengths in consulting, benefits administration and business process outsourcing to our clients not only in the consulting space, but also to our clients in the risk and reinsurance space as well, which creates the benefit of cross-selling.? He added that based on 2009 revenues, the three leaders in HRO, combined with consulting space, would be Aon-Hewitt with $4.4 billion, followed by Mercer ($3.3 billion) and Towers Watson with $3.1 billion.

Even as global players continue to explore India to leverage delivery centres and service the domestic market, Indian players need to gear up and match the consulting factor, besides providing IT-BPO bundling for various HRO deals.