With Consolidation Lurking, BPO Billing Rates Hit Rock-bottom

New Delhi/ Bangalore: | Updated: Jul 18 2003, 05:30am hrs
The consolidation in the Indian business process outsourcing (BPO) sector has triggered an unhealthy price war as some of the companies are picking up projects at below cost rates to jack up their market valuation. The trend is being seen as a serious threat to the goodwill of the industry.

Industry insiders say that BPO companies looking for an exit in the near term are going overboard by quoting cut-throat and at times below cost billing rates to expand their operations and spruce up their client lists to improve their market value.

The billing rates that were being quoted in the range of $8-25 depending on the type and volume of work around three months back have gone as low as $5-20 in recent times.

Although no names are being taken, the sources say that some of the pure-play and venture funded BPO operators looking for an exit are spoiling the game. The trend is not only driving the billing rates low but is also increasing the possibility of some serious lapses by the service companies in terms of quality and performance.

As some of the deals are being closed at unviable rates, it can lead to serious non-performance issues giving a bad name of the entire industry, said MsourceE president Bhaskar Menon, adding that his company had to pull out from a couple of deals in last few months because of unviable rates quoted by some of the participants.

Bangalore-based 247, a pure play BPO vendor chief executive officer PV Kannan says some people are distorting the market for the sake of valuation. There is a trend among some of the VC funded BPO players to acquire a few clients by cutting price so that they could manage a feel good factor at the time of valuation. This has certainly distorted the market to some extent.

Almost all industry experts and analysts contacted by eFE confirmed the trend of price undercutting by the potential companies for buyouts.

Confirming the trend, IDC India country manager Kapil Dev Singh said that the trend may not continue for a long time as customers will get smart and not fall for the low rates. However, it may be too late as the damage will already be done, said a Delhi-based CEO of a call center company.

According to AT Kearney senior manager and BPO business consultant Arjun Sethi, It is a natural part of the consolidation process. But the companies playing only on price will not be able to sustain their business for a long time and will be out of the business soon.

Some of the recent mergers and acquisitions such as Wipro-Spectramind and AV Birla group-Transworks have heated up the BPO sector and many more such deals are believed to be in the pipeline as the companies are looking for creating a large base for economy of operations.