In recent years, western corporations have rushed to India, hiring outsourcers to handle their back-office operations, call centers, and software development -- or acquiring Indian companies that do such work. Now it's the Indians' turn. In the past two years Indian companies have snapped up a dozen U.S. call centers and business processing outsourcers. The Indians "are looking to build a global model quickly," says Kanarath P. Balaraj, partner with WestBridge Capital Partners, a Silicon Valley venture-capital firm that invests in outsourcing companies.
Why the reverse migration? As India's outsourcing sector matures, companies there need to increase their industry expertise, geographic reach, and -- especially -- customer base. That's where U.S. takeovers come in. Bombay's Datamatics Technologies Ltd., for instance, in October bought Detroit accounting outsourcer CorPay Solutions Inc., in large part for its blue-chip roster of auto industry clients, including Ford Motor (F), General Motors (GM), and DaimlerChrysler (DCX). And Indecomm Global Services, a Bangalore health-care and financial-services outsourcer, in March paid $5 million for San Francisco-based Simpata Group Inc., which manages human resources software for clients such as health-care provider Anthem Inc. (ATH) and some Blue Cross/Blue Shield insurers. "The deal gives us unique expertise in the global HR software and services industry and opens up huge opportunities for us," says Naresh Ponnapa, Indecomm's CEO.
Another reason for the buyouts: Smaller U.S. call center operators can be had on the cheap. Profits at most U.S. operators have declined by 8% to 10% annually in the past three years, according to Bombay investment bank Edelweiss Capital. And because these companies can't match the costs of their Indian rivals, they're selling for just one-fifth to one-half of revenues, compared with multiples of 1.5 to 2.5 times revenues at most Indian companies, says Edelweiss Chief Executive Rashesh Shah. For instance, Bombay's Essar Group in November teamed up with Deutsche Bank (DB) to invest $28 million in exchange for warrants entitling them to 80% of Irving (Tex.) call-center operator Aegis Communications Group (AGIS). Aegis last year generated sales of $140 million serving big-name clients such as AT&T (T)and American Express (AXP). "Not a lot of the U.S. companies have found an answer to scaling up and cutting down their costs," Shah says. "Indian companies have those skills."
Are the indians buying up their U.S. competitors simply to close them down and shift their operations overseas? Not at all, the Indians insist. Bombay's Godrej Group, for instance, has added 100 U.S. employees to Upstream, a call center focused on corporate travel that it bought in November. The new owners of Aegis likewise say they won't cut jobs in the U.S. Still, they plan to relocate the company's back-office functions such as human resources, accounting, and tech support to India, saving 15%, says Essar President Neeraj Gupta. Datamatics has moved some of CorPay's data entry work to India, reducing costs by some 25% and leaving the U.S. staff more time to drum up new business. "We're transitioning the middle part to India, leaving the beginning and end work in the U.S.," says Datamatics Chairman Lalit S. Kanodia.
The Indians aren't only buying in the U.S. Tracmail, an Indian call center operator with $5 million in sales, acquired Toronto's Webhelp Inc. and its 430-seat operation in Montreal last year to boost its profile in the North American market. But thanks to Webhelp's multilingual team, Tracmail soon started to serve European customers as well and in May hired 100 additional operators. And New Delhi's HCL Technologies Ltd., an Indian tech hardware and software major, in 2002 paid $11.6 million for Apollo Contact Center in Belfast, which handles telephone queries for telecom, retail, and financial-services clients in Britain and Ireland. Since HCL bought Apollo, it has added clients across Europe and more than doubled in size to 1,030 employees. If every Indian overseas buyout works out as well, it might calm some of the uproar over all those Western jobs moving to Bangalore.
By Manjeet Kripalani in Bombay