In November 2004, Gecis (formerly GE Capital International Services) went independent when GE offloaded a 60 per cent stake in the company to private equity firms, General Atlantic Partners and Oak Hill Capital Partners, for $500 million. From being a captive business process outsourcing (BPO) outfit, Gecis overnight morphed into an independent vendor.
Given its scale and its GE DNA, many BPO operators thought Gecis would drive them out of business. Has it really happened?
Bhupesh Bhandari spoke to Pramod Bhasin, President and CEO of Gecis, on how things have changed for him and the company in the past six months, which he, a chartered accountant from Thomson McLintock & Co, London, set up in 1993.
How has life been for you after going independent?
It is exciting but hectic to step out into the free world. With new ownership, we have had to put in place a new financial and legal structure.
We have also set up a new business development organisation. Earlier, there were 25 people in front-end sales, focused mainly on GE.
Now we have 60 people, most of whom are concentrating on new customers. It calls for a change in mindset and culture to see how we gear up to meet new customers, while taking care that existing operations do not get impacted. There is a lot we have had to do in a relatively short period of time. Thankfully, we have been successful.
But GE still accounts for almost the entire business at Gecis.
It is 95 per cent at present but will come down to 85 per cent by the end of 2005. By end 2006, we hope to bring it down to 75 per cent. GE business will continue to grow but we are not worried about it. Business from other customers will grow faster.
Has it been easy to bag new clients? As Gecis was just a captive BPO, your costs are known to be 10 to 15 per cent higher than the industry average.
Pricing has never been an issue with any customer. In this business, scale drives cost so far as infrastructure like telecom and transport is concerned.
My attrition at the call centre is down to 30 per cent. For others, it is as high as 50 to 60 per cent. It can take $3,000 to $4,000 to get a new person and train him for the job. I am delighted to pay 5-10 per cent extra.
Pricing is not a competitive issue. We never got knocked out because of our price. And it gives us a healthy margin. We have far greater investments in Six Sigma, Lean Engineering and so on, which is only going to increase.
This game is not about costs "" it is about quality of service and constant delivery. Those who are playing the cost game are cutting their own throats. What I am delivering over three to five years will outweigh anybody's lower cost advantage by a factor of four.
How many new clients have you got after going independent?
About five to six. We hope to get some more by the end of this year.
But aren't most of these pilot projects? A new client would first like to see your delivery capabilities. Companies also feel GE will always remain your first priority.
These are full-fledged businesses. We tell people to look at our growth and operational excellence. In India, we are the gold standard.
We have strong systems for quality check and a track record of building growth. To get new customers, we have put some of our best people at the front end. All of us are involved even if it is a small customer "" he can become big one day.
But the orders you have got from new customers are small.
Some have put in large orders. But the whole game is changing gradually. Mega contracts involve high risks and give low margins. By giving small orders, companies de-risk themselves as well as us.
A 10-year contract is bound to be re-negotiated as prices will come down, while costs will go up. It is a handcuff situation. We are moving towards a situation where companies will start with small orders and then expand.
I am in favour of smaller contracts, lower tenure and lower risks. What happened to the mega deals of the past? I can tell you that 50 per cent of these mega-deals do not succeed.
What is the ideal tenure?
Five years.
GE is now free to give BPO work to anybody. Have you lost any GE business till date?
We have some protection. We haven't lost any business in ITES so far. Almost 40 to 50 per cent of what we do is not done by anybody else in India. In IT, we have always competed against TCS and Patni. We have won some, we have lost some.
You closed 2004 with a turnover of $400 million. What are your future growth projections?
We will reach a turnover of $1 to $1.2 billion by 2008, through a combination of three growth levers: one, pure organic growth with GE and new customers; two, alliances to tap niche markets where we don't have a platform at present; and three, acquisition of small companies that will add to our domain knowledge and customer base.
Acquisition for new customers has its own dangers. Most contracts signed by small companies have short exit clauses. So you may acquire a company but its customers can leave you in no time.
Absolutely. It is strange how contracts are being written in India. Most of these have a 30- to 60-day termination notice. To me, it is a 30-day contract and not a 60-day contract.
This is not known anywhere else in the world. We have ruined it. This is what happens when you sell at the lowest cost.
Doesn't that restrict your choice in the market place?
There are still a lot of companies worth buying. If its customers are sticky, the company becomes worth buying. But right now the expectation on valuations is very high.
At these numbers, I don't know how it makes economic sense. And there is so much money flowing in that valuations are not going to soften. If people can get the price they want by going out into the market, why will they come to you for half the price?
You have operations in many parts of the world. Looking into the future, which are the countries you would you like to grow?
India is our largest base and we have about 13,000 people here. We have just started in Romania where we have 15 to 20 people. We are also searching for new locations in China and Latin America.
We will definitely go to Tunisia. We are also looking at the Philippines, Malaysia and Vietnam. My job is to find low-cost intellectual resources and leverage it. Work will flow to countries that can deliver.
How much has the anti-outsourcing campaign in the West helped you?
Thank you Lou Dobbs, thank you John Kerry. It has created a lot of awareness about the benefits of outsourcing. Today, how many CEOs are there in the US who are not thinking about it?
For a long time, profit margins in the outsourcing business have been under a tremendous squeeze. Are there any possibilities of the pressure easing in the near future?S
In a commoditised version of the business, where you are just putting people on seats, there is pressure and it will continue to be there.
But if you are adding value to what you are delivering, there will be no pressure on margins.
What are your present margins?
The EBIDTA margin for us has been above 20 per cent every time. Why shouldn't margins in ITES be as good as they are in IT services? Some of the business we do is complex.
The savings that the customers get by outsourcing to us can absorb far better margins than others in the business. Going forward, more and more customers will trade margins for product excellence. It is an assurance that you will improve whatever they do.
