Subprime crisis a boon to A'bad BPOs

City-based Azure picks up 49% in US' Citizen Financial Mortgage for $28 million.

Even as the subprime crisis has forced the business process outsourcing (BPO) industry to operate on squeezed margins, the comparatively smaller but fast-growing BPO companies in Ahmedabad are seeing better growth opportunities with the phenomenon.

While bigger BPO operators are looking at picking up stakes in their smaller and mid-size clients' mortgage companies in the US and UK, the smaller ones are expanding their facilities and infrastructure.

One of the first to start the trend, Azure Styx Infosoft has picked up a 49 per cent stake in US-based Citizen Financial Mortgage (CFM) for around $28 million in cash and kind.

Jay Ruparel, executive director, Azure Knowledge Centre, says larger BPOs are looking at ownership as the arrangement not only provides an opportunity to tap into captive form of business but also allows both the partnering companies to have a long-term business relationship.

Industry sources say most of the bigger players have been in talks with their clients in the US and UK to acquire some kind of equity stake in their companies.

"For companies in the US who have been hit by the subprime crisis, the better option is to invite BPOs to take a small stake than having to pay for outsourcing services since they would have financial constraints," said Pranit Banthia, CEO, Hi tech Outsourcing.

Typically, BPOs engaged in mortgage services, which form around 15 per cent of the outsourcing market in Ahmedabad, were expected to be the most affected in the current global phenomenon. However, what has worked in their favour is the growing number of US and UK-based mortgage companies setting out on a cost-cutting endeavour preferring to award contracts to BPOs from cities like Ahmedabad. There are around 15 large (over 500 seats) and small-size BPOs in Ahmedabad, which are into mortgage services.

"BPOs in Ahmedabad have been in mortgage services since 2001 and have managed to attract a number of big clients here despite the subprime crisis because of operating costs, which are at least 30 per cent lower than the metros and much lower than most of the other cities," says Ruparel.

For the smaller BPOs with less than 50 seats, subprime was hardly an issue since most of them prefer to deal with different verticals rather than concentrate on a particular one, informs Chirag Mehta, CEO and managing director of IceNet, which has now been acquired by YOU Telecom.

According to him, a number of smaller BPOs are on the verge of revamping their operations and have already begun increasing their brandwidth capacities to cater to their new clientele.

Apart from engaging 100-150 seats to mortgage services, BPO operators says a further 100-200 seats are now being utilised by the smaller BPOs for selling loans, brandwidth and credit cards as well as for newer service areas like legal process outsourcing (LPO), engineering process outsourcing (EPO), and design process outsourcing (DPO) to avoid focusing on one business vertical alone.