After the disappointing second quarter results of Genpact, India’s largest business process outsourcing (BPO) firm, the firm almost halved its revenue growth expectation to 6-9 per cent for 2009. Reason: its largest client, GE, which contributes 40 per cent to the BPO’s revenue, was under stress.
Genpact is aware of the pitfalls of such a dependence and has been trying to diversify the client basket, much like others — WNS, EXL Services, Aricent or even Tech Mahindra. But Genpact COO N V Tyagarajan (Tiger) says being a captive BPO of GE is different from being a captive of other companies. GE, he says, is a hugely diversified company and operates in several industries.
Analysts say there are clear advantages of having a single large client. “It’s your reference point for getting new business. You need large clients for revenue predictability. This issue of a single big client becoming a liability has come up probably because of bad market conditions,” says TPI India Partner Sidharth Pai. And it is not just captives: even IT firms such as TCS and Infosys at some point of time have been overly dependent on some clients.
Others say being an associate of a big company helps in market acceptability and can be a great learning experience. For example, Tiger says GE’s lean Six Sigma process was something many of Genpact’s customers wanted to replicate. “Customers liked what we had to offer because we were associated with a company like GE, using their terminology,” he says.
While that argument holds good in the short-term, most agree that shedding dependence on a single client is the only way out to stay in business in the long run. Tholons Advisory CEO Avinash Vashistha says, “One of the challenges when you start with an anchor client is that the entire senior management’s attention is devoted towards it. Even if they are ready to go out and get new business, the effort is usually sub-optimal,” he says.
Quite a few, however, did put in optimal efforts to get new business. Take WNS. An industry veteran says very few people remember that WNS was a captive of British Airways, or Aricent of Hughes Networks, or EXL Services of American Insurer Conseco. Even less known is the fact that EDS, which has been acquired by HP, was a captive of General Motors.
That’s because, Vashistha says, all these firms put in enormous efforts in diversifying from its single client focus. “Neeraj Bhargava, the current CEO, came from a McKinsey background. He didn’t have the baggage of British Airways with him. Hence, he was much more focused on growing the firm by seeking new clients,” Vashistha says.
On his part, Bhargava says when diversifying from a single client, it is critical to invest sufficiently in sales, account management and infrastructure to focus equally on both existing and new clients. “When WNS began to serve clients other than BA, we made the requisite investment in resources to continue to service our foundation client, while pursuing other clients,” he says. While the company does not give client-specific revenue split, the travel industry as a whole contributes 22 per cent to its revenue.
Genpact’s Tiger also agrees that the challenge is to create a unique culture of your own, rather than follow the parents — a reason why the firm invented the term ‘virtual captive’ and toned down the GE pitch. The other thing that worked for Genpact was that it has always been run as a commercial organisation. “So, despite being a GE captive, we had robust teams that would have to get business,” Tiger says.
This made Genpact get some early wins that were from sectors not related to GE. One was from the automotive sector and the second from a pharmaceutical firm. “Even in the current slowdown, the global client business has continued to grow at 20-25 per cent,” Tiger says.
Some others have taken the inorganic route to shed single-client dependence. Mahindra & Mahindra subsidiary Tech Mahindra depended heavily on one client, British Telecom (BT). That is going to change, with its celebrated acquisition of Satyam. The company is also taking cautious steps to grow the existing clients at Satyam, as well as focus on its telecom business that gets almost 52 per cent of revenue coming from BT.
