Indian Offshoring IPOs dismal performance

Using Yahoo Finance, I plotted the past three years stock price of Indian Offshores  (Genpact, Wns, Exl) and in comparison with Indian Software companies (Infosys, Wipro, TCS, Sify) and market index.

The following insights emerge-

1) Indian Software companies have constantly created wealth.

2) Indian Offshoring companies have constantly lost market value – perhaps because they were able to dump IPO prices at much higher prices by creating hype.

3) You are much better off investing in Indian stock market or a blue chip Indian software company than take part in an Indian offshorers IPO.

4) SIFY lost most value and its founder CEO is now in jail for fraud. The fraud was he added phantom employees, and phantom revenue to boost balance sheet. Auditors from PwC (were jailed) included a board member of Indian Chartered Accountants and Satyam (SIFY) had won awards for corporate governance. It makes sense to do rigorous cash flow due diligence this side of the pond.

5) I won no stock in any of this companies  (not surprisingly) but do have a portfolio of mutual funds (index).

So the next time you are promised the moon by an Indian IPO- KPO, remember to do the math 😉

Why Do Indian BPO companies struggle more than Indian IT companies ?

1)different sales cycle and methods of evaluation- cost is the reason to outsource in BPO, capability AND cost is the reason to seek technology outsourcing. Sales cycle are longer and much bigger in IT companies, while BPO companies have a shorter sales invetment hence push for faster sales than a long sales cycle with mega deals

2)consultants are very good at generic processes, outsourcing requires a detail orientation and dealing with lower middle management to get the transitions requirements done correctly….

3) Most BPO’s hire the bottom half of top consulting firms or star salesmen who used to be stars. Sad but true .Ex consultants join PE funds if they are good, start ups if they are ok, BPO’s get the worst in that lot as they pay the least. Same for technology salesmen .

4) BPO is yet to mature in sales, pre sales processes and have a longer term view. It is a younger industry and I am sure IT outsourcing struggled in its initial days too.

5) Internal BPO HR practises-

Much higher levels of attrition in BPO lead to lower quality of delivery than in technology. Also experienced BPO delivery people,with zero sales experience, who stick around sometimes get to partner the new sales people onsite not because its good for the firm but only way to retain these people

6)Competition in BPO is quite ridiculous with rates touching 14-15 $ per hour for large deals, and quite many salesmen end up making discounts just to make that quarter or undercut the competition for strategic reasons.”

Margins are higher in IT companies in India .

Genpact and WNS are exceptions to this rule  due to sheer size and parental pedigree (GE and BA respectively), but most Indian BPOs/BTOs/KPOs less than 4000 people will suffer the above issues