CURRENCY AND PRICING ARE THE BIGGEST CHALLENGES

EXL Service has probably seen more eventful life in its ten years of existence than any other BPO company in India. It started out as a venture-backed independent company and hit headlines when insurance major Conseco acquired it. But Conseco, which accounted for 95% of its revenue then, announced bankruptcy. Industry and analysts had almost written it off, when EXL managed funding from Oak Hill Capital Partners and FT Ventures.

Later, it became the first Indian BPO company to list on Nasdaq in 2006. The company is now 10,500 people strong with 85 global clients and operations spanning India, the US and Europe. It is now hiring and has announced plans to invest $15-20 million in ramping up infrastructure. In a conversation, EXL president and CEO, Rohit Kapoor looks back at what they did right and what Indian BPO companies need to do to survive in this economic environment.

Excerpts:

EXL has seen several ups and downs in last ten years. Is the current slowdown one of toughest time?

No, we have seen much bigger challenges. Today the business is profitable and there is enough availability of cash and there is no debt. The bankruptcy of Conseco was the toughest time faced by EXL. Being a resilient company from the start, EXL has seen a transition from being an independent company to a captive to a publicly listed company. Today, EXL is well positioned not only for the current state of the world economics, but we are confident for the next ten years. Despite the economic turmoil impacting several of our clients, we were able to grow our revenues by 19.5% year-over-year, and increase our adjusted operating margin year-on-year from 7.1% to 11.8% in the last quarter.

You get about 65% of your revenue from BFSI?one of the worst hit sectors?

Of the 65% work from BFSI, a big chunk comes from insurance companies. While banks are badly hit, insurance companies continue to give us good business. Moreover, insurance companies are protected by regulation in tough financial times. We work with six of the top 10 insurance companies of the US. About a quarter of our revenue comes from utilities, which are still in a good health and more than 10% comes from transport and healthcare.

Needs of each client differs in these times as they come from different industries. What we have seen is more stability from insurance and utilities clients, but those from the transportation or auto industries are facing many challenges in an economic downturn.

BPO firms are today worried about sudden client loss. How did you manage when Conseco, IndyMac or Orange decided to move out?

No, it was not easy but we have never resorted to quick layoffs. We could redeploy our staff gradually and managed to move them to work for other clients. It is important to build trust and transparency with the client so that these kind of developments don?t come as a shock. If you are able to predict these events, you will be better prepared to handle them.

EXL?s unique selling proposition is fundamentally our people, that includes the management team and those at execution level. Secondly, it is the discipline brought about to stay true to our work. We have been rather prudent to the decisions we have made as we believe in long term relationships with clients. EXL executes stable and tidy processes that are maintained by people who come with a similar thinking. While most of our competition has been aggressive in its approach, we have principally grown as an organic company where it has internally established a high threshold on quality delivery to customers.

What worries you the most?pricing pressure, currency fluctuation or rising protectionism in the US?

Currency fluctuations and pricing pressure remain our biggest challenges. Protectionism in our biggest market is also a cause of worry. However, on a bright note, our attrition levels are down. In 2008, our attrition decreased by 7% to 34% from 41% in 2007 and it could go even lower this year. Recruitment and attrition are no longer a challenge. So, the challenges were bigger on the delivery or the backend earlier and have moved to the front-end now. Let?s says, they balance each other out.

We believe that if you focus on specific domains and you are able to provide the capabilities to your customers on operational excellence and enhancement of their processes, you will gain new clients and build on your business.

Most IT companies are working with shorter contract duration as their clients are faced with uncertainities. Are BPO contracts shrinking too?

BPO contracts are typically structured differently from IT contracts. IT companies work on project to project basis, our contracts are more long term because these process are much deeper ingrained into the business and are longer term in nature.

Today clients are looking for price stability. So the best that a BPO vendor can do is offer a commitment on pricing in return for a steady business flow for the next few years. The currency fluctuations have played havoc with pricing visibility. So it would be mutually beneficial to hold the client and let go a bit of leverage. We are looking at jointly working with clients to hedge our long-term revenues against currency fluctuations as we enter into long-term deals.

Actually, requirements and business models of a BPO firm can be very different on some aspects like visas.

 

Source: The Financial Express