Bear Stearns buy: BPOs could face pressure
The JP Morgan Chase buyout of Bear Stearns could cause uncertainty among back office companies in India who perform outsourcing-related work for the investment banking major. Currently, Bear Stearns outsources some of its back office work to companies like UK-based RR Donnelly that sends the work to its offshore unit in India.
It is learnt that RR Donnelly has a 10-12 member team that makes powerpoint presentations for the investment banking company for pitches for prospective deals.
While the value of work is not ascertained since RR Donnelly is listed in the US , data available from Bloomberg says Asia has contributed 31 per cent in revenues in the last couple of years and contributes a few million dollars to the topline.
India forms a part of Asia and according to industry observers, the work done for Bear Stearns would fall under BPO services, which includes work like sophisticated financial analysis and reporting, desktop publishing, word processing, credit analysis, claims processing, litigation support and paralegal services, market research, database services, managing creative services.
RR Donnelly’s revenue in 2006 was $9.3 billion and the company has BPO operations in India, Philippines and Sri Lanka and is headquartered in New York.
A middle management executive working for RR Donnelly in Chennai said that the company hopes that this deal will continue while acknowledging that there has not been any communication from Bear Stearns on this. When contacted, a RR Donnelly spokesperson refused to comment.
Typically, industry experts believe that after such a large takeover, there could be more outsourcign coming to the existing company, but billing rates will reduce.
“We had a similar experience with one of our Fortune 1000 clients and took a hit in the pricing rates even though more work came our way after that company got acquired,” says Raman Roy of Quatrro BPO.
Further, the impact of outsourcing is felt after 3-4 months and typically companies look at multiple outsourcing providers to services their needs.
After the sub-prime crisis hit US companies, these companies have begun to revise their IT spending, which in turn is forcing Indian companies to revise their quarterly earnings guidances.
Recently, Kanbay, an Indian IT company that was acquired by Capgemini recently, said that business in 2008 could end up being hurt because of the sub-prime crisis. Earlier, WNS announced loss of business from First Magnus Financial Corp, a mortgage company in US.