The Hindu Business Line : HCL BPO scouting for US-based co

HCL BPO, the business process outsourcing arm of HCL Technologies, is actively looking at acquiring a company `before the end of this year' according to Mr Ranjit Narasimhan, its Chief Operating Officer, HCL BPO.

Speaking to Business Line, Mr Narasimhan said, "We will acquire a company with revenues of not less than $100 million before the end of the year."

According to Mr Narasimhan, "We are interested in companies based in the US and servicing US clients. We are keen that its pricing model be output-based." Traditionally, Indian IT and BPO services companies have entered into software contracts with clients based on input-based pricing. In other words, the client is fully conscious of the full resources, in terms of man months, that a vendor uses to service the former.

The pricing of the service is accordingly decided. In output-based pricing, the pricing is fixed, say, in terms of insurance claims processed or the cost of maintaining a broadband client. The client does not want or need to know the resources that a vendor uses to deliver service.

The end-objective is stated and the pricing is accordingly determined. The vendor, on the other hand, uses offshore options and technology tools to make his operations more efficient with time, and hence increases the profit while doing the same work for the customer.

HCL Technologies' financial year ends in June and as at June 2005, it had cash and cash equivalent of $50 million and treasury investments of about $400 million. The BPO business crossed $100 million in revenues this fiscal. He added that typically, the value of a company that is bought out is estimated at roughly 1-1.5 times its revenues.

Commenting on the kind of focus an acquisition target should have, Mr Narasimhan said, "It does not matter which area of expertise it focuses on. Generally, telecom clients tend to opt for more input-based pricing while customers in the financial services domain prefer output-based pricing."

But wouldn't other vendors from India get wise to this strategy, make similar acquisitions, and re-introduce pricing wars? Mr Narasimhan counters that with, "Our high level of confidence stems from the way we have managed our Ireland operations after acquiring the entity there. It's almost entirely a global company and few Indian companies have such managing experience."

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