The Hindu Business Line : Pvt equity investors to help SMEs grow big

Services globalisation
Multi-sourcing will dominate
Emergence of more players would fuel wage inflation and higher attrition
Global service providers will face significant resource crunch

Bangalore , Dec. 16

Driven by private equity (PE) investors, the small and medium enterprises will actively participate in services globalisation in 2007, said Mr Avinash Vashistha, Chairman and CEO of Tholons, an IT and investment advisory firm.

Forecasting services globalisation trends for 2007, Mr Vashistha said SMEs, which lagged in taking advantage of the offshoring/outsourcing phenomenon will try to catch up with large enterprises in adopting services globalisation.

"They (SMEs) knew a lot of it but cannot do it. But with the influence of PE investors, SMEs will look at leveraging the outsourcing model," he said.

It is estimated that 80 per cent of the work that is outsourced/offshored is by only 20 per cent of the organisations, which indicates there's large potential.

Offshore service sector

Further, the offshore services sector, fuelled by PE investments will see a new high in 2007. "About $5 billion in PE funds is expected to be available to offshore IT, BPO and KPO organisations to expand their operations," he said.

2007 will also see many more countries and cities becoming centres of outsourcing as companies move towards distributed model for services globalisation looking to source the best possible skills from locations which can best deliver them, Mr Vashistha said.

Multi-sourcing will dominate as mega deals that are up for renewal will be sourced to a mix of Tier I and best of breed Tier II service providers. The number of small to medium-sized contracts between $50-200 million will see a significant increase compared to the previous years, he said.

Constrained growth

Growth in IT and BPO firms will be constrained by supplies, especially with strong market demand, notwithstanding concerns of a possible slowdown. Further, the global service providers will face significant resource crunch as major outsourcing destinations such as India, the Philippines and China will face shortage of talent pool, he said.

The emergence of more players would fuel wage inflation and higher attrition. But India will continue to be the leading destination for IT and BPO, followed by the Philippines at a strong but distant second and China trailing behind by several years, he said. The Tier I and Tier II Indian vendors will seek to expand their global footprint and acquire delivery capabilities in markets such as the Philippines, Vietnam and the emerging economies of Eastern Europe.