Struggling Outsourcing Companies Attractive Targets for Acquisition

The U.S. recession has squeezed onshore outsourcing firms’ revenues. Most are experiencing dwindling client pools, lack of access to credit to finance operations, and fierce competition from offshore outsourcing providers. This makes them attractive targets for organizations seeking to increase their presence in the business process outsourcing (BPO) arena.

This is exactly the opportunity Philippine-based company Ayala Corporation has been waiting for. Recently, the company acquired bankrupt US-based On-site Sourcing, Inc. for $9 million. In an interview with BusinessWorld, Ayala Corporation chief financial officer Rufino Luis Manotok said “The company will focus on investing in the BPO industry. While its growth rate might slow down, the industry will still grow”.

Ayala’s move to buy the bankrupt Virginia-based firm seems to be a wise decision. KPMG, an audit, tax and advisory firm has just released its list of “locations to watch for next outsourcing boom”.  Two cities from the Philippines made it to the list, Davao and Iloilo.

In fact, according to KPMG the 31 cities cited in their report will challenge current well-known outsourcing locations in India and China. Emerging outsourcing destinations in the Asia-Pacific region are attractive offshore destinations for their lower costs, young and educated talent pool, and government incentives.

It’s now up to the local BPO industry to capitalize on their strengths and seize possible acquisitions that could further strengthen their foothold in the offshore market and expand market share.

On another note, India’s global IT-BPO trade body NASSCOM reacted cautiously on US President Barack Obama’s remarks against outsourcing saying US companies had benefited from outsourcing since 50% of their business is overseas.

NASSCOM president Som Mittal bashed on comments blaming outsourcing for the increase in US unemployment rate, citing the latest US state department data on employment which proves job losses in construction, retail and manufacturing were higher than in services, especially in IT. “Compared to other sectors, job losses in the US tech sector were 2.2 per cent as against the overall unemployment rate of 7.2 per cent. The US administration will not do anything that would harm its industry or economy, which is driven by the technology leadership its companies enjoy,” says Mittal.