Welcome to the latest update from the Proservartner Research team. After a successful first breakfast session on the "Future of BPO", we have produced the snippets in the Proservartner YouTube channel and you you can click here to see it "Future of BPO"

Our recent research includes content on:
* The Future of BPO
* Optimising Chargeback Mechanisms
* Shared Services for Hotels
* Transforming Finance Functions in Police

If you are interested in any of our research then please let us know. In particular our next piece of content is on Global Business Services, and we have a breakfast session in London at the Marriott
Country Hall on the 21st June 2011.

Also, if you like what you see and read, why not vote for me as a G6 visionary on SSOW 2012 G6 Visionary

Enjoy the fortnightly highlights.

Warm Regards,
Rakesh Sangani
Partner
+44 (0) 754 514 3587

Global BPO providers Sutherland Global Services and Genpact are in the final race to acquire Apollo Health Street, the healthcare business process outsourcing (BPO) arm of Apollo Hospitals, in a deal valued at over Rs 1,100 crore ($220 million).

Sutherland, which has allegedly put in a higher bid, may be the front-runner to buy the asset even though both contenders are completing the due diligence process. Apollo Hospitals and associates hold about 54% stake, while Temasek Holdings, One Equity Partners and other financial investors have the remaining shares in the 12-year-old BPO firm. Barclays and Kotak Mahindra Capital are advising the promoters on the potential sale process.

Proservartner Point of View:

The US Healthcare Industry has long been focus for BPO providers for the last 18 months, and given the presence, the client relationships that Apollo has developed in this area, and the fact that Apollo considers its BPO unit as a non core investment, it is ripe for acquisition.

The transaction is expected to value Apollo Health Street at about two times revenue, which is estimated at a little over $100 million. Genpact will be viewing this target as a strategic decision to increase market share in the Healthcare market, aligned with its approach on verticalisation. On the other hand, privately held Sutherland will be keen to acquire a revenue generating asset that will provide a differentiator within US Healthcare.

If I were a betting man, I can envisage Sutherland offering a higher price, and more flexible on Apollo BPO keeping a stake (which is important for Apollo), hence may have a better chance of winning!

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As per Trade and Industry Minister Datuk Seri Mustapa Mohamed, Malaysia expects the outsourcing industry to be worth RM1.9bil next year. He stated the Economic Transformation Plan had targeted the shared services and outsourcing (SSO) as a growth sector to contribute about RM2.4bil in incremental gross national income and create over 13,290 high-income jobs by 2020.

“At present, there are 130 SSO companies from major local players to multinationals under Multimedia Super Corridor flagship. “This is not a small number. It is an indication of the growth potential in this sector,” he said at the ceremony to declare IBM Global Delivery Centre (GDC) Malaysia open for business.

Proservartner Point of View:

IBM launched their delivery centre in Cyberjaya last week that will help create 3,000 jobs by 2016. The new centre will provide outsourcing services to clients in Europe, North America and Asia.

As Malaysia becomes an increasingly popular location for shared services and outsourcing (ranked in many location surveys in the top 5 locations), outsourcing providers will be quick to set up in the country to follow the likes of DHL, Shell, BAT, HSBC and Standard Chartered that already have captive / outsourced operations in the area.

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Twenty eight percent (28%) of corporate tax departments reported they were “outsourcing some aspect of their sales and use tax compliance”. We see significant benefits in this approach, including the following:

1. Improved control environment: Solid controls are essential not only to ensure accurate and timely remittances, but also to ensure effective GL reconciliation, a management of credits and carry forwards and reducing the risk of over and under payments
2. Enabling technology: Whilst a corporate tax function may not have the budget to invest in technology to optimise its production and checking of transactions, an outsource provider is more likely to accrue the benefits of efficient technology in a integrated and controlled environment
3. Value from Risk Management and Insight: Given the changing tax environment, the expertise in tax is essential in mitigated risk of error. Using an outsource providers expertise, the risks of misinterpreting regulations is mitigated. Additional value can be achieved through insights from providers e.g. by identifying where previous over payments existed, or an underutilisation of credits
4. Savings from productivity gains and wage arbitrage: In splitting the process and leveraging offshore models, an outsource model can not only provide efficiencies from productivity gains, but also cost reduction from offshore models

The risks are in working with the right provider, and ensuring the end to end process is managed effectively but in many scenarios the benefits above and enabling over-burdened tax departments to focus on higher value activities can outweigh the initial procurement and stabilisation cost.

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So we have been singing the praises of Supply Chain Financing as a great win-win method for organisations to improve their working capital or drive profitability improvement. In these transactions:

Buyer

• In a working capital objective implementation the buyer wins as they are able to delay payment and are able to do so without negatively impacting Suppliers’ Cash flow. The Buyer also benefits because their Suppliers have the liquidity they need, reducing the risk of disruptions due to cash flow problems.

• In a profit objective implementation the buyer wins as they are able to improve profit by taking advantage of supplier discounts and not suffering any negative impact on their own cash flow.

Supplier

• In a working capital objective implementation the supplier wins as they are able to either provide a small fee for late payment (and take advantage of a strong credit rating) or ensure that they are paid on time with a satisfied buyer.

• In a profit objective implementation the supplier wins as they are able to gain access to funds quicker and a better rate than obtaining a loan from a bank.

Bank

• In both scenarios the bank wins as they are able to generate revenues for low risk financing. In addition, banks generate new business opportunities with potentially new customers, indirectly increasing the demand for other banking services.

A recent government taskforce, led by the CEO of Legal & General Tim Breedon, has recognised the challenge for small businesses in raising finance and encouraged concepts such as supply chain financing as a non bank mechanism to raise funds for small suppliers.

The report refers to the need to develop supply and demand for alternative forms of funding to match the financial landscape of countries like the US.

As well as opening up access to capital market financing through the creation of a dedicated body to bundle and securitise small business loans, the report also suggests encouraging large businesses to support their smaller suppliers by adopting prompt payment practices.

Business Secretary Vince Cable said: “We need to reshape the UK’s finance landscape to better serve the needs of ordinary businesses, helping more companies find the support they need to start and grow”.

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