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Sson speaks to Susir Kumar (Md & Ceo, Intelenet) and Suresh Ramani (President - North America Sales & Operations, Intelenet) about outsourcing trends for the next year, acquisition of captive centers by Bpo and how changes in the U.S. Healthcare laid out opportunities for Intelenet.

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Sson: Let's start with a look at Bpo generally. We're just looking the back end of a global retreat - how has this affected Intelenet over the past few months?

Susir Kumar: Ok. A Bpo is basically the back end of a company's operations, so we cope their customers' transactions. Straight through the retreat period we have seen, for example, banks issuing a lesser amount of prestige cards; banks giving fewer mortgages; the new accounts that are being opened up have reduced. We are the back-end supporter of these clients of ours: the volumes arrival in from these clients of ours have genuinely gone down, so if we were issuing 60,000 cards a month for a single client it maybe went down to as itsybitsy as about 5,000. We became very involved about issuing any added loans [while] population were just not willing to spend money or buy things, and all of that had a significant impact on the amount of transactions and the amount of calls arrival in.

What we first saw in this preliminary phase of this whole retreat was volume reduction, and a whole lot of companies being very involved about whether they would survive Straight through this phase of retreat or not. So everybody started strategizing around how to survive. We had a set of companies which idea by taking positive actions they would survive, and then we had a set of companies which were pretty involved about their survival. So in some companies we genuinely saw some drastic measures being taken, and now population were not expecting the customary outsourcing deals. They were request us "Tell us how you can accelerate the cost savings process? I know you can give us 50% reduction of costs after 18 months: is there a way that you can give us 30% right now?" So it was a fully new hope that came in, and I think after the first six months of retreat we saw a lot of companies arrival out with the question, [so] we had to turn our value proposition or our offers to clients and prospects... Then we started observing, over the next six months to about nine months, that these companies were development faster decisions: in the past it would take whatever in the middle of six to 18 months to take a decision on outsourcing or offshoring, but during this phase we were looking companies taking decisions as quick as maybe two or three months.

We noticed that clients who had outsourced just about 15% or 20%, were all talking to us about how they could increase the outsourcing/offshoring percentage, and get their costs down; so we also went after every business that had outsourced just a small component, and we told them that "yes, in this case you are rescue million a year, or million a year; here is other opening where you can accelerate and increase the scope of offshoring and outsourcing, and you could save potentially duplicate or triple the amount that you are currently saving." The third thing that we saw was, [before the recession] population would not make an offshoring or outsourcing decision if the rescue was, say, less than 40%. In the new environment we saw that even if we gave a value proposition of savings of 15%, population would make a decision. Three years back we would never go to a business if the value proposition was just a 15% saving.

I think right now we are in this phase - where from the lowest our clients have genuinely been growing about 5 to 10%, so we have already seen more cards being issued, more mortgages being given, more population traveling; in the voyage segment that we handle, we are looking a lot of inquire arrival up. And in the last six months most of the companies that have downsized their own labor force, are all believing that there is going to be some increase in the next six to 12 months. Albeit, these companies are not convinced that this increase is going to be sustainable; population are ordinarily believe that 2012, is where they will see a increase equal to what they saw in 2007-2008. So the value proposition that we are gift to our clients is: 'you guys have come out with a plan for next year that talks about 10% increase versus the bottom; rather than you building your own capacity and population why don't you look at working with us, because you can turn on the tap or turn off the tap with us, whereas it's more difficult for you guys to do it in your environment where it's costly and more regulated.'

Sson: looking forward then, Susir, what now do you see as the biggest challenges facing outsourcing providers? And how are you positioning Intelenet to overcome these?

Sk: Just to give you a summary: over the last, say, 18 months to 20 months, we've genuinely seen a reduction or a contraction of our existing business of around 10% to 15%. But there is new inquire which is offsetting this shrinkage, and net-net we are still looking a 10% growth. The good news is that population are development faster decisions and looking at outsourcing more. Because of these many reasons and the fact that we are giving them capacity as a value rather than just cost, there has been a increase in our existing-to-new business, to the extent of roughly 25%, which after offsetting the 10%-15% shrinkage still accounts for 10% net growth. So that's the lowest line of the whole thing.

People are also negotiating more. And population have genuinely tested the shop in the last 18 to 24 months and trying to squeeze a itsybitsy more out of service providers like us. When they came in Straight through this phase of retreat and asked us for a 5% or 10% discount, we gave it to them because these are long-term relationships, and we have to reciprocate in some form in their time of difficulty. Now this is becoming a new norm for pricing.

We have also learned in the last 18 months or 24 months to run the operations more efficiently. So what we have been telling the clients in the last 18 months is, "ok, you guys want a 10% discount, we'll give you a 10% discount. But don't dictate to me in terms of where the operations should be run from, what should be the span of control, what should be the kind of technology - you tell me what is the end ensue you want, in terms of efficiencies, in terms of turnaround times, in terms of accuracy, and let me rule how and from where to run the operations, and I'll give you the 10% discount." So what has happened in the last 18-24 months is we have been given the leisure to rule how to run and from where to run the operation.

Net-net, though we have reduced the price, we have been able to get the same margin as what we were getting in the past..

Another big challenge is that population are request for more and more financially structured deals, rather than the quarterly outsourcing which is a per-Ft price or a per-transaction price; it's becoming a itsybitsy more complex. They are request us to fund the redundancy, they are request us to fund the set-up costs; there are a few clients that are request us to take an outcome-based pricing, and we're taking more and more of that. I think from a risk perspective, we are now required to factor in if at all we have funded the redundancy - and if the covenant is say over a period of 5 years, if it genuinely gets done before that, then we will not have to cover the whole funding of redundancy that we have done.

Companies are also arrival and telling us, "guys, just take our execution lock stock and barrel, and you guys rule the onshore/offshore mix, etc: this is what we want as outcomes." And what that means to us is investment; taking over the risk of pensions of these employees and costs related with just aligning that new business that we buy out with our business, and so on and so forth. In the last six months we have done about five acquisitions of just the back-end operations of a company. And that all the time has the challenge of integration - and the risks.

Sson: That's an tantalizing point: at the moment we're looking a lot of Bpos buying into shared services captives, for example Cognizant and Ubs: is that something on your schedule for 2010?

Sk: Yes they are, and actually, one of the advantages we have is we're not a listed company, and being a part of Blackstone, we do have passage to capital. When you collect a back office of an existing company, what you need is capital, and an quality to take the impact on your P&Ls for the first six months or a year of buying out the company.

For example, if I were to buy the back office of an existing company, the business would expect a reduction of costs of, say, 20%. In the moment that you buy it and you start billing 20% less the next day, you're genuinely incurring a loss in your books, because the cost buildings and the way the operations are designed needs you to spend, for example, 100 and you're only genuinely billing the client about 90. There's a hole in your P&L. Only after about six months to one year you will start reducing your costs, you will start building efficiencies in the processes and so on and so forth, and you will be able to bring down your costs from 100 to, say, 80 or so - and because the client is paying 90, you start development a profit of 10. What this means to us is it will impact on our P&L accounts for a period of one year. But because we are not listed it genuinely doesn't matter to us; and the good thing is, ordinarily when you do a transaction like this we ask them for a lock-in - to supply us a commitment of business for a period of time. And as I told you we did about five transactions in the last six months: all of those five transactions have come with a earnings commitment for a period of time. You will see us do more and more of these kinds of deals both onshore as well as offshore.

Sson: Who have you done transactions with over the last five months?

Sk: We have done one transaction with one of the large banks, we are about to quit off a transaction in the Uk. We bought two captives from voyage companies, we bought one captive from a very large bank, we about to buy one very large captive from a vehicle business in the Uk and we have also bought other business in the sell space, reasonably big: about 200-300 seats.

Sson: tantalizing on, Susir - let's take a look at healthcare? We are running this a Us healthcare series with Intelenet, can you give us some understanding into the work you are doing directly in this space?

Sk: There are two things. Firstly, Blackstone has about ten companies in the healthcare space in the Us, whether on the provider side and the payer side. Secondly, we are looking towards the regulatory changes that are taking place in the Us: The new regulations will mean if a person in the Us goes and applies for insurance, that person has to be given an guarnatee policy. Today they may just go and tell a buyer that they will not give guarnatee coverage at all. The Obama administration is opening up guarnatee in that, earlier, guarnatee companies could only supply guarnatee for population in a single jurisdiction - which could be a single state, for example the state of Arizona. Now they have allowed these guarnatee players to give guarnatee policies over the United States.

So taking Arizona again for example - say there were four large guarnatee companies giving condition insurance; all of a sudden now there are companies from New York that are issuing polices in Arizona, there are companies in Texas issuing policies in Arizona. The amount of companies genuinely providing guarnatee cover has gone up by virtue of this new regulation. So in suammary, they cannot deny population coverage and the competition has genuinely gone up. By virtue of this we believe that both the guarnatee payers and guarnatee providers will have an implication on their cost and profitability.

A new code is also being prescribed. If you look at any curative diagnosis or policy in the Us or over the globe, it needs to be codified. For example if person is diagnosed with four ailments, each of those needs to be coded; or if some surgical operation has been performed on a single person then this again needs to be coded. This coding helps to keep curative records, and also helps to pay the guarnatee business and the hospitals - so guarnatee companies use this code to work out how much to pay for hospitals based on whatever ailments they have. Now this code is undergoing a turn from what is called an Icd9 to an Icd10 which increases and changes the way things are codified.

So what does all of this mean to companies? Firstly, they will need to retrain their population in coding, they need to turn the systems that they use for coding and, because the amount of codes has gone up, they need to get more population into coding. The government will monitor payers and providers to make sure the coding is done properly. All of this will cause a huge impact on the healthcare companies in terms of costs and profitability so our value proposition at this point in time is that we can come in and help with codification. You don't need to train population at your end, because we can whether get these population onshore in the Us or we can help you with an offshore solution. When you supply an offshore solution, the cost comes down - or it helps with the new issue we have in terms of competition and the universal access. As we have passage to the ten companies in the Blackstone portfolio, we are already doing work for a few of them, we can just leverage this expertise and get over the whole market. So the imagine we are focusing on the Us is, one, to take benefit of the new situation, and two, to leverage the expertise we are already building by virtue of doing work for a few of these Blackstone portfolio companies, both on the payer and the provider side.

Suresh Ramani: I think if you were to draw a context of where Us healthcare has been traditionally and where it is moving, I think there is cause for worry. If you look at the spend in 2008, they spent about .4 trillion on healthcare - which is about 17% of Gdp - and of that .4 trillion, 80% of that went to 20% of the population of the Us of the insured. That amount today is going to double, within the next eight years the spend on healthcare will be about .5 trillion. So you can see the exponential increase and with all the reforms which Susir has talked about, such as universal passage and going exterior the state to insure, the risk appetite of all the providers is going to go up.

The other big piece is the unfunded mandates which are the conversions of Icd9 to Icd10 which as a program, I think, whether other countries have adopted, the Us has to adopt, and that will be a regulation which has to come into ensue by 2012. So, these are again costs that the providers and payers need to absorb.

Another big component to this is in terms of the reimbursements which will come down, because the Obama administration wants about 0 billion out of the spend to pay off the deficit. So if all this is going to happen, the payers have to focus on their operating costs if at all they are to survive - or there will have to be a story of consolidation or elimination out of the 1,800 payers in the American market.

There is also the issue of regulatory compliance. With all these changes, it is difficult to keep processes up to date; as a ensue healthcare guarnatee carriers are not meeting obligations to the state, to the federal government - and they are paying huge penalties. So Intelenet can step in here and fix these problems. The most prominent piece to that is not only do we consult but we genuinely implement process improvements. The other piece to this is that we get solutions which are both Bpo and technology related so there is process optimization that we focus on and an enabler to that is outsourcing or offshoring. So clearly three things: regulatory compliance, driving down operational costs and enhancing quality, I think are our three pillars, if you will, of our service delivery.

Sson: Susir, you talked about the services that are being outsourced: processes and yielding etc, and you mentioned coding. What other services do you expect the healthcare business in the Us to outsource to you?

Sk: There are two sets of population in this space: providers - basically hospitals and payers who are the guarnatee companies. On the providers' side, there are also companies which supply curative equipment - so again other huge market. For example, the services we supply for hospitals are coding, billing services, touch town support, claiming monies from guarnatee companies - if somebody goes Straight through a policy then we need to ensure that the physician writes it on a form and the form is scanned and it comes to us - we need the machine, we need to do the right coding, we need to send it to the guarnatee business to check that it is covered. If it is not covered by the guarnatee and it's a deductible amount, we need to go after the insured. Then we need to raise a bill and say the payers challenge what we have invoiced, we negotiate and close those issues. Then there are complaints, and complaints management. On the payers side we receive invoices, we pay invoices, and we reconcile accounts.

Sson: Are you providing these services from onshore or are you providing from locations in India?

Sk: There are clients who are request us to do some piece of work onshore in our location, or in near-shore locations, or offshore. So, we are working with all of the models. We are gift clients both India and the Philippines. The Philippines has a lot of nurses who are whether looking at going to the U.S. Or who have returned back from the U.S. So that is a big pool that we are tapping into to say that "if you work with us in the healthcare space, it may be an added touch for you guys when you seek a job in the U.S". Or for population who have come back from the Us, when they already know the nuances and systems there, they can be easily employed in an environment such as the Philippines. We also have a site in Poland, again a good site from where we supply services in healthcare.

Sson: You are obviously looking very intimately at the Us healthcare space; do you foresee Intelenet maybe expanding into other countries?

Sk: We have had a client from the Uk for the past 8 years. But as there is a huge inquire now from the Us, we are all focused on the Us. [But] we will be going beyond the Us to other geographies. India itself is a huge market. The amount of population who are getting covered under guarnatee in India is huge; everybody now wants cover and there are a lot of healthcare companies, both on the provider and payer sides, arrival into India. This is a fully new shop for us.

Sson: So why do you think new customers - within the Us or India added down the line - should sign with you as opposed to any of your competitors?

Sk: I did mention to you that we have about ten companies in the Blackstone portfolio, all of whom we're working with pretty intimately - and the work that they give us covers roughly the whole range of work that healthcare guarnatee companies look at outsourcing. Now these companies have not been used to offshoring and outsourcing as much as the financial services sector, and one big thing they will look for is, "are you guys genuinely doing this, why I am looking at outsourcing?" And we are able to demonstrate an actual live case of the work they're expecting to outsource. Also what we have done is significantly enhanced our administration of healthcare, so we have of late recruited about half a dozen population who are some of the best-known population in the healthcare business in the Us; these are the guys who genuinely build applications for healthcare companies. We're also leveraging, Straight through the Blackstone portfolio, networking with population who are genuinely working in the companies, to see how they can work along with us, to build solutions for some of the companies in the U.S. We have a schedule where we can genuinely import population who are working with healthcare companies as part of the Intelenet team.

Sson: What other sectors do you think will supply you with the most scope for expansion over the next few years?

Suresh Ramani: I think there are some key areas that are going to grow in the Us market. One is utilities and the second is government spends, but healthcare makes the biggest increase pie. Clearly speaking for us as an society the Us contributes about one third of our revenues. We're equally distributed in the Indian shop as well as the Uk market. On an farranging basis we see the banking business again moving, not at an aggressive pace, but at a reasonable pace over the next 18-24 months; we can see some good traction in the marketplace. And we are very strong in the banking and financial services space. We have today close to about 8,000 population working in this market, and doing all the types of processing that you can think of doing for a bank. In short, if we had the money, we would be a bank ourselves!

Another area of increase for us is voyage and hospitality. Susir started off pointing out that population are not travelling so much, but it's a matter of time: when the economy starts looking up, there will be inquire for voyage as well as hotels. So that's an area where we already have invested, both onshore and offshore and we have close to about 3,000 population in that space, so that's again a focus area for us.

Telecoms is a focus for us especially in the Indian market; that's a sunrise industry, with every month about 1 million customers being added in the Indian shop space. Telecoms account for close to about 10% of our revenues today. And of policy we are getting into new markets: Australia, we have a proximity there, and we also do work for utility companies from Australia. The Middle East is again a good opening that we see for banking. And Europe of policy with Poland arrival in. We also have a town in Mauritius which caters for French opportunities. And all this will give us an identity of being a global player located in these markets who also can do work for these markets from low-cost destinations. So clearly we are tantalizing away from a brand identity of an Indian-based Bpo provider to a global Bpo provider.

Sson: And is acquiring businesses in those locations a key priority for you?

Suresh Ramani: Absolutely. Like, in the Us we already have two centers up and running with close to a thousand people; we have a partner signed in Australia. Susir talked about having a site in the Uk now. So big markets, yes, genuinely I think that's a increase machine for us. We want to be present with a reasonable population in each of these countries.

Sson: Where would you like to see Intelenet in five years' time?

Sk: What we're genuinely trying to be is a one-stop shop for all the things related with outsourcing and offshoring. There are companies who want multilingual solutions; there are companies who want multi-geography solutions; there are companies who want consultancy solutions; there are companies who want technology solutions; there are companies who want actual business process solutions, which might be whether in terms of costs or in terms of efficiency; there are companies who want analytics. So everything which is a pain around the business process side, is what we want to genuinely provide. That's our focus; in the next five years that's what we want to be: a business that can design, a business that can put in the relevant technology for implementing the design, and a business that can execute the business process. So we are looking at a one-stop shop for all the things related with the business process.

Sson: Comparing yourself with other Indian Bpos such as Wipro or Tata - there's plentifulness that have emerged out of India - how would you put yourself at the forefront, as an organization?

Sk: If you look at Wipro and Tcs - all the It companies, all the large Indian It companies, they are predominantly focused on It and Bpo is a sub-segment of it. If you look at the division of earnings that comes from Bpo versus It, Bpo is a very small component. Compared with the It companies, we are a focused Bpo business - and I think that population who are seeking a large impact, like telecom companies or sell companies or banking companies, who have a lot of dependency on good operations to get in new business in new markets, they in the long term would rather work with a focused Bpo business than an It business that has got a subset of Bpo, amount one.

What we do is basically bolt on technologies which can build efficiencies into the processes that are outsourced or offshored - so we have scanning solutions, workflow solutions, Erm solutions, etc. Whereas the approach that an It business takes is to build a solution. So that's a contrast in the middle of the two of us. There are instances where we lose deals to some of these It companies; there are instances where we win deals against them. It depends how the buyer is looking at it: if they want more It and less Bpo they'll go to companies like Tcs or Wipro. If they're looking at specialized Bpo services, they come to us.

There's also going to be competition from the Accentures and the Ibms of this world; but I think there are also issues with them in terms of cost, in terms of flexibility, in terms of speed, and that they've become too big, and we think very clearly we have an advantageous position against these guys because of the size and nimbleness and speed and the flexibility with which we can clear transactions. That's where we have seen we have been able to win deals against these guys.

Sson: And do you think yourselves competing on price?

Suresh Ramani: Absolutely. We are best in class.

Sson: Of policy you're going to say that! Finally, I'd like to ask you: what is your definition of the exquisite outsourcing relationship? And the exquisite client?

Sk: I think in terms of the services that we provide, everybody provides more or less a similar service. In the long term what genuinely matters is the element of trust. And my definition of a true association in the middle of the business that is outsourcing and the business that is providing a service is that you can genuinely live like a partner. So for example if you see the retreat that we've had in the last 24 months, population have come and asked us for things which aren't written in the contract. They've said, "we've genuinely given you a commitment of a minimum, a minimum commitment of so much: I can't live up to the minimum for the following reasons." Have we gone and sued them? Or have we genuinely recognized that there has been a difficulty? I have not gone by the pure letter of the contract, but genuinely responded like a true partner, and helped population Straight through difficult times. And they have responded back, most of the companies to whom I gave discounts and to whom I let off a lot of conditions in the contract, have in the last three to six months come back and said "look, Susir, we're looking at something new, and we genuinely want to work with you; we don't want to call for an Rfp, we just want to stick with you guys because we trust you."

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