Russell Perkins’ posting on the possible acquisition of the Thomson Reuters healthcare information division by Infosys, India’s number two outsourcing firm, got me thinking about the relationship of BPO (business process outsourcing) customers to their vendors.
According to Reuters the rumored purchase price is $750 million and the division’s revenues were $450 million in 2010. If these data are accurate, then the reason for the sale seems to be that the division is not as profitable as it should be and Thomson-Reuters doesn’t see a quick way to solve that problem. Infosys can theoretically cut the division’s operating costs roughly in half by moving as much as possible of the business to India, which would boost the division’s profit margins considerably, and that’s a whole lot of money considering that those costs are likely to be around half a billion dollars a year. If executed perfectly, the acquisition pays for itself very quickly.
However, this deal is fraught with many, many risks for Infosys. First of all, there will likely be a substantial expense related to cutting loose resources outside of India. Next comes the always tricky issue of executing such a massive transition. Unlike acquisitions made by traditional publishers where physical operations are often untouched, for this deal to deliver the desired cost-savings it would involve a massive and complex transfer of responsibilities.
Perhaps the most important risk to Infosys, though, is in crossing that line between being a neutral vendor to the publishing/information industry to being a potential competitor with their customers. There are several very good reasons that publishing customers should not choose to work with a BPO that is also a publisher. Just imagine what the non-compete clause would look like in an agreement between Infosys and any of the world’s largest publishers since most of them are major healthcare info players. I would guess that if a healthcare info publisher had a choice between Infosys and any other vendor then those other vendors would win 9 times out of 10.
The converse of this situation – publishers who own BPOs – is a far more common state of affairs and it carries the same sort of risk to a publisher looking to outsource. Three of the world’s largest publishers own, or have substantial stakes in, Indian BPO firms that serve the publishing industry.
- Holtzbrinck owns Macmillan Publishing Services, one of India’s biggest prepress services providers.
- Springer owns Scientific Publishing Services (SPS), another of India’s largest prepress services providers.
- Dun & Bradstreet owns a minority stake in IT outsourcer and BPO Cognizant.
Publishing firms that own outsourcing firms get the enormous benefit of outsourcing services at the lowest possible cost, but publishers looking to work with these firms need to be aware of the potential conflict of interest. I am not suggesting that anything nefarious goes on at these reputable firms, but it is a risk that can go completely unrecognized by the prospective customer.
We shall see how the Infosys deal plays out, but, whatever happens, it is clear that companies purchasing outsourcing services need to be on their toes to make sure they know who really runs the show at prospective vendor firms.
posted by Matt Manning on September 16, 2011
