Global consolidation will be BPO mantra: report

The low cost advantage and broken business model, which are the key drivers of the outsourcing, will lead to a phase of widespread consolidation of global outsourcing units in the next couple of years, according to a research report from Forrester Research.

Even the top-tier Indian firms will have to rely on acquisitions to compete with global giants like IBM, EDS or CSC.

The report analyses potential buyouts of global outsourcers by private-equity firms as well as the trend among the outsourcing industry leaders' scramble to buy or be bought.

It indicates that leading equity buyers believe there's an opportunity to make money fast in the outsourcing space, and that mergers and acquisitions could dominate this space mainly due to double-digit growth in new deals, long-term contracts, and the popularity of outsourcing.

The report adds that given the recent hostile takeover attempts in this space globally, expectations of seeing many leading outsourcers making aggressive moves to protect their businesses.

These strategies will range from acquiring other competitors to acquiring their own stock. Already, there are firms (like EDS, CSC, ACS) that have made moves on these lines.

For the top-tier Indian firms, the report asserts they will likely have to acquire either BPO firms with vertical industry knowledge or "� infrastructure outsourcers with experience of managing servers, desktops, or networks if they are going to compete head-to-head with top global firms.

The report states the level of experience required before a customer will trust its operations to a third party is something the Indian outsourcers do not have yet. So they will likely have to buy their way in by acquiring firms - or similar firms - such as Getronics or Siemens Business Services.

According to the report, in a leveraged buyout scenario of a major outsourcer, shareholders and the private equity firms will emerge likely winners; but the universal loser in all of this will almost certainly be the outsourcing customer.