Even as the IT and BPO industry In India have started showing signs of recovery from the global economic slump, about 12 small and middle-level outsourcing companies in India, struggling to keep afloat owing to declining profits, stretched operational resources and absence of development prospects, have authorized their banks to look for prospective buyers.

A report quoting five investment bankers who are aware with the occurrence said that the figure of BPO companies contacting the banks with requests to find suitable buyers for them have swelled two to four times during the last few months. While the bankers refused to identify any such BPO company on the pretext of confidentiality, they revealed that majority of such small and middle-level business process outsourcing firms have been providing fundamental services to domestic clients and are no longer in a position to compete with their superior rivals that are not only three to ten-folds their size, but are also offering more complicated outsourcing services.

According to the president and main investor of a New Delhi-based 2000-seater BPO firm TriNet Soulutions Pvt. Ltd., Gopal N. Iyer, his company had created basic competency in the financial and telecom sector, but is now grappling for survival, as most clients are demanding end-to-end solutions. Presently, the company is in the process of negotiating a complete takeover with prospective buyers. Mr. Iyer said they were compelled to make such a harsh choice because of the constraints faced by them in undertaking expansion activities. His problem is that even private equity companies have declined to fund them on the pretext that the company was not big enough for making any outlay.

Meanwhile, a NASSCOM report published last February stated that the ascend of the BPO industry in India, which initially focused on basic outsourcing services and voice-based renderings to domestic as well as overseas clients, was primarily owing to a vast English-speaking populace as well as cost efficiency. However, as the industry established, the firms concentrated on converting client business by means of an assortment of technology enablement, re-engineering expertise and novel delivery systems. In such a scenario, it has become difficult for the small and middle-level BPO companies having 500 to 3,000 seats to compete with their business rivals. Simultaneously, the dwindling profits and escalation in salaries and other expenditures have virtually made their sustenance difficult.

Incidentally, experts in the business process outsourcing industry have pointed out that though many foreign firms are exploring prospects of acquiring BPO companies in India, no agreement has been made in this direction thus far owing to absence of precise synergies. In such an instance, consolidation is possible in the industry provided the bigger domestic firms took over the small and middle-level companies struggling to sustain. According to MAPE Advisory Group, associate vice-president Krishna Saraswati, merger of domestic firms with no transfer of cash would be a perfect idea, considering the fact that they consent to on an evaluation.