VideoBut outsourcers still prefer the technical and English-language skills of India's workforce, according to Dana Stiffler, research director at AMR Research. And they value Indian companies' investments in technical infrastructure. "It hasn't reached a point where wage inflation is making India patently unattractive," she says.
Outsourcers have been trying to offset the impact of wage increases in India by negotiating agreements that link levels of inflation to productivity gains. They are also looking to "secondary" cities, such as Chennai, where attrition and inflation are less severe.
BPO vendors in India don't appear to be losing sleep over the changing economic dynamics. "Wage inflation is going to be mitigated quickly," predicts Joseph Sigelman, co-president of OfficeTiger, a BPO division of RR Donnelley with offices in six Indian locations, among others around the globe. With a population of 1 billion, and only 1 million workers in BPO-related industries, India has a large labor pipeline, says Sigelman. And, he adds, the gap between wages in India and the West is still huge. — Allan Richter
Top 10 Most Attractive Outsourcing Destinations*
- India
- China
- Malaysia
- Philippines
- Singapore
- Thailand
- Czech Republic
- Chile
- Canada
- Brazil
Source: A.T. Kearney, 2005
*Based on index of costs, workforce, and business environment
Marriages of Necessity
Nonprofits continue to take pages from the for-profit playbook. The latest business practice to make the transition to the nonprofit world: the merger.
Thanks to a spate of new nonprofits and insufficient funding to match that growth, nonprofits are consolidating rapidly by combining regional divisions or merging with like-minded entities. While no one keeps data on nonprofit mergers, Bob Harrington, a senior manager at La Piana Associates Inc., a California consulting firm that specializes in nonprofit mergers and partnerships, says that inquiries about consolidating nonprofits have doubled over the past two years.
"There are about 120 new nonprofits starting every day, and not enough resources to go around," says Bill Strathmann, CEO of Network for Good. Another reason for the merger push, he says, is that more executives who have worked at for-profit companies in the past are moving to the nonprofit sector and taking their for-profit strategies with them.
Groundspring and Network for Good, the two largest nonprofit providers of Internet-based fund-raising, completed their merger in December 2005. Strathmann says the merger was designed primarily to help the company increase its collective impact and serve more nonprofits. The transaction also placed the company on a path to self-sufficiency, so it could rely less on grant funding.
Merger-minded nonprofits must tackle the usual issues of market share and competitive positions that accompany any merger-and-acquisition deal. But selling the merger can be even more complex than it is with corporate mergers.
"Nonprofits have lots of stakeholders to accommodate, so it's hard to keep everybody happy," says Strathmann. Nonprofit mergers are usually completed in one of three ways: an authorized acquisition of assets similar to a corporate transaction, a grant of assets to one of the legal partners of another organization, or the reorganization of the board of the nonprofit being acquired to gain control of the entity.
No matter what path they take, nonprofit mergers have one advantage over those in the corporate world: no taxes. — Laura DeMars
An LBO Twist
With a new spin on the typical leveraged-buyout formula, the private-equity buyers of Dunkin' Brands, the company behind Dunkin' Donuts, Baskin-Robbins, and Togo's sandwich shops, are financing the deal almost entirely with securitized franchise fees. The $2.4 billion deal is the largest of its kind so far.
According to one observer of the deal, Dunkin' slashed between $30 million and $40 million from annual interest costs by using fees from its 12,000-plus franchisees to secure the loan. The company will pay a fixed rate on the interest-only loan over the first five years.
While such transactions are rare, securitizations of franchise fees could attract more attention. The securities appeal to investors looking for stability in today's choppy markets, says Jeffrey L. Balash, chair of Comstock Capital Partners LLC, a private-capital firm. "They're willing to take a lower yield for more certainty," he says. To pull off the deal, issuers need a revenue stream that's fairly predictable and secure, and that can be segregated from other income.
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