Consolidation thru mergers and acquisitions is now shaping the country's business process outsourcing (BPO) industry, setting the stage for tighter competition and bigger stakes.
Call centers are at the forefront of the consolidation process, buying or merging with firms that are into data processing as they struggle to maintain the growth experienced over the past three years.
From just a handful of call center firms at the start of 2000, this sector has ballooned to an estimated 105 companies to date, almost doubling from 2003 to last year.
Just this Friday, telecommunications giant Philippine Long Distance Telephone Co. (PLDT) announced that its wholly owned subsidiary, ePLDT, Inc., is buying BPO firm SPI Technologies, Inc. and all its subsidiaries for a still undisclosed amount.
SPI is already a fixture in the global transcription industry, ranked ninth in the world in terms of size. Its 6,500-employee operation in 23 locations worldwide caters to over 150 company clients, including those in the Fortune 500 list.
PLDT said SPI will complement, expand and maximize the business of its existing call center operation through ePLDT's Ventus call center group, composed of Parlance Systems, Inc., Vocativ Systems, Inc. and ePLDT Ventus, Inc.
Industry experts polled by BusinessWorld described the announcement made by PLDT as "natural and quite expected."
"ePLDT's acquisition of SPI and its subsidiaries is clearly part of the company's long-term plans of becoming a full-pledged BPO," said Cesar Tolentino, senior analyst of Canadian information technology (IT) research and consulting firm XMG, Inc. said.
"We are not surprised at all. It is just appropriate for the mother company [PLDT] to ride on the booming sector. And I think the entire deal, from start to end, will be fully supported by PLDT considering ePLDT is still a small company," investment firm First Grade Holdings managing director Astro del Castillo said.
Nevertheless, Mr. Tolentino warned of changes should the acquisition push through.
"Not all of SPI's subsidiaries will fit in ePLDT's vision of an end- to-end BPO service. So we expect a subsidiary or two being resold after the acquisition. Identifying the jewel among SPI's subsidiaries will be ePLDT's greatest challenge," he said.
SPI's entire portfolio includes a variety of services such as content editorial and production, litigation support coding and electronic data discovery, medical transcription, database structuring and management and transaction processing.
Prior to PLDT's latest announcement, consolidation was already starting to take off in the local industry.
Raneiro M. Borja, chairman of the industry group Business Processing Association of the Philippines (BPA/P), said consolidation is true for any industry in its nascent stage.
"We went through this phase of really rapid growth, the big ones came in and then here comes this phase when the growth tapers off a bit because the base is already there," Mr. Borja said.
"And then you will see some consolidation, merging together to compete better. I think this is healthy as it is only then that you will have more world-class players."
Mr. Borja is also the president of BPO firm PeopleSupport (Philippines), Inc.
In January, PeopleSupport completed the acquisition of California- based Rapid Rapidtext, Inc. and its subsidiary, The Transcription Co., where most of operations will be transferred to the Philippines.
"We are currently evaluating possible mergers and acquisitions ... For a company to be acquired by us, it should present a good strategic fit to our business, there is a good culture fit and third it got to be priced right," Mr. Borja said.
Aside from PeopleSupport-Rapidtext deal, other acquisition deals reported recently include TeleTech Holdings, Inc.'s acquisition of Philippine-based back-office provider FinSource, Inc.; India's Hinduja Group's purchase of homegrown Customer Contact Centre Inc. Phils. (C-Cubed) and Source One Communications Asia Phils.; and Washington-based BPO firm The Resource Group's (TRG) acquisition of another local firm, Callworx.
Tarcisio M. Medalla, chief executive of listed call center firm Paxys, Inc. said call center companies buy data processing companies to maximize their operations during the daytime.
"Seats are almost empty by day time. As a company, we are also keen on expanding our operation via acquisition. I think we will be the one buying them, not them buying us," Mr. Medalla said.
For those BPO firms which sold their operations to bigger companies, the reason has been described as simply needing to "grow more."
"From a mere 24-seat company, Callworx grew to a 220-seat company in two years upon set up. But we realized that we could not grow any more unless we partner with a big player. So we went out and began entertaining investors," said TRG Philippines Managing Director Arnold S. Bagabaldo, who sold Callworx to TRG.
FinSource President Mohan Kulkarni, who sold his company to TeleTech, said "The acquisition makes sense because we (FinSource's founders) are basically individuals, not institutional investors.
"We grew to 110 people and the ongoing expenses start mounting up. We reached this certain level of growth but we want to grow further and go to the next level which is the international client."