PDF: 2962 pages, 5.2 MB - Bay Area Council Economic Institute

Software/IT Services/Business Process Outsourcing
Calibrated, another outsourcing company with Bay Area connections, followed a
somewhat different model. The company was started in the U.S. by three partners—
Arjun Bhagat, Mark Broido, and Madha Vijayan—based on their experience as cofounders
of RMSI, company that produced software for the insurance industry with technology
licensed from Stanford. RMSI had successfully established a captive center to support back
office work.
When RMSI was sold, the three partners devised a hybrid model—to effectively outsource captive
centers. The idea, as CFO Mark Broido describes it, is to create something that looks and
feels like your own Indian office, but minimizes the problems of long-distance management:
“It’s the difference between saying ‘we’re going to outsource to India’ and ‘we’re going to open
an office in India’.” Its helps companies come to India, set up operations, and lease the infrastructure
they need. Calibrated’s human resources department recruits staff, and senior management
oversees the operations. The resulting center then bears the client’s name, and operates as a
joint venture in which Calibrated shares equity.
Broido notes that the goal of using third-party vendors (where clients lack control) for back office
operations is traditionally to save money, while Calibrated’s goal is to build assets. A small
company by Indian standards, Calibrated’s work mostly focuses on data processing, such as collections
and claims processing.
Asked how the Calibrated’s business model helps create value, Broido cites a partner whose
business is debt collection. Since coming to India, the company has created a new portfolio of
debt in the $200–700 dollar range. In the past, there was no market for debt under $700 because
of the cost of collecting. Now, because the company can afford to call and follow up, collection
is possible and a new market exists. While Calibrated’s operations are entirely in India, the company
in managed by Bhaghat, Broido, and Vijayan from their homes in Menlo Park, La Jolla and
Venice Beach.
A Tough Time for IT
In recent years, India’s major IT companies have seen average annual growth of up to 40%. But
earnings have slowed with the world economy, as tech spending is cut back and the global credit
crisis has impacted banks and financial institutions that are among their biggest clients. Companies
such as TCS and Infosys are lowering their revenue forecasts, even as business is shifting from
smaller BPO firms to larger companies.
Infosys reported net profits 28.5% for the year ending in March 2009, and an increase in full-year
revenues of 30%. Much of that, however, reflects a rupee depreciation from 40 to the dollar to
around 50 (90% of Infosys’ client business is in the U.S. and Europe). The company offered
guidance for a 3% to 7% year-on-year revenue decline in 2009–2010. Wipro, which earns 46% of
its revenue from the U.S. and has a larger share of its client base in financial services, has also
experienced a slowdown.
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