Instead of share sale, contact centers should consider private capital

MANILA, Philippines - The Philippines’ outsourcing companies should consider attracting private capital to fund their expansion programs, analysts said. Although raising cash through an initial public offering (IPO) remains an option, it may be currently inappropriate since the US subprime crisis has cut the appetite for domestic stocks. Some local companies have already postponed their IPOs, analysts said at a Thursday forum for outsourcing companies. Luz Lorenzo, regional economist of ATR KimEng Capital Partners, Inc. said that the offshoring and outsourcing (O&O) industry is still expanding as evidenced by the track record of India, which holds 45% of the global market. However, the financial turmoil happening in the US is a real challenge, and might expand into greater economic weaknesses in the US and in other developed and developing countries like the Philippines. Lorenzo reminded the local BPOs that bulk of the addressable market that they are targeting—estimated at $450 billion—are in the US and other developed economies. Lorenzo also warned that the appreciation of the currencies of emerging markets, especially those offering outsourcing services, such as India, the Philippines and China, may increase labor cost and this may be an issue for the Philippines whose advantage is low labor cost. She even cited the case of an Indian BPO whose Wall Street clients froze their spending in technology to cope with the fallout. She said this situation might expand to the rest of the world if the BPOs' client base is not big enough. Nevertheless, Lorenzo added that some private equity investors might take the current situation as an opportunity to invest in companies requiring additional capital. She said private equity investors may be interested in these companies because their values are selling at bargain prices. For his part, First Metro Investment Corporation executive vice-president Roberto Juanchito T. Dispo said there are other ways of accessing capital besides the capital market. First Metro, the investment banking arm of Metropolitan Bank & Trust Co. (Metrobank), the country’s second-largest bank in terms of assets, has set aside P5 billion in a strategic equity fund for investments aligned with their objectives. Dispo said First Metro is diversifying its investment portfolio to include most recently power. While it has not yet funded BPOs, he said they are in their radar screen. Dispo added that they are looking at investments worth P1 billion and above while Lorenzo said investments in the range of $5 to $150 million is small. Joey Gurango, chief executive of Gurango Software, a multinational company based in the Philippines which makes software applications, said some BPOs may not need a significant amount of investments because brain power is more valuable for their type of business. Gurango is an entrepreneur and one of his earlier companies was acquired by Microsoft Corporation. The Philippines also offers other types of outsourced services such as software development, animation, medical transcription and back office operations. Based on his experience, he said some investment firms may not consider funding companies requiring capital below $5 million which is why he suggested that they try angel investors. - Veronica C. Silva, GMANews.TV