'We choose verticals that focus on end users'

The Nasscom-McKinsey Perspective 2020 report notes that healthcare will emerge as a very big opportunity for outsourcing services. Ananda Mukerji, managing director and chief executive officer of Firstsource, feels his company is in the right place to make its mark in the global BPO business.

The outsourced healthcare space represents an approximately $17-billion opportunity in the US alone. The industry is expected to grow at over 50 per cent compounded annual growth rate over the next five years.

With healthcare contributing close to 40 per cent of its revenue, the sixth-largest BPO player's early bet on the segment seems to be paying off. Mukerji spoke with Shivani Shinde on how its healthcare acquisitions have panned out and the way forward. Excerpts:

Unlike most IT-BPO firms, you appear to be focusing on verticals rather than broader horizontal sectors. . .

When we looked at the industry and the space we wanted to be in, we decided not to be in the horizontal space (like human resources outsourcing, finance & accounting, etc), which was already crowded with big firms. However, when we started business, we did not have a vertical focus (2002-03).

At one point of time, around 60-70 per cent of our revenue came from the banking, financial services and insurance segment. The rest came from a host of sectors, like transportation, travel and retail, which comprised around 30 per cent of our revenue in 2004-2005, but has fallen to a mere 2 per cent currently.

This implies that our focus has shifted drastically.

Now we concentrate primarily on the BFSI, healthcare and telecom & media sectors, besides the Asia geography (currently only India, which accounts for slightly over 11 per cent of the top line). We reasoned this would help us to develop capabilities and look at how we could extend our services' offering. It will take probably more than a year for us to see the benefits of this change.

Has your bet on the healthcare vertical paid off?

We choose verticals that focus on end users (B2C -- or Business to Consumer -- segment), or which have the opportunity of large transactions. Hence, the presence in telecom and healthcare other than BFSI. But even within healthcare, we are not into life insurance.

We are into health insurance. We were planning to get into this market since 2004. And acquisition was a route we thought was best.

At that time, no one saw it as an opportunity. But we acquired three companies. RevIT gave us the whole offshore claims processing capability and customers.

BPM gave onshore and claims adjudication and a more complex expertise. These two, however, were really small and more tactical in nature. MedAssist, our third buyout, was more of a strategic move.

How has the MedAssist buyout worked for you?

At this point, we are still focused on the US market. One of the things we are doing with MedAssist is to increase its growth rate. For a couple of years, it had not been growing at the speed we would have liked it to. So, for the first year or so, we invested in revamping the sales team and increased investment in SG&A.

We are seeing the pipeline grow.

We also have a strategic group that is looking into cross selling into the payer and the provider side. We are also looking at the UK market, but have not yet gone there aggressively. The other market is India. Because of bandwidth issues, we have not been able to grow the India market as we have been growing in the US.

But has the healthcare vertical been fully immune to the slowdown?

This segment is not susceptible to normal business cycles. The current business environment is a serious recession, bordering on depression, and the US has never seen this kind of unemployment.

That drives less consumption of healthcare products and, hence, the drop in volumes. But we continue to increase our coverage of the healthcare market.

This quarter, we signed over 30 clients in this segment.

How do you see the healthcare segment growing?

With the US healthcare reform initiative, the industry will undergo a major restructuring. We think, by the end of this year, the new bill should come up.

The focus of the bill is to make healthcare more affordable and to increase coverage. We think there is a lot of opportunity for players like us who are in that space, have customers and have the understanding and coverage of this sector.

While there will be challenges in the short term due to the economic environment, from the medium term perspective this is a exciting market.

Image: Ananda Mukerji