eTelecare Loses It

How would you like to be the relationship manager at eTelecare Global Solutions who just lost a major account? The Manila-based company, which debuted on the Nasdaq just a few months ago, saw its shares drop below its IPO price after it disclosed that the "significant client" cancelled a program that brought in $15.6 million in revenue during the first half of 2007.

Customer churn is part and parcel of the BPO business, but when you are a newbie company touting the superiority of your outsourcing practices, losing a major customer deals a body blow to your reputation.

eTelecare expects 2007 annual revenues to be in the range of $240 million to $250 million, with net income of $19.2 million to $21.5 million, or $0.63 to $0.71 per diluted ADS. This compares to the previous guidance for 2007 annual revenues in the range of $250 million to $260 million, with net income of $22 million to $25 million, or $0.72 to $0.82 per diluted ADS.

Which customer did the BPO lose? From ETEL's prospectus:

As of December 31, 2006, we had 21 active clients for which we had performed 51 different programs since January 2006. We have a particular expertise in communications, technology and financial services. We also serve clients in the travel and hospitality, media and retail industries. Our largest clients in terms of revenue are American Express, AOL, Cingular, Dell, Intuit, Sprint and Vonage.

Catching the wave

When you seen an industry booming, you always ask: how long will the good times roll?

The acronym to know when it comes to the Philippines is BPO, for business process outsourcing. The term encompasses the traditional call center, where companies telemarket their servcies, handle customer inquiries, and solve billing disputes. BPO also includes industries such as legal/medical transcription, cartoon animation, engineering design, and publishing.

In the Philippines, watching the stream of BPO corporate announcements and counting the amount of call center openings in major dailies, it feels like the Southeast Asian country has just caught the early part of an outsourcing tsunami that will fundamentally alter its economy and fuel a powerful multi-year expansion.

Take this piece of news. Dell, the world's largest PC maker until its hiccups last year, just expanded its presence in the country. Mind you, this is a company that responded to complaints from customers who could not understand Indian accents by promising not to route tech-support calls to the subcontinent.

American computer maker Dell Inc. opened its second customer call center in the Philippines Thursday (March 1), bringing the number of local employees to 2,600, a company official said.
"We’re growing quite rapidly," Dick Hunter, Dell’s vice president for customer experience, told a news conference.
He said the company plans to hire about 100 people per month until it reaches the target of about 2,600 employees.
"Our expansion is evidence of the quality and talent of professionals here in the Philippines," he said.
Dell’s customer contact network includes more than 25 locations globally.

What should the Philippines thank for this industry where employment has shot up 10-fold to 200,000 in less than five years, and is forecast to create another 800,000 jobs by 2011? As a former American colony, it has the cultural affinity with the U.S. Proof? Basketball, not football (for Americans in the audience: soccer), is the most popular sport in the country. And it has an educational system (though deteriorating) that each year produces more graduates than jobs, so that means lack of labor won't be a constraint.

What will sustain this long boom? Continuing pressure in the U.S. to cut costs; and the "word-of-mouth" spreading among consultants, multinationals, and the whole BPO ecosystem that THIS is the place to be.

Dell's press release: "With its English-savvy population, about 100 similar facilities in place and 650,000 students, the Philippines is fast becoming the contact center location of choice in Southeast Asia."