2012 year-end results show tepid progress among CRM outsourcers

Peter Ryan, Lead Analyst, IT Services

Through 2012, many CRM outsourcers struggled to adjust to ongoing economic uncertainty, as well as shifting requirements from clients in terms of supporting mobility and social media solutions. However, there were encouraging signs from the standpoint of financial performance, with a number of the sector’s major players managing to moderately increase revenues and maintain profitability.

Going forward, we believe the challenge for many contact centre service players will be to grow their turnovers and margins beyond single digits, a feat that has been difficult for many since the global financial crisis.

CRM outsourcing results for 2012 were encouraging, but not breathtaking

The overall picture for the contact centre outsourcing space at the end of 2012 was relatively positive, but nothing to write home about, with some players posting negative results for the year.

Notwithstanding a solid Q4 performance, there is no question that StarTek’s executives must be feeling some disappointment (and heat) for a 10% year-on-year decline in 2012 revenues and a net loss of $11m. In addition, both TeleTech and Sykes each posted year-end 2012 revenues that are lower than those from 2011 (-1% and -4% respectively).

The story was not all bad among contact centre outsourcers, with several posting gains ranging from modest (such as Sitel with a 1% increase) to moderate (such as Convergys, which grew 5% year on year).

In our view, the standout player in 2012 was Teleperformance, which increased its turnover by approximately 10% from its 2011 levels, and in doing so became the first pure-play contact center services provider to exceed annual revenues of $3bn, which is a remarkable accomplishment in an ever-competitive and price-sensitive industry.

Adjusting business models to increase margins is not easy

In 2013, CRM outsourcers will face the major challenge of how to beef up profitability. Among those we analysed, it was rare to find a firm whose net margins exceeded 6% in 2012 (with some vendors incurring net losses), and by all accounts, price pressure will make it even tougher to increase profitability over the next year.

The cost-cutting options available to outsourcers are limited at best, and offshoring remains unpopular among enterprises in Western Europe, North America, and Australia, (according to Ovum’s most recent Business Trends data). Equally, the home-based agent model, while friendly to both margins and onshore delivery, is still in the early-adoption phase outside of the US, and this is further constraining margin-hungry outsourcers.

In order to increase profitability, vendors will need to offer as much value-added technology and consultancy to clients as possible (such as social media services and analytics/automation solutions), as the ability to draw double-digit margins on the back of agents in workstations is a thing of the past.

New markets are crucial to revenue growth

If the turnovers of CRM outsourcers are to improve in 2013, we feel that the vendor community will need to look beyond traditional western markets, which they have heavily relied on for years, as these markets show limited signs of economic growth.

For instance, economic and consumer growth in developing markets of sizeable scale, including the BRIC locations, Colombia, Mexico, and South Africa, is driving call volumes, value added services, and customer sophistication, and aggressively targeting these markets has proven successful for some outsourcers.

We believe the time has come for CRM outsourcers to diversify their revenue base in markets that would have previously been delivery centers, but which now justify serious consideration as demand markets. To not do so will mean anemic revenue levels for the foreseeable future.

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