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Merger widens outsourcing geography

Outsourcing specialist Headstrong merges with rival TechSpan to form a $100 million company with operations across India and the Philippines.

Outsourcing specialist Headstrong merged with rival TechSpan on Monday to form a $100 million company with operations across India and the Philippines.

The combined company will continue to be known as Headstrong and will specialize in so-called offshore outsourcing, providing services such as call center customer support through its overseas locations. The company will also provide U.S.-based consulting services with a focus on markets including financial services, manufacturing, technology and the public sector. Terms of the deal were not released.

The new company will operate its headquarters out of Headstrong's Fairfax, Va., offices and will total roughly 900 employees worldwide. Layoffs were not expected as a result of the merger. Headstrong CEO Kevin Dougherty will remain as chief executive of the combined company, with TechSpan CEO Arjun Malhotra serving as its chairman of the board.

Offshore information technology outsourcing, the practice of farming contract work to foreign countries, continues to grow as consulting companies look for a competitive edge in bidding for business. Moving services such as software development and call center support to overseas nations often equates to sizable savings, compared with running the same operations in the United States or Europe.

According to Boston-based AMR Research, the number of IT consulting companies that outsource some services will rise from 20 percent to 50 percent over the next three years, due almost entirely to cost savings. Both India and the Philippines are hot spots for offshore outsourcing growth.

Headstrong claims that the merger establishes the company as the only consulting company with facilities in both India and the Philippines focused exclusively on delivering client-specific services such as call center support. The company also touts itself as operating the largest securities industry outsourcing operation in India.

At least one industry analyst indicated that the geographic mix could bode well for Headstrong. Frances Karamouzis, analyst at Stamford, Conn.-based Gartner said that IT services customers increasingly need service providers with multishore delivery capabilities.

"Consultancies that have an established presence both in India and the Philippines have a key competitive advantage and the ability to offer alternatives for mitigating risks," Karamouzis said.

Offshore outsourcing also continues to stir controversy in the United States, where critics have complained that the trend will have a negative impact on the country's employment rates. However, a recent panel of technology executives and U.S. Department of Commerce officials expressed confidence that companies will eventually reinvest money saved from outsourcing into their home operations.