Tiny gorilla

Michael Alan Hamlin

Posted on November 1, 2007

With a big appetite…

Introduced in 1997, Hong Kong’s Octopus Card is a nifty convenience item. For about US$6, Hong Kong consumers can purchase the card and use it to store and disburse funds for public transport. When Hong Kong residents wave their wallets and bags over an MTR turnstile, they’re not making a wish, they are paying a fare. The Octopus Card can also be used in some retail stores and restaurants as well.

Like prepaid mobile phone service, which allows subscribers to buy only the credits they need and to conveniently reload when necessary, with an Octopus Card commuters purchase the credits they require for weekly or monthly travel, and avoid the hassle of carrying change or lining up in a queue during rush hour or when trying to be on time for an appointment.

The card is a technology marvel that works almost flawlessly although more than 10 million are in circulation, and are mostly used more than once a day. The system that manages all those transactions instantly calculates and deducts fares from individual card records stored in a massive database, noting whether the commuter is on the MTR or taking a light rail train, bus, ferry, or even The Peak tram, and the distance traveled.

Filipinos, by the way, have good reason to be proud of the Octopus Card system and its record of always on, real-time performance. As a matter of fact, Filipinos can also take pride in similar systems in Taipei and Singapore. Although these smart cards were developed by the U.S.-headquartered Headstrong, the technology is the product of Filipino engineers working in Headstrong’s Manila facility.

Headstrong (Full Discosure: Headstrong is a client of my firm.) was founded in 1981 as James Martin Associates, and specialized in business process engineering. In 1990, it was renamed James Martin & Company, and two years later it became Headstrong. The company today provides consulting (business processes), application outsourcing (software development and maintenance services for direct clients), product development services (consulting and outsourcing services for independent software vendors), and business process outsourcing (such as securities research) services.

According to Arjun Malhotra, chairman & CEO of the company, about two thirds of the company’s resources are focused on business process outsourcing (BPO) services for the capital markets. He expects that focus to tighten, with up to three fourths of the company delivering a variety of securities-related outsourcing services by 2010. Unlike many BPO operations, these services rely heavily on specialized knowledge and skill sets, and are less vulnerable to commoditization than many basic outsourced services.

Another advantage for Headstrong is a shrinking competitive base. As a result, Headstrong is growing organically at about 40 percent a year. While that’s an impressive number, Malhotra told me that he expects the company to grow dramatically over the next three years as a result of a series of strategic acquisitions. Together, growth and expansion is expected to transform Headstrong into a $500 million company.

Noya Terrado, Headstrong’s country manager in the Philippines, said the Philippines will generate 10 percent of those revenues, and grow the local workforce to 2,000. The rest will come from another Global Delivery Center in Noida, India, and a Securities Industry Center of Excellence in Bangalore. According to Puneet Pushkarna, who is the company’s president for Southeast Asia and Australia, there are few competitors in Headstrong’s securities niche, and even fewer who offer their clients the advantages of resources in both India and the Philippines.

That matters to clients for several reasons, he told me, including risk mitigation, variation in skill sets, and even time zones. The company’s 20-year history in Asia is also important to Asian clients as well as multinational clients with operations in Asia. “No company can afford not to be in Asia,” Pushkarna said, “and they value a partner with deep experience here.”

Naturally, there are threats, and the biggest is China, although Malhotra believes it will take a number of years for China to ready itself for the most profitable segments of the global outsourcing market. A more immediate threat to growth is manpower. For example, when a client requires the work of a derivatives expert, Headstrong must be able to provide that expert – or a room full of them – on short notice.

Because financial markets in India and the Philippines aren’t as sophisticated as markets in developed economies, Headstrong recruits “bright people and trains them up,” Malhotra told me. And fortunately for Headstrong, in recent years the company has seen enthusiasm for overseas work wan, diluting the temptation to take those skills elsewhere. “People want to stay in India because of the high quality of work coming into the country,” he told me. Another positive development: 60% of new hires are referrals from employees or former employees, which Malhotra calls alumni.

Malhotra refers to Headstrong as a tiny gorilla, compared to industry stalwarts. And while that’s true, this gorilla has a big appetite, and the resolve to grow big.

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