The Resource Group (TRG) proposed to raise Rs 600
million through private placement and Initial Public Offering. The TRG
concept is centered around labour arbitrage between the US and Pakistan.
It consist of the acquisition of mature US telephone answering services
and small call centers and significantly improving the profitability of
its portfolio of acquired companies by shifting their service delivery
to its low cost, offshore facilities in Pakistan.
Currently, TRG revenues drive from its controlling
stake in its first acquisition — the Alert Communications Corporation,
an outsourced call center corporation with three facilities in the Log
Angles area. For the twelve months ending September 2002, Alert
generated revenues of US$ 8.8 million. Alert maintains an average
workforce of 170 full time employee-equivalent, of which 40 or 25 per
cent have already been located to Lahore. TRG expects that the share of
Pakistan-based employees is expected to rise to 66 per cent of its full
time employees by March 2003.
To date, TRG has grown consolidated revenues solely
through the acquisition of existing US business, and intends to continue
to grow through this acquisition strategy. TRG's policy of acquisition
is essentially marketing process designed to provide captive business to
its Pakistan facility. This strategy is in contrast to the more common
approach among offshore providers of attempting to grow revenues through
a strategy of direct marketing to potential end-users of business
For its acquisition, TRG is focused on those call
center companies that have a large number of small customers. In the US,
such companies are traditionally referred to as small call centers (SCC)
or telephone answering services (TAS) SCC and TAS company customers are
characterized by low buyer power and high switching costs as a
proportion of spend. Accordingly, it is TRG, rather than customers of
TRG's portfolio companies, that is in a position to capture the majority
of economic value created by the labour offshoring process.
Acquisition valuation in the US SCC and TAS sectors
allow for significantly above-market returns in the pursuit of such a
strategy. TRG only undertakes acquisitions in which a US dollar
denominated internal rate of return subsequent to offshore migration in
excess of 40 per cent is clearly demonstrable. TRG makes partial
acquisitions reflecting equity interest of 50 to 60 per cent in its
target companies, with existing owners and management retaining the
balance. This aligns the incentives of existing portfolio company
management teams with TRG and encourages them to maintain US sales,
marketing and front office efforts. TRG maintains full management
control over its acquisitions.
TRG's sponsors consist of the management team that
established and grew Align Technology's global offshore operations, as
well as prominent individual investors in the US and Europe. In their
previous capacities, TRG's sponsors operated offshore facilities
employing over 1,000 people in multiple offshore locations in Lahore,
Costa Rica, Dubai and Mexico. TRG's sponsors were the largest IT
industry operators in Pakistan, employing over 700 people in graphic
design, software engineering and call center operations. The
International call center established by the TRG team was the first and
the largest such operation in Pakistan, and has won significant
international commendations as a model offshore facility.
Alongwith the GoP, Zia Chishti, co-founder of Align,
hopes to develop a new growth model in his native country, building
novel economic ties with the US and finally putting Pakistan on the map
of the globalizing service economy. Over the past decade and a half,
falling international-telecommunications costs and low overseas wages
have persuaded a growing number of Western companies to source
customer-interaction services to remote offices across the globe.
According to McKinsey and Company, the US-based consuling firm, the
world market for remote services will grow to US$ 142 billion by year
2008, a 15-fold increase within 10 years.
TRG is certainly looking to the future with cautious
optimism. While the politics of the subcontinent leaves many observers
worried, TRG hopes it has struck a model that will both allow Pakistanis
to share the rewards of the global economy and have the US investors
smiling all the way to the bank.