Where financial research can lead

I ran across a company called MphasiS today. They're an Indian company, specializing in BPO - Business Process Outsourcing. I stumbled onto them in reference to their telecommunications spending. Noticing their market niche, I wondered what their costs are relative to a US company. This is, after all, to whom the "Benedict Arnold" corporations are turning, is it not? It turns out MphasiS is a private company, so I used Yahoo! Finance data from larger, public competitor Infosys, instead. I compared Infosys to EDS. I'll get back to MphasiS later.

According to Yahoo! Finance, last year Infosys had revenues of $1.73B and 36,800 employees, about $47,000 in revenue per employee. EDS had $20.38B in revenue and 117,000 employees, or $174,000 in revenue per employee. As a rule of thumb, $1M employs 6 people, so the EDS data is close to what I would expect, but at Infosys it appears to employ more than 3 times that number.

I wondered how the figures would change for a large manufacturer with high material and capital costs. GM came in at about $185B in revenue and 324,000 employees, or $571,000 per employee.

Next I checked the revenue per employee figures for a few telecommunications companies. Telecoms have high revenues and low margins because they trade voice minutes and they have to resell third party network pieces to reach their customers. I started with Sprint-Nextel because I believe they are a solid, profitable company, and they do not include any legacy RBOCs. Sprint-Nextel weighed in with a ratio similar to GM's, at about $450,000 of revenue per employee: $27B over 59,900 employees. Two companies struggling to turn a profit, Level 3 and Global Crossing, come in higher even than GM. Level 3 has revenues of $3.8B and 4,500 employees, a ratio of about $850,000 per employee, and Global Crossing is at $2.2B and 3,500, about $630,000 per employee.

It's interesting that Level 3 and Global Crossing are in weak positions, with so much revenue per employee. Revenue numbers don't paint a very accurate picture of a telecom's health, because much of their inbound revenue goes right back out the door to other providers. Telecoms have to support their arbitrage expenses and cost of access, maybe needing somewhere in the neighborhood of $600M gross margin for a 4000-person company. A gross margin percentage over 30% probably puts these firms in good shape, but this is apparently a tough target to hit.

I've gone far afield, but now I return to my initial purpose. I wanted to learn about MphasiS, so I resume browsing their website. You will never guess what I found. Jerry Rao, CEO, is an interesting man. He is a thinker and a businessman; perhaps a philosopher. In a piece titled "Good Word Hunting" from 29 April 2005 he describes a visit with a former prof:

A friend who is going through hard times is a bit distraught. Raja looks at him and quotes from Ramana Maharishi: “Nagaikku edam illai; Arul nagai ittru yennai paar, Arunachala”. The Tamil word “nagai” can mean “laughter” as well as “jewel”. That is the basis of the pun. “There is no place here for laughter” ...or, alternately, “There is no place here for jewels”. The first line sets the stage. And then comes the neurasthenic shock. “Look at me with the jewel/ laughter of your grace, my Lord, the Mountain of Dawn”. My friend smiles and for that minute his cares recede. We are back 35 years, students at the feet of the master without a care in the world (except the unpaid cigarette bills at Nambi’s bunk!)

Who is Jerry Rao, and how does a simple business question lead to a thoughtful column written by a world-famous businessman? Thomas Friedman wrote in 2004 in the NYT that Rao is in the vanguard of the "third great era of globalization."

I'm going to completely skip talk about outsourcing and BPO firms. Who cares, at this point? There's bigger game afoot. Blogger Dilip D'Souza cites Vikram Sequeira's blog, citing Rao, who recently had this to say about Macauley, and the English language (26 May 2005, India Express):

English is not just a medium or a means to an end; it is part of our very consciousness. The interesting thing is even while writing on completely Indian subjects, this consciousness has been a powerful force. Just consider the individuals and their writings: Vivekananda on Vedanta, Coomaraswamy on Indian Art, Aurobindo Ghose on Vedic Mysticism, Radhakrishnan on the Hindu View of Life, Krishnan on Indian Wildlife, Srinivas on Caste, Zakaria on Indian Muslims, Sircar on Indian History, Guha on Indian Cricket, Nandy on Indian Science, Kakkar on Indian Sexuality, Khushwant Singh on Indian Gossip. The list is endless.

It's a big world. I know not a one of those names. On the other hand, it's small. There's more of this. Way more. Not everyone agrees with Rao. I start with a question about enterprise telecom spending, and I end kibbutzing a debate about the soul of India.