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Healthcare and outsourcing—hardly the conventional combination for a successful business! But with just one peek into Mumbai-based medical transcription company CBay Systems, you just might change your mind. Just over a decade old, CBay is already the world’s largest company of its kind, transcribing medical records for over 2,400 U.S.- and U.K.-based clients.

Ask founder Raman Kumar how he did it, and he’ll tell you that the choice of business was purely accidental: “Being a non-techie, I wanted to get into a business that had a lot more focus on services than on technology; services was what I could understand easily, being an MBA. We then looked at an industry that is recession-proof, like healthcare.” However, Kumar wasn’t familiar with the industry. After getting an Arts degree from St. Stephen’s College in Delhi, he spent about seven years working as an income tax official in the Revenue Department. He then added an MBA from Yale University to his credentials, only to join the Essar Group as a trade finance specialist.

But in 1998, when the entrepreneurial bug bit, all it took was a small office in suburban Mumbai, a two-person team with some prior knowledge of the business, and an investment of Rs. 50 lakh to create CBay.

Success was instantaneous. In its first year of operations, the company was clocking a turnover of Rs. 3.5 crore. Here’s how. Back then, the United States’ medical transcription industry was worth about Rs. 15,000 crore. There weren’t any Indian players taking advantage of this vast opportunity, with the result that U.S.-based hospitals and physicians off-shored only about five percent of their transcription work to countries like the Philippines and China. With CBay’s arrival, the cost arbitrage and the English language advantage drove clients to India.

There’s more to CBay’s success than the conventional outsourcing advantage, though. Unlike other outsourcing businesses, peak productivity is reached rather slowly in transcription. But the gains come quickly and multiply even faster when manpower is retained. Says Kumar, “Indian transcriptioners start at 1/3rd the [productivity] level of a U.S. transcriptioner on a like-to-like basis—i.e., using the same technology and the same productivity tools. But as we move a year into the account, we see that bridge getting compressed down to about half. And if you’re able to retain the talent, you can bring them right up to 70-75 percent of the U.S. labor.” That means that the same workforce would do twice the work in the second year of operations, at less than double the cost. So, three years into its operations, CBay had revenues of over Rs. 10 crore.

That’s when Raman and his team knew it was time to build capacity and scale up. Girish Kulkarni, Managing Director of TDA Capital (the company that infused Rs. 75 crore into CBay between 2000 and 2005), says that it was a creative scaling strategy that truly helped build the company. “CBay came up with the creative idea of partnering with local entrepreneurs; it set up at 25 locations and partnered with entrepreneurs as a dedicated franchise system. It helped the entrepreneurs attain quality and scalability; they would do the sample filing, checking and stuff like that.”

By 2007, the offshored medical transcription industry had boomed to nearly Rs. 1,250 crore—and CBay had captured 30 percent of this market. But it was the ambitious acquisition of America’s largest medical transcription company, Medquist, that earned CBay the enviable status of the world’s largest company in its space. It had revenues of over Rs. 1,500 crore, which meant CBay was now worth over Rs. 2,000 crore. Today, CBay is twice the size of its closest competitor, Spheris, and has nearly 2,000 clients in its kitty. It now employs nearly 6,000 people across 45 centers.

Ask Kumar about the global slowdown, and you’re reminded that he entered the business thanks to its “recession-proof” nature. In fact, with the rupee appreciating and no slowdown in the inflow of work, Kumar says profitability has hugely improved.

So is there anything at all that keeps him awake at night? He admits he was a little concerned about the United States’ healthcare stimulus package and its impact on healthcare consumption: “President Obama was trying to cover everyone with some insurance. If the new package didn’t come in soon, we might have seen an impact in terms of the time it takes for new insurance to come in.” But now that the package has been passed, things are much clearer for CBay  and Kumar.

In fact, CBay is continuing to grow organically at about 20 percent every year. Some experts believe that this may be shortlived, thanks to competition from other countries, which is rapidly catching up.

Rana Mehta, Healthcare Advisory Leader at Technopak Advisors, says India’s greatest threats may come from countries like the Philippines that also have a large English-speaking population. “In China, I hear they’re learning English with a vengeance. Once these skills come in, we would have to look at these countries as our competitors.” But Kumar is confident of the India advantage, thanks to the stronger written English skills on which the transcription industry is premised.

THE OUTSOURCING BOOM
In the last two decades, the Indian IT and business process outsourcing industry has contributed significantly to the country’s economic growth. However, equally significant has been the ripple effect on the general economic environment.

The sector is proving to be the major growth pole within the services sector, which in turn drives several economic indicators of growth in the country. The Indian IT and business process outsourcing sector’s contribution to the country’s GDP has been steadily increasing over the last few years. As a proportion of the GDP, the IT and business process outsourcing sector has grown from 1.2 percent in FY 1998 to 5.2 percent in FY 2007.

The direct employment in the IT and business process outsourcing sector is expected to cross 20 lakh by end of FY 2008 and has been growing annually at 26 percent in the last decade, making it the largest employer in the organized private sector in the country. If one were to consider the multiplier effect on employment, it is even more compelling.

Studies have shown that for every job created in the IT/ITES sector, four additional jobs are created in the rest of the economy. Therefore, the indirect employment generated by the sector can be considered to be almost 65 lakh.

©Entrepreneur December 2009

Tags:
CBay, HEALTHCARE, medical transcription, Raman Kumar, Rana Mehta, Technopak Advisors