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SCMP Reporter

Technology services specialist Vsource has clinched an outsourcing contract in Asia with computer maker Gateway, a deal that is expected to breathe new life into both companies' struggling operations.

Vsource will provide all sales and marketing services for Gateway products in Hong Kong and Singapore. Vsource, which has moved to revamp its business strategy, is also required by Gateway to obtain a US$4 million stand-by letter of credit.

Officials from both companies said discussions on the outsourcing deal had been going on for several months.

Nasdaq-listed Vsource, which recently acquired Hong Kong-based NetCel360 Holdings, will operate Gateway's retail stores in the SAR. Vsource has offered employment to former Gateway sales and marketing staff.

Gateway's restructuring in Asia has seen it cut staff to 450 from 670 at the start of the year. The company closed its Hong Kong office on June 30 and was set to close its stores in Sha Tin and Kowloon Tong.

Vsource will manage the remaining Gateway stores at Times Square in Causeway Bay and at Manning House in Central.

Phil Kelly, Vsource chief executive, said: 'We will support Gateway's business with a dedicated sales and marketing team, using our Business Process Outsourcing (BPO) component for all back-end operations. We have also added almost 50 team members to this effort, and are still in the process of hiring for several positions that we intend to fill soon.'

Gateway has continued to lose market share to main rival Dell Computer and to other personal computer makers. First-quarter PC sales of Gateway this year totalled 1.1 million units worldwide, down 12 per cent from the same period last year. Like Dell, Gateway has specialised in build-to-order PCs which are delivered directly from the factory to the customer. Vsource will use the same direct model.

It would provide Gateway customers with the option of purchasing through retail stores, via telephone, through a Web site, or through a direct sales force in each country, said Mr Kelly, who was president of Dell's Asia-Pacific operation in the 1990s.

Both companies were striving to make the transition smooth for customers. Service standards, quality control and details such as warranties would remain unchanged.

Vsource had developed infrastructure capable of supporting companies with multiple cross-border needs, said Peter Quinlan, managing director at Gateway Asia. 'We're confident that its innovative business model will prove complementary to Gateways' own direct model.'

Gateway, which started operations in Asia in 1995, will continue to run directly all its businesses in Japan, Australia and New Zealand. Another outsourcing vendor has been tapped to handle sales and marketing in Malaysia, where Gateway's plant is located.

Unysis was chosen earlier by Gateway to handle all technical support, while Malaysian firm Datacom was contracted to run the computer maker's regional call centre.

With the Gateway deal, Vsource has also managed to get a lifeboat to keep the company afloat on the Nasdaq.

Although its common stock began trading on Nasdaq last October 30, its value has fallen below US$1 per share, the required minimum. If its shares continues to trade below US$1 per share, Vsource said it might be the subject of de-listing.

Nasdaq has notified Vsource that certain aspects of its NetCel360 acquisition and the related financings are in violation of Nasdaq's rules and could require the company to submit a new listing application and meet all initial Nasdaq listing criteria.

If it were required to reapply, Vsource said it could not currently meet all of those requirements. The company said it was now in discussions with Nasdaq to find a solution.

Vsource said it had managed to secure a stand-by letter of credit for its Gateway deal through investor commitments to purchase US$4.26 million worth of the company's Series B notes, as well as warrants. The commitments were obtained from institutional investors that include a fund of Barings Private Equity Partners (Hong Kong), Crestview Capital Fund and officers of Vsource.

Mr Kelly said he was optimistic that the Gateway deal put Vsource in a position to offer the same scope of services to other large multinational companies in the region.



Outsourcing deal to help as both companies restructure