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 India shines on BPO Firmament",  June 2006 

The popularity of BPO continues to scale new heights with companies in India tackling the challenges which are bound to arise with the passage of time. The potential benefits are enormous, but at the same time the companies should not lose sight of the pitfalls.

Now, it is crystal clear. Outsourcing is in vogue. Shared service models are ruling the roost. IT outsourcing came into being in the early 1990s as a cost- saving measure for companies which bore the brunt of recession before that. Though Business Process Outsourcing, or BPO as it is more popularly known, has been around since the mid-1990s, it has made its presence felt in a vigorous way in recent times. A strategic part of outsourcing, BPO is an engagement where an enterprise offloads the responsibility of one or more of its functions or activities to an external vendor.

As the world has shrunk into a global village, offshore outsourcing has gained momentum. As the name suggests, offshore signifies that organizations delegate their work to companies overseas in order to gain greater benefits in cost and quality. This, in turn, increases their competitiveness.

“Rapid growth of globalization has added to competitive pressures across geographic markets that were previously relatively isolated from overseas competition,” opines NASSCOM.

The worldwide business process outsourcing market will expand at a 10.9-per cent compound annual growth rate through 2009. According to IDC, the market is “vibrant and brimming with opportunity”. According to the research firm, the market will reach $641.2 billion in 2006 compared with $382.5 billion in 2004.

BPO is finally showing signs of maturity.

“The BPO industry has matured and has progressed in its third phase of industry evolution which involves a greater degree of depth, specialization and competition,” says Aditya Gupta, President, InfoVisionGroup.

India is the numero uno at offshore attractiveness index. The reason for India’s dominance in the BPO industry is not far to seek. “A very sophisticated eco-system of managers, business leaders, elaborate education system, support services like accent training schools, and increasing societal awareness, along with English-speaking population are the unique advantages of India,” says Ranjan Sinha, Chairman, Summit HR Worldwide.

Thanks to lower labour and operational costs, India is the most sought-after BPO destination in the world and is being dubbed as the “back office” of the world. Technological innovations and the universality of English have contributed to the growth of BPO as a worldwide phenomenon.

Outsourcing is no longer considered to be an option, but a necessity. The western companies are jockeying for a position in order to exploit the huge pool of educated talent available in India. India has the largest English-speaking talent pool in the world – over 4,40,000 engineering degree- and diploma-holders, approximately 2.3 million other (Arts, Commerce and Science) graduates and 300,000 postgraduates are added each year. “McKinsey-NASSCOM report shows that India will continue to stay on the top, maintaining its 46-per cent share of the global BPO market and its 65-per cent share in the IT offshoring and outsourcing market through 2010,” says Aditya Gupta.

According to McKinsey-NASSCOM 2005 Report, Indian companies will continue to maintain their 46-per cent share of the global business processing outsourcing (BPO) market and 65-per cent share of the IT outsourcing market through 2010. The combined market is estimated to grow from the current level of $30 billion to $300 billion by 2010.

These two sectors will earn $60 billion in exports by March 2010, an increase from 3 per cent of Gross Domestic Product to about 7 per cent. The Report projects that the BPO industry will grow from the present $11.6 billion to $150 billion by 2010, while IT outsourcing will increase from $18.4 billion to $150 billion over the next five years.

“The Indian BPO industry has demonstrated a high level of service delivery; organizations which came for cost arbitrage stayed for quality. People have taken cognizance of the fact that this is an industry to stay. The unique advantages include large resource pool, diversified resource pool availability,

multi-city operations – option for business contingency availability, analytic/problem solving; flexibility of operations,” says Dibyendu Das, Principal Consultant, QAI India.

“BPO in India is accessing as well as developing new value-based programs and softwares to cater to the requirement of the industry. Also, BPO organizations have developed internal systems and tools to better manage processes and make them more robust,” adds Dibyendu Das.

The projected growth of the Indian IT and BPO industry will directly employ approximately 2.3 million people, provide indirect employment to another 6.5 million workers, and pay for a massive infrastructure to be built by 2010.

“Apart from cost, the biggest advantages of India are excellent infrastructure and abundant skilled and English-speaking manpower. Also, India enjoys a good time zone difference with respect to US,” says Rohit Chanana, Business Head, HeroITES.

However, the phenomenal growth in the Indian BPO industry is not going to be a smooth affair.

According to Dibyendu Das, there remain some issues which need to be addressed systematically.

“Today, the Indian ITeS-BPO (IT-enabled Services – Business Process

Outsourcing) industry is world-class in Customer Satisfaction, Quality and People Satisfaction. However, it still lags in Efficiency, Attrition and Absenteeism,” he noted.

“To sustain its growth and performance, the Indian ITeS–BPO Industry needs to continue its focus on processes and people. Having demonstrated efficacy in customer satisfaction, quality and service, the industry now needs to focus on people retention and efficiency improvement,” he added.

The NASSCOM McKinsey report also has not lost sight of political opposition against outsourcing in the Western countries like the United States. “I think it is a matter of sustained positive communication not only from the industry forums and bodies such as NASSCOM, but also from recognized global Business Leaders from the client organizations,” says Dibyendu Das.

So far as the BPO trend is concerned, finance and accounting, Market Research, Legal Process Outsourcing Logistics & Procurement are witnessing a growth cycle. Apart from the traditional areas like Back-Office Operations, Revenue Accounting, Data Entry and Conversion as well as HR Services, procurement outsourcing is growing sharply.

India’s booming outsourcing industry runs the risk of being derailed due to high labour attrition, poor infrastructure and lack of data protection laws in the country.

The non-availability of workers is one of the most serious problems the Indian BPO firms are facing. Anecdotal reports indicate that the attrition rate could reach as high as 50 per cent annually. One of the reasons why this is so high is that the companies are not able to offer meaningful career paths to the motivated employees who seek to move up the ladder into other back-office work.

“We can’t deny that attrition is a problem – poaching staff to operate new centres is an ongoing issue as players win new contracts or seek employees with specific skills that may have already been trained elsewhere. Unfortunately, this contributes to a turnover problem almost as bad as the one outsourcing was supposed to solve,” says Raja Gopalakrishnan, Global Operations Head & Managing Director, India, eFunds.

NASSCOM has predicted that the outsourcing industry was expected to face a shortage of 2,62,000 professionals by 2012.

Infrastructure also needs to be addressed immediately. “India’s Infrastructure poses another threat to the growing BPO industry, giving other countries the competitive advantage. The quality of the talent pool in the tier II cities is good, but not large enough. Further, the high quality communications facility that we seek is more costly in smaller towns compared to large cities,” said Aditya Gupta.

In the meantime, the outsourcing of jobs to India from the United States and Europe has led to an outcry from the western workers. “The business we are in, it is inevitable that there will be a significant backlash. BPO companies have to take this in their stride. The initial, most major and visible impact is one of the job losses in the home country. The long-term benefits of greater productivity, lower transaction costs, process enhancements are gradual and only recognized with time. Indian companies need to ‘weather this storm’ as the time will soon show that the benefits overshadow the initial pain and backlash,” said Aditya.

India has to stay ahead of the competition from other low-cost destinations such as South Africa, China and Eastern Europe.

“The biggest threat to the Indian industry is from China, which has made English mandatory in schools and colleges,” he adds.

“South-East and Asian countries would soon emerge as desirable outsourcing destinations. These countries have the potential to offer skilled labour pool at low cost,” says Rohit.

Data security is another concern, which needs to be tackled on a war footing. Taking a step in this direction, NASSCOM, in collaboration with the National Securities Depository Limited (NSDL), has launched

National Skills Registry (NSR), in an attempt to further strengthen security in the Indian IT industry. According to the industry body, National Skills Registry was a “global first” and would provide IT and BPO firms with information on the professional and educational background of prospective employees. The large IT and BPO employers in India have agreed to enlist their employees on the new database.

Conclusion…
India will continue to be a star on the BPO firmament. Challenges are there. And they are in urgent need of being addressed in a systematic manner. “Just like many regions of the US and the world, we have tried to recreate a Silicon Valley with a limited or marginal success. I believe India will continue to keep grabbing market share from other countries for service-based outsourcing. We do not experience too much competition from other geographies,” says Ranjan Sinha.

“We do not meet any competition from South-East Asian countries and other South Asian countries like Bangladesh and Sri Lanka for the kind of sophisticated processes we perform on behalf of our clients,” asserts Raja Gopalakrishnan.

Arjay Apex Center