Indian BPOs climb up the value chain

By Shubha Madhukar | 23 Aug 2004


The BPO industry in India has moved up the value chain with more and more critical business processes being outsourced to India

When business processes began getting outsourced to offshore destinations like India in the late '90s, the concept of business process outsourcing (BPO) was regarded with scepticism. The perception was that of low-end jobs from the West being dumped upon Indians. Back then, never did people fathom that someday, critical business processes could also be outsourced. The stakes were too high to be credible.

Fast forward to 2004, and the Indian ITeS-BPO industry is metamorphosing. It is climbing up the value ladder managing key processes rather than just functioning as call centres. In the process, it is establishing itself as a business platform and earning the respect of overseas companies that have outsourced their critical processes.

The services outsourced have also undergone a major evolution. The segment is widening and now caters to processes involving finance, human resources, payment services, administration and content and product development in addition to customer care.

The key processes being outsourced to Indian BPOs are in the areas of web sales and marketing, billing services, database marketing, accounting, transaction document management, transcription, tax processing, HR hiring, market research, equity research, editing, claims processing, underwriting and biotech research.

New areas of outsourcing are emerging and expanding in both complexity and volume in comparison with the plain vanilla customer care of the early BPOs. One such area is the financial services industry with India accounting for four-fifths of the global market.

Another area is outsourcing of legal work from law firms, legal publishing and legal research firms. What began with legal transcription has graduated to legal research involving processing of case histories, judgement, client briefs and petitions in the courts.

The latest entrant on the offshoring block is publishing. That outsourcing of critical editing services is spreading is clear with US technology and business magazine Business 2.0 outsourcing a section of its August issue to Indian editors. Already pegged at $2.5 billion business globally, it is estimated to touch $4.6 billion by 2007.

The industry began spreading its wings in the late '90s when IT companies, leveraging their existing skills with the strong relationship base with their clientele abroad, began to offer a portfolio of IT-enabled BPO services. Today, IT leaders are concentrating on the sector with their BPO operations.

Progeon, a subsidiary of Infosys, has concrete plans to enter into more complex BPO activities as part of its expansion strategy. Moving in the direction, Progeon has formed a partnership with Aceva Technologies Inc to offer finance and accounting solutions. Wipro Spectramind is the second largest third-party offshore BPO providing services in insurance processing, telemarketing, mortgage processing, and technical support services apart from customer services.

Earlier, ITeS-BPO was a domain overshadowed by the IT companies, but no longer. A number of financial and business houses have also set up ITeS-BPO facilities as business ventures. Prominent among these are HCL, EXL, WNS, Sitel, HSBC, the Standard Chartered Bank, Convergys, AOL, Daksh, ICICI OneSource.

Interestingly, a list of top ten third-party ITES released by NASSCOM, in June 2004 reveals that the non-IT companies have taken-over the sector clearly in terms of revenue generation.

WNS Group
Wipro Spectramind
Daksh e-services
Convergys India Services Pvt Ltd
HCL Technologies BPO Services Ltd
Zenta India Pvt Ltd
ICICI OneSource Ltd
Mphasis BPO Services
EXL Services
Tracmail Group

Nevertheless the stakes are quite high in the BPO business. Profit margins are slim and hence volumes and big clients are necessary for profitability. Besides, for farming key processes unlike the English speaking resources of a call centre, professionals like chartered accountants, lawyers and editors have to be hired.

Competition too is mounting from new quarters. With moving up the value chain, the competition is now from major global BPOs. China, Philippines, Malaysia and Singapore were already there and now there is Hungary and Poland too — climbing high up the league. According to Forrester research, in 2003 the European outsourcing business registered a growth of 74 per cent.

India has been a favoured destination as it is a good mix of the key factors — low cost location, proficiency in language, domain expertise and technical expertise besides infrastructure — considered while selecting an offshore location. Technically, the maximum weightage of 38 per cent is given to cost followed by proficiency in language at 22 per cent and industry expertise at 18 per cent.

So far it has been successful but to succeed in a business, which thrives on slim profit margins and servicing global giants, some more investments and thrust on the educational sector could help.

At least investments in the sector have been positive. Third-party BPO firms spent around $750 million on capital expenditure for building infrastructure and expanding seat capacity in the last fiscal. The capital expenditure would rise to $1.5 billion approximately if captive BPO firms were included.

The figures are also encouraging. In 2003-04, the segment is estimated to have achieved a 54 per cent growth in revenues as compared to the previous year. The size of the BPO market stood at $3.6 billion — a 44 per cent growth from the previous year — and is expected to grow to $12 billion by 2010.

The BPO industry currently employs 6.5 million people and with a thrust on professional education it would not only provide further employment but also successfully move up the value chain.

To further provide an impetus to the already suffering industry due to low profits and high taxation, NASSCOM has presented a convincing case to the finance ministry, to keep the sector out of the taxation net. The tax waiver, if it happens, will truly enable the sector to grow and flourish.

If these happen, protests and legislations in the West notwithstanding, India can seize more than a fair share of the high-value outsourcing pie.

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