July - 2003 issue > Cover Feature

By Pradeep Shankar

IT IS 8 A.M IN CALIFORNIA. ABOUT 200,000 knowledge professionals in India are still at work either answering customer calls from the U.S. or processing a transaction for a U.S. client. In the next five years, it is likely that one million more professionals will join their ranks. While the professionals are at work, their bosses are busy signing up deals. Currently deals worth $1.5 billion are being negotiated by the top 20 Business Process Outsourcing (BPO) providers. What does this say of an industry that is less than five years old?

In the last four years the IT Enabled Services (ITES)-BPO segment in India has grown from $565 million to $2.5 billion. Nasscom and McKinsey expect that this number will increase to $21-24 billion by 2008. McKinsey estimates that the internal business processes of global companies account to $3 trillion, of which only 5 percent is outsourced. And it this 5 percent market that has Indian companies jostling for, of which India has a market share of just 2 percent. The global top five service providers, however, enjoy 18-36 percent. Even as Indian companies gear up to provide BPO services, multinationals like Amex, GE Capital, Citibank, HSBC, AOL and Standard Chartered, Dell, Hewlett- Packard, Accenture, EDS, PwC (IBM) and Convergys have already set up captive centers in India for BPO.

Each of these is a success story in itself. Take for instance Accenture. The company’s revenue grew 2 percent from $11.4b in 2001 to $11.6b in 2002. Of this, revenues from BPO, which stood at 17 percent in 2001, grew by 50 percent. Today, 25 percent of Accenture’s revenue comes from BPO. From its success in India, the company has aggressive expansion plans. It will be increasing its workforce from the present 1000 to 2500 by 2004. What does it mean to the industry as a whole?

More companies are going to set up captive centers or outsource their business process to Indian vendors. “Every customer we know that has outsourced offshore is satisfied and wants to look at other services that the vendor can offer them. That is essentially BPO. If there are cost savings, risk mitigation and value-add, they will be happy to start experimenting with BPO,” says Rita Terdiman, Vice Pesident, Gartner.

“Customers, today, are moving from tactical to strategic outsourcing," says Noshir Kaka, Principal at McKinsey & Co. The decision making process, which took place at business heads and IT managers level, now take place at the board level. At the same time there is shift from project/activity based decisions to organization-wide decisions. It is great news to India because it means higher revenues and more demand for third party Indian vendors. But on the other hand it means that Indian BPO players have to demonstrate vendor maturity.

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