'Indian outsourcing market to see big shakeout in two years'

Monday, 01 September 2003, 19:30 IST
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A shakeout is looming in India's IT outsourcing industry, which has powered major economic growth earning billions of rupees in foreign exchange, as a large number of players succumb to stiff pricing pressure.

NEW DELHI: According to the Britain-based independent market analyst Datamonitor, the entry of large number of domestic and foreign companies in the booming business process outsourcing (BPO) market will result in inevitable shakeout in the near term. "Newcomers to the Indian outsourcing market are utilising aggressive strategies, such as significantly discounting services, to grab a piece of the market," said Robin Goad, managing analyst of Datamonitor. "This will result in a big shakeout in the industry in two to three years," Goad told IANS from the company headquarters in London in a telephonic interview. He said the shakeout would be driven largely by consulting companies exiting the contact centre outsourcing market and turning over management of their customer care offering to other third-party outsourcers. India's vast pool of English-speaking and cheap manpower, educational system and training programmes have helped transform the country into a global outsourcing superpower. The rapidly growing BPO industry has virtually turned the country into an electronic housekeeper to the world, taking care of a host of routine activities for multinational giants. More than a quarter of Fortune 500 companies like General Electric, American Express, British Airways, HSBC and Citibank are shifting their back office operations to India. Datamonitor predicts that in five years the market will be dominated by large Indian IT conglomerates, smaller Indian specialists, and large Western multinational companies using the country as a base for the BPO practices. Datamonitor has compiled a study report, "Indian Contact Centre Outsourcing: Surviving the Shakeout", which would be unveiled next week. Goad said the significantly high attrition rates in the Indian BPO industry, which has risen from 25 percent last year to 30 percent now, would also contribute to the impending shakeout. "What used to be an Indian contact centre market dominated by third party outsourcers has seen the rush of Western companies locating their own facilities in India in last few months," he said. "Seeking to shorten their time to market, they have engaged in the poaching of agents from the local outsourcers, resulting in climbing attrition rates and agent salaries for outsourcers. "Multinational consulting companies, such as Accenture, have begun to set up their own centres in India, increasing the number of India-based centres competing for Indian labour and Western contracts." India has managed to carve a niche for itself in the fiercely competitive global software and services market mainly because of its high quality and cost effective pool of skilled knowledge workers. From a base of 6,800 software and services workers in 1985-86, the number of professionals in the industry is estimated to have increased to 650,000 by March 31, 2003. "We expect the growth in both outsourcing contact centres and agent positions to begin to slow in 2005 as a result of a shakeout that will be the consequence of shrinking margins ensuing from competitive pressures on pricing," said Goad. He, however, said that the risk of a political backlash in the West over outsourcing jobs to India would not have a major impact on the margins of the local companies in the years ahead. Some U.S. states are considering banning the outsourcing of public sector contracts to India in the face of growing opposition from labour unions. British insurers Aviva and phone company BT Group also faced labour unrest over their decision to call centres in India to cut costs. "The impact would not be significant. I don't see this will create any problem for the Indian companies."
Source: IANS