Bangalore: India's domestic Business Process Outsourcing [BPO] market has grown at a rate of 50 percent over last five years and has reached $1.6 billion revenue in 2008. It has grown faster than the export BPO even though it is smaller than $11 billion BPO export market according to a survey done by Ernst and Young. "Outsourcing is not new to India. Indian companies have been doing this for a long time now. But what we were surprised to find was the depth and scope of portfolio outsourcing firms are ready to consider," said Milan Seth, Partner, Technology Practice, Ernst and Young.

North America and the U.K. account for 87 percent of the total BPO export market. But as these economies have been hit by economic slowdown it is expected that the growth rate will fall further. Therefore, the domestic market has a greater chance to prosper. The report states that there is market opportunity in the range of $16-19 billion by 2012 and there will be significant business growth in sectors like BFSI (banking, financial services and insurance), telecom, media, retail and government.

Big IT companies such as Tata Consultancy Services, Infosys and Wipro, are focusing on domestic market. Global players like IBM Daksh, Firstsource, MphasiS BPO and Intelenet Global Services are also planning to significantly expand their presence in India. Genpact and EXL services are also looking for local buy-outs. Revenue contribution from the domestic market has grown from 3.8 percent in FY07 to 10.8 percent in FY08.

In India 90 percent of the business is voice based and 10 percent is non-voice based. Therefore customer care and sales and marketing has accounted for over 70 percent of the overall market in 2008. Still there are services like HR and finance that are expected to grow in the next two-three years. However, margins and cost structures will remain a challenge for service providers. Entry-level salaries for domestic BPO are between $135-182 per month (around Rs 6,340-8,550) and wage costs have been increasing at a rate of 10-12 percent annually.

According to the report, as compared with export-oriented BPOs, the annual revenue per full-time employee is 2.5 times in favor of export BPOs. However, the domestic BPO is expected to ride on huge size and net margins are anticipated to increase to about 12.5 percent by 2012 from about nine percent in 2008.