NEW DELHI: "The profit margins for BPO firms are expected to come down and stabilize at around 20-25 percent over the years," according to a joint study by the Associated Chambers of Commerce and Industry of India (ASSOCHAM) and International Data Corporation (IDC), the U.S.-headquartered global advisory firm in IT. "The factors that are affecting the pricing and adding to the volatility include proliferation of smaller players in the burgeoning business process outsourcing industry that has put the bigger and established players in a spot," the report released Sunday said. The proliferation has led to commoditisation of BPO services, especially in the low-end of the value chain, due to exchange rate fluctuations. Based-on rough industry estimates, every one percent appreciation in the rupee value against the dollar adversely impacts over one percent of the bottom lines of companies. Further, the global economic slowdown has resulted in global corporates delaying their outsourcing decisions, the study said. According to the report, while the sales of BPO services from India are projected to grow from $709 million in 2003 to about $ 2.57 billion in 2006 at a compound annual growth rate (CAGR) of 52 percent, the marketing BPO services will grow from a $609 million business in 2003 to $2.19 billion in 2006 at a CAGR of 62 percent. "In the current global economic climate, the overall advertising budgets are under pressure. However the e-marketing services slice will continue to show relatively high growth as firms are recognizing the importance of a multi-channel marketing approach and of database and analytical tools," the study said. Another growth area "is the outsourcing of public relations activities to specialized agencies, in particular in the high-tech sectors". Logistics BPO services, one of the most expensive corporate functions within many companies, is also expected to grow from India. IDC expects this segment of services from India to expand from $168 million in 2003 to $701 million in 2006 at a five-year CAGR of 48 percent. "The manufacturing, retail and wholesale sectors would account for most of this spending. Major drivers for logistics BPO include cost savings, access to new skills and technology and the growing army of logistics service specialists with leading-edge skills that companies can partner with." The survey estimates that the worldwide procurement BPO market was $6.1 billion in 2002. A serious inhibitor to procurement BPO is the complexity of technology and process integration in the supply chain. Instrumental to the supply chain integration is the growing use of private e-marketplaces by major industries such as the car industry. Covisint, for example is the e-procurement platform set up by Daimler-Chrysler, Ford, General Motors, Nissan, Renault, Commerce One and Oracle. It was used by Daimler-Chrysler to procure over $3.5 billion of direct goods. IDC projects this emerging market for services in India to grow from $176 million in 2003 to $627 million in 2006 at a CAGR of 45 percent. The survey estimates the Indian domestic BPO services market at $80 million in 2002. "This is too small an opportunity as compared to the BPO exports services in terms of market potential but can be of a greater strategic importance for the players in the industry where there are players operating at 50-60 percent operational levels," the study states. It observes that delivering low-end customer care services have been the entry point for most players in the Indian BPO space. With the relationship established, the Indian service providers have been successful in leveraging the association by garnering more business from the same clients. The services mostly rendered by Indian contract centres are marketing, telesales and technical support. Almost 90 percent of the BPO services in India are currently being delivered through voice, but given the rapidity of advancements in technologies, IDC believes that the usage of more cost-effective web-based channels will increase and a number of processes currently requiring human elements would be automated.
Source: IANS