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BPO Industry to outpace IT Growth

ST Team
Wednesday, September 7, 2011
ST Team
The cumulative growth over the last ten years suggests that the BPO industry has outpaced the IT industry from an absolute number. The Indian BPO industry had grown at a frenetic pace during the 1990s, only to be overtaken by the hardcore IT services industry over the past decade. However, the latest reports suggest that the BPO business is gathering steam and may outpace its higher-value cousin in India’s outsourcing success story.

Data provided by Nasscom suggest that the BPO sector grew 18-fold to $16.9 billion between 2001 and 2011, whereas the IT industry grew by only nine percent. Over the next five years, the BPO sector could grow at a CAGR of 20 percent, while the IT sector’s growth may be in the range of 7 percent. Given that the BPO industry has always operated at considerably lower revenue base, the absolute numbers are still favoring the IT industry.

The IT services are taken up on project basis, and are often flexible in nature, which results in companies pulling out of projects when the tough phase begins. Majority of these projects stress on how to increase the business for the client, the scope of backing out are more real in the IT sector, leading to the IT revenues becoming cyclical.

Experts are of the belief that the unpenetrated market and large market opportunities are what have led to the fast growth of the BPOs. Nasscom estimates that only about 15 percent of the total $280 billion BPO market has been addressed so far, while the figure is close to 40 percent in the case of the more mature IT market estimated to be worth $150 billion. While some other people believe that the high value knowledge services and the growing domestic markets are the main drivers of BPOs.

Provided a close watch by the industry and the government, the industry could add considerable value in the form of consulting, technology and platform capabilities, leading to a boost in the growth of the BPOs. Also, an eye on real threats in the form of growing competition from newer BPO hubs as well as the tax regime is what is requires to make Indian industry less competitive on the cost front.

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