Current BPO Industry Trends 2010 Date:   Wednesday , May 05, 2010 The years that have gone by have been defining moments in many ways for the economies in general and the BPO services in particular. They have made us realign our thinking, question some convictions and relook at some issues. In all, we see some paradigm shifts which have enabled us to align to these realities. The times ahead are going to be even more challenging, capital scarce and we will need to modulate our strategies to account for that environment. Trends point towards a greater IT adoption in retail, healthcare, telecom and BFSI (the banking, financial services and insurance vertical) and 80 percent of growth to come from new areas. BFSI contributes almost 41 percent to the industry’s revenues. With BPOs moving up the value chain to provide such high-end services as business analytics and knowledge-based services through a mix of re-engineering skills, technology-enabled platforms, new operating models and increased depth of services, BPO exports are estimated to grow 6 percent to $12.4 billion (over Rs. 57,000 crore). Why off- shoring makes more sense now? Traditionally, cost rationalization was a compelling reason for corporates to consider outsourcing/off-shoring in the first place. Post the economic downturn, it came back to being an important reason for corporates to revisit their strategy for off-shoring and push it more aggressively. With green shoots appearing in the economic scenario, proliferation of technology in various sectors and an increasing number of companies going global, Asia is witnessing a marked rise in IT spend. While Asia-Pacific constitutes about 10percent share of the total global IT services market, IT spend in the region is growing at a much faster rate compared to the mature markets. IT spending is a precursor to IT and BPO outsourcing and Asia-Pacific will attract increased competition, being the fastest growing geography with an estimated growth of 10 percent, according to a NASSCOM* report. This year 2010, the key trends that will impact the industry going forward, to my mind are: Markets in newer geographies The U.S. and the UK have been a major revenue source for the BPO industry since the genesis of this industry. But now service providers are exploring markets in other global regions such as Europe, Australia, the Middle East and Asia Pacific. WNS on its part has channelized its initiative into three regions – 1) US 2) UK & Europe, 3) Asia Pacific thereby reducing its dependency in a single geography. Such moves by service providers have come at time when potential customer base in these geographies has also seen a growth in maturity. It is without doubt that this year will witness aggressive moves by many service providers to tap this client base. Expanding the global footprint BPO service providers are building delivery centers around the world, often in newer nations, that provide a plentiful supply of educated but low-cost workers. WNS recently set up a delivery center in Costa Rica, which is not a conventional site for off-shoring, however it is strategic in terms of its proximity to the US. There has also been expansion of WNS’s delivery centers in Philippines, Romania, Sri Lanka and India. This footprint provides clients tremendous flexibility in terms of cost, language capability, real time processing as well as access to Innovation networks driven by a partner. Focus on mid-markets and SME’s The off-shoring option for the mid-market companies and the SME largely remains untapped. This could be probably because we have not reached out to the SME and the mid-market fraternity, to help them understand how we could be partners of profit in the long run. KPO is another important segment through which we can tap the opportunities available in this space. SME’s and mid-market companies largely depend on the trends that could help them in understanding the market better thereby create new business models to change their cost as per short / long term demands. As we move forward, globalization is sure to intensify competition and this will encourage not only the large corporates but the mid-size companies and the SME’s to revisit their strategy for off-shoring, push it more aggressively and thereby benefit in the long run. Global Transformation Practice Knowledge Component is one of the most sought after value addition in our space. Knowledge services such as analytics, legal services, consulting, amongst others if delivered with precision, adds great value to the client. This arms the service provider with relevant expertise to scale their offer and thereby winning the trust of their client. In addition clients prefer to look out for providers with whom they can propel operational excellence, focus on core business solutions, and enhance end-to end solutions. At WNS, we are already providing consulting and analytics to our clients thereby building not just trust but relationships as well. This is due to the fact that knowledge services help the client to understand its customers, its geographies/demographics, how to better its services/offer, thereby increase customer loyalty. In our experience we realize this serves as an integral part while signing up new businesses as well. Deep industry and business process knowledge, comprehensive services offered and a proven track record enables WNS to deliver business value to the world’s leading companies and continues to be our business proposition. Business in newer segments With new business and vertical specialization, outsourcing will continue to grow both vertically and horizontally. Some examples where new businesses have been introduced and are growing are processes such as the litigation support and document review work within the Legal vertical, and the collections business within mortgages in the BFSI segment. A NASSCOM report recently said that growth in emerging verticals such as retail, healthcare and utility would be higher and they are growing three times faster than core verticals. Pharmaceuticals, biotechnology, and food, among others will emerge as new sources of revenue as the BPO industry expands, and demand for value-added services should accelerate in the next five years. Many services that were not offshore earlier will now open up; but volumes in existing services may also shrink. Though, overall the long-term growth presents a healthy picture as increasing cost pressures will ensure that off shoring is imperative. Technology will drive the change in the industry Technology has always been the trigger that has driven trends in the industry, and technological advances tending towards the green agenda are going to make 2010 a green year. Green Computing is the buzzword today. Cost savings and energy efficiency being two sides of the same coin, will drive greater adoption for Green computing (or cloud computing) among enterprises. Companies are now looking to consolidation of data centers allowing for optimization of their power consumption. One such technology WNS has adopted is virtualization, which is one step towards cloud computing; it has been utilized in the data center infrastructure in building a centralized data center. It has obvious benefits in operational efficiency, data centre footprint and power consumption allow for better management and cost efficiencies. WNS’s CIO award for two consecutive years in a row is proof of the innovation within this sector. Technology innovation in BPOs will provide truly “friendly technology” for self-help, enabling clients to address their concerns quickly. Social networking is a powerful, emerging tool for building customer care communities that incorporate client interface in addressing other client issues - the technology and platforms built for essentially personal and social interactions are catapulting to the next level to serve the purpose of corporate interactions. Social networking platforms serve as a collaborative tool for geographically dispersed teams to work together more closely. WNS has been exploring this platform to build client interfaces for collaborative work across its geographies. BPOs bring in energy efficiencies Becoming green is no longer a choice for any industry, governments or individuals. The BPO industry is looking to adopt green buildings, energy efficient data centers, power efficient computers, shared data centers and e-waste management. I am sure that many large contracts will soon come with a carbon neutrality condition. WNS is on its journey to carbon neutrality and we have a concrete emission reduction plan. WNS’s Green Lean Sigma initiative launched in Jan 2008 to spread the message of ‘be seen living green’, has since had ‘Green teams’ aggressively promoting the WNS vision of carbon neutrality. Apart from building sensitivity to the environment, we have quality management systems to ensure environment conformance, and have adopted tangible measures in the form of rain water harvesting, energy conservation, saving paper, saving water, managing waste, clean air and clean land, tree plantation, owning a village. Concurrently, over a 100 green projects are running across locations, promoting innovative ideas on reducing our carbon footprint to ensure our promise is fulfilled. Every new employee who joins WNS takes pledge to comply by WNS’s green promise. And the cost advantage remains relevant at all times When one of the world’s largest online travel companies rapidly needed to reduce the cost of its customer care and finance and accounting operations, they turned to business process outsourcing, partnering with WNS. By leveraging the right onshore and offshore model, WNS delivered $3 million in savings right to the bottom line within the first quarter of going live. After ramping up the operations to over 1,000 people in fewer than nine months, WNS delivered cost savings of over 30 percent on the base run rate. Where do we go from here? To wrap up the BPO industries character is driven by Technology, Talent (availability), Global Policies, Cost Efficiencies, and of course The Demand for (value-added) Services. These drivers govern growth across markets/geographies and in a variety of new services. A NASSCOM report recently also said that Infrastructure services would also be a key growth driver for the industry with an estimated growth of 10.5 percent in the next fiscal. India is the world’s largest offshore outsourcing center, with 2.3 million people in India employed in the IT-ITeS industry. NASSCOM estimates that the industry would hire 150,000 people this year, and the domestic market will witness 12 percent growth this year and would reach Rs. 66,200 crore. The growth rate has been estimated at 5.5 percent, on the back of increased cost efficiencies, utilization rates and diversification into new verticals. Direct employment in the Indian IT-BPO sector is estimated to cross 2.3 million, while indirect job creation is estimated to reach 8.2 million. With such bright prospects we can but only go forward! Reference:*, WNS Case Studies * NASSCOM Reports – Feb 2010 The author of the article is Keshav Murugesh, Group CEO, WNS Global Services.