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Indian BPO Industry A Silver Lining Ahead?
Vimali Swamy
Friday, July 2, 2010
If the year that went by was tough, then the BPO sector is surely a witness to it. Of all the industries, the BPO sector was perhaps the most affected, especially those in the BFSI sector. But as is often said, “Every dark cloud has a silver lining;” the same is true of the BPO industry as well. As the economy grows, the future seems to have something else in waiting.

A recent study by Nasscom states that the BPO addressable market will be larger than IT by 2020. The market is likely to grow in size from $200 billion in 2010 to $ 980 billion in the next decade.

What is more interesting is that 80 per cent of the incremental growth is predicted to be driven by opportunities outside the current core markets, verticals, and customer segments.

Traditionally, the US and the UK have been the strongest markets for BPO since its evolution and they continue to be so. But what has changed is the business outlook. In the past few years the BPO sector has undergone a tremendous change in outlook. From a supply-side definition, today it has become outcome-oriented, where the payers now need to provide end-to-end processes and solutions that would boost revenues for customers.

Large market segments and buyers are now not increasingly looking at BPO in synonym with IT, where their only concern is business outcome and effectiveness. Hence, it is no wonder the BPOs are now referred to as IT-enabled services.

“As the market continues to fluctuate due to incomplete recovery, organizations across industries have realized that they cannot continue doing what they did in the past,” says Peter Bendor-Samuel, CEO of Everest Group. They are looking at partners in their vendors.

With the clouds just clearing over the US economy, the Europe market is currently undergoing a slump. Europe accounts for about 30 percent of the IT industry's revenue, with UK contributing 18 percent and the rest of continental Europe 12 percent. The debt-hit countries like Greece, Hungary, Portugal, and Spain contribute a very small percentage to the overall revenue of the Indian IT industry. But most Indian BPO companies are optimistic about the euro zone crisis being an opportunity to deliver high-value work at low costs.

With cost being an important factor, organizations are looking at end-to-end capabilities from their vendors. Emerging utility delivery models such as SaaS, PaaS, and cloud computing will lead the economic recovery and most organizations are making investments in utilities that are based on industrialization, rather than resource-intensive models. “A combination of resource-intensive and industrialized approaches will prove successful in Europe,” says Ian Marriott, Vice-President – Research, Gartner.

According to Nasscom, the industry is moving towards BPO 3.0, which means value enhanced end-to-end solutions, shared vision with customers on driving transformation, and enterprise-wide cost efficiency. “BPO 1.0 was built upon cost efficiencies and productivity, and BPO 2.0 focused on greater breadth and depth while embracing the globalization of delivery capacity,” says Som Mittal, President, Nasscom.

Business models have also shifted from being cost-oriented to revenue models. Customers are looking at outcome-based engagements, and ‘effective solutions’ is tomorrow's mantra.
With such transformations happening, being just a BPO company would not suffice. In times like this the fort would be primarily held by companies with both technology and BPO services.

Despite existing markets in the US and the UK, analysts feel that emerging markets hold a promising future for BPOs, where there is a need to cater to new sectors.

New sectors such as healthcare, new markets like BRIC (Brazil, Russia, India, and China), Japan, and Germany, and new service lines (process transformation for productivity improvement) are where the opportunities lie.

The domestic market is another large driver for the BPO industry in India. The domestic market is exploding in a big way and there is a pool of opportunities in BFSI, telecom, government, and the public sector, which is going to be a big consumer of IT-enabled services.

Highlighting some of the trends, Mittal says that the industry is witnessing a balanced regional growth with 16 percent of BPO revenues coming from tier-2 and tier-3 cities in FY10, and over 5,000 people employed in rural BPOs. The BPO industry has contributed to the creation of 4.5 million jobs and also helped in empowerment of the youth. 50 percent of employees are below 25 years of age and women constitute 45 percent of all employees and 50 percent of new entrants. 63 percent of companies employ the differently abled.
The Nasscom study that was co-authored by McKinsey India adds that the current economic slowdown is a path to revival for BPO companies. “In a sense, the slowdown has given them a chance to get their costs back in line. Companies need to move up the value chain and go into non-traditional areas such as telecom and the government which have a lot of opportunities,” he adds.

The study says that the total addressable market for the BPO industry is $630 billion. To achieve this, the industry will have to gear up for multiple challenges, especially for competition from other countries such as China, Vietnam, Brazil, and Egypt, among others.

The exports revenues is expected to expand more than four fold and reach $50 billion by 2020, while the growth in domestic revenues is expected to expand seven fold to reach $15-17 billion during the same time. What remains to be seen is how far the Indian BPO industry would be able to prove its mettle in the promising future.

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