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Indian BPO Industry What to Watch Out in the Future?
Vimali Swamy
Wednesday, September 1, 2010
The year 2010 has been a turning point for most of the industries, especially those that had been severely affected by the economic downturn. One of the hardest hit industries during recession, the BPO sector is now witnessing a gradual upturn. It is reinventing itself and moving away from the traditional business practices. In a candid chat with SiliconIndia, S Vishawanathan, COO, NIIT Smartserve discusses the trends, challenges, and future of the BPO in India.

Traditionally, the BPO was engaged only for niche services such as that of human resources or finance and accounting. It was only later that outsourcing was integrated within IT processes. But the BPO industry has come a long way and has brought about a fundamental shift in its position within the technology industry. While in the past BPOs were looked at as a separate service when compared to IT, today the IT and ITeS services are often coupled together as a single sector. Here are some trends to look for:

BPO Spending is Catching up
The global IT outsourcing market has traditionally outpaced the BPO market in growth, but that’s changing. In 2009, ITO spending was estimated to be between $230-250 billion, well above BPO spending, according to Accenture. But now BPO is growing at a faster rate. Accenture estimates that mainstream BPO expenditures will top $300 billion by 2012.

BPO Supplier Consolidation is
According to a 2009 Gartner study focused on India-based BPO suppliers, a number of BPO service providers will exit the market in coming years. The small and emerging players have been facing a stream of challenges, especially since the onset of recession and are fighting to stay afloat. At the same time, the big players are looking at aligning their services and as a result are on the look out for acquiring niche service providers. One quarter of the top business process outsourcing service providers will not exist as separate entities by 2012, it says. Market exit, acquisitions, and the ascent of new vendors will rearrange the BPO provider landscape in the coming years.

Bundling is on the Upswing
The scope of BPO has widely increased. From HR to Finance and Accounting, to IT, and many other processes can now be outsourced. If the industry majors have their way, IT and BP outsourcing will increasingly be bundled; that is, all the departments from IT to HR can be dealt with the same vendor. And with the bundled or consolidated model, ITO and BPO will merge into one seamless enterprise wide solution.

Going the Smart Way
After offering a blend of IT and BP outsourcing services, the vendors are now bringing a third element to this service combination - analytics. From international giants like Accenture and Capegemini to domestic biggies, all are adding business intelligence capabilities to their BPO capabilities as improving BI has become a priority among customers. It is one of the ways to move up in the value chain, while providing value to customers. With technology trends like cloud computing, software-as-a-service (SaaS), and platform-as-a-service (PaaS) coming into the market, customers want their vendors to be capable of delivering an overall solution. By some estimates the convergence of process, technology, and BI analytics may produce exponential savings in the near future.

Savings are Secondary
Initially, both ITO and BPO were driven by cost reductions, price, and labor arbitrage, which is still true to some extent. More important, however, are business outcomes created by effective ITO BPO programs. One example is being able to close your books early and reduce the billing cycle by a few days.

A cautionary word, however, in earlier days, outsourcing clients realized the benefits in the first year in the form of savings, and from then on the question was, “What have you done for me lately?” So-called business outcomes are not as easy to gauge, especially from a bundled service, and may take longer to achieve. As a result, it is advisable to plan the end of the engagement at the beginning of the contract. In other words, know what you want the business outcome should be upfront.

The Market just Got Bigger
The scope of outsourcing has widened beyond belief. While BPO was traditionally restricted to verticals such as BFSI and Telco, newer verticals are now quickly realizing the potential of the outsourcing industry. There is a high level of activity in finance and accounting across all industries, a lot of new companies are willing to outsource for the first time, especially in the F&A space. There is also significant activity in the CPG, logistics, and media and entertainment industries. New industries like retail are now open to outsourcing.

According to the latest Nasscom reports, the addressable BPO market is estimated at $180-220 billion, of which offshore was just $29 billion. While there is much to be discovered in the offshore markets, on a different note the domestic market too holds lucrative prospects for the BPO sector. Domestic market is exploding in a big way with BFSI, Telecom, Government, and Public Sector becoming major consumers of IT-enabled services. Some of the other new verticals exploring the space are Real Estate, Healthcare, Logistics, and Manufacturing.

While the Indian BPO industry is making a tremendous headway, it is being plagued by the lack of talent at the same time, which today is its biggest challenge. Of the 4 to 5 million students that graduate each year, the industry is able to employ only about 10 percent. This is a large reason to worry, as the remaining 90 percent go unemployed. There are already reports of having to import engineers in the IT industry in near future due to severe talent crunch.

It is important that we, the industry leaders, take measures along with the government to build strong education programs specific for this industry across India, including in tier-2 and tier-3 cities. New programs like setting up rural BPOs are a step in this direction. This is also the ideal opportunity for entrepreneurs to make a mark in the ever growing BPO sector.

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