Impact of Globalization on BPO Industry in India


By

B. Sathish Kumar
A. Elgin
Faculty-MBA
V.L.B. Janakiammal College of Engg & Tech
Coimbatore-641 042
 


Introduction

India has enormous opportunities emerging from globalization and consequent lowering of tariff barriers. Information Technology has given India formidable brand equity in the global markets. Indian BPO companies have a unique distinction of providing efficient business solutions with cost and quality as an advantage by using state of art technology. Through joint efforts of Government and the Industry, software development and IT enabled services have emerged as niche opportunities for India in the global context. The Government has been making continuous efforts to make India a front-runner in the age of Information revolution. India today has the advantages of skilled manpower base, active and healthy competition amongst states in attracting investment in infrastructure as well as framing IT applications in areas such as e-governance, e-learning, e-commerce, entrepreneurship, software exports growth and a large potential in the domestic market. Information Technology Act dealing with Cyber Security, Cyber Crime and other information security related legal aspects is in place. As a result of technological convergence at the infrastructure, services and industry level; there has been a tremendous up-surge in new product / service industries.

Definition BPO

Business process outsourcing (BPO) is the leveraging of technology vendors to provide and manage a company's critical and/or non-critical enterprise applications. Through the business transformation process of service-oriented transformation, which leverages the technologies and standards of service-oriented architecture, companies can increasingly leverage third party companies that act as business service providers. Business process outsourcing can use off-shore resources, but is not required.

Business process outsourcing (BPO) is the act of giving a third-party the responsibility of running what would otherwise be an internal system or service.

Importance of Outsourcing

"Outsourcing system allows companies to contract for services that are not within the scope of their expertise, so that they can focus their time, money and energy on their core competencies instead of wasting valuable resources trying to gain Understanding of areas that are   somebody else's expertise".
                                                            Campbell and K.S.Luchs in Core Competency Based Strategy.

SWOT analysis on Indian ITES sector

Strengths

  • Highly skilled, English-speaking workforce
  • Abundant manpower
  • Cheaper workforce than their Western counterparts According to Nasscom, The wage difference is as high as 70-80 percent when compared to their Western parts.
  • Lower attrition rates than in the West.
  • Dedicated workforce aiming at making a long-term career in the field
  • Round-the-clock advantage for Western companies due to the huge time difference.
  • Lower response time with efficient and effective service
  • Operational excellence
  • Conducive business environment

Weaknesses

  • Recent months have seen a rise in the level of attrition rates among outsourcing workers who are quitting their jobs to pursue higher studies. Of late workers have shown a tendency not to pursue BPO as a full-time career.
  • The cost of telecom and network infrastructure is much higher in India than in the US.
  • Local infrastructure
  • Political influence

Opportunities

  • To work closely with associations like Nasscom to portray India as the most favoured BPO destination in the world.
  • India can be branded as a quality outsourcing destination.
  • $69 billion ITES business by 2010
  • $97.5 billion IT (consulting, software solutions) market by 2010

Threats

  • The anti-outsourcing legislation in the US state of New Jersey. Three more states in the United States are planning legislation against outsourcing Connecticut, Missouri and Wisconsin.
  • Workers in British Telecom have protested against outsourcing of work to Indian BPO companies.
  • Other BPO destinations such as China, Philippines and South Africa could have an edge on the cost factor.

Indian Market size estimates

The below table shows the off shore BPO revenue, Indian BPO revenue and the total market potential of the world BPO industry

Revenue \ Year

2002

2003

2004

2005

2006

2007

CAGR

Offshore BPO Revenue

1,322

1,825

3,017

6,439

12,563

24,230

78.91

Indian BPO Revenue

912

1,205

1,961

3,928

7,412

13,811

69.35

Total BPO Market

110,167

121,687

131,171

143,090

157,033

173,070

9.45

CAGR in % 2002-07

Figures in $ million

Source: Gartner Dataquest


Gartner: $173 billion in 2007, of which $24.23 billion would be outsourced to offshore contractors

Indian Market size estimates of BPO

Nasscom has estimated that the Indian ITES industry will gross over $5.7 billion by 2005 (based on a conservative year-on-year growth of 65 percent by Nasscom).

Nasscom-McKinsey: In 1999 they estimated by 2008 it will be $17 billion but it has been revised to $21-24 billion by 2008. Indian can capture 25% of global BPO offshore market and 12% of the market for other services such as animation, content development and design services.

Gartner: $1 billion (2002), $1.2 billion (2003). $13.8 billion by 2007. Gartner does not incorporate animation, medical or other (legal) transcription services, GIS, market research, data search, research and development, network consultancy and other non-business processes in its estimates on the ITES market size and potential.

US jobs moving offshore:

The below table shows the number of jobs moving offshore from US

Sl. No

Number of U.S. Jobs Moving Offshore

 

Job Category

2000

2005

2010

2015

1

Management

0

37,477

117,835

88,281

2

Business

10,787

61,252

161,722

48,028

3

Computer

27,171

108,991

276,954

72,632

4

Architecture

3,498

32,302

83,237

84,347

5

Life Sciences

0

3,677

14,478

36,770

6

Legal

1,793

14,220

34,673

74,642

7

Art, Design

818

5,576

13,846

29,639

8

Sales

4,619

29,064

97,321

26,564

9

Office

53,987

295,034

791,034

1,659,310

 

Total

102,674

587,592

1,591,101

3,320,213

Source: U.S Department of Labour and Forrester Research, Inc.


Competitive advantage of India in this sector:

Cost savings

Datamonitor, a leading UK-based business information company, research indicates that 67-72% of costs to call centers operating in the US/UK is directly linked to manpower costs. India, on the other hand spends only 33-40% of costs on manpower. This includes training, benefits and other incentives for labor.

Abundant Human Resource:

It has been identified that there is a large computer literate population is available in our Indian population composition through the recently conducted census survey.

Language Competence:

India has got good English speaking cluster of population and all the higher studies are being taught in English.

Infrastructure:

Indian government is showing a great concern for the development of infrastructural facilities in all the major cities of India and this gives a greater connectivity for the companies which are coming from off shore with their countries.

Indian BPO's position among the worlds fifty best managed BPO vendors

1

IBM Global / Daksh*

26

Getronics

2

Accenture

27

Covansys

3

Hewlett Packard

28

Syntel

4

MphasiS*

29

Ceridian

5

Ernst & Young/Capgemini

30

Spherion

6

Wipro Spectramind*

31

ADP

7

ICICI OneSource*

32

i-flex*

8

eFunds Global Outsourcing

33

Tata Consultancy Services*

9

Convergys

34

General Electric

10

Affiliated Computer Systems

35

Siemens Business Services

11

Sutherland Technologies

36

Atos Origin Intl B.V.

12

Oracle

37

InfoCrossing

13

Hewitt/Exult

38

Datamatics

14

HCL Technologies*

39

Outsourced Partners Intl*

15

Xansa

40

TechBooks

16

CSC

41

IGate*

17

Unisys

42

Office Tiger

18

Keane

43

Perot

19

Satyam*

44

EDS

20

CGI

45

Patni Computer*

21

Cognizant*

46

Gevity HR

22

24/7 Customer*

47

Vcustomer*

23

Intelligroup*

48

SourceNet Solutions

24

Northrop Grumman IT

49

WNS Global

25

Infosys*

50

Deloitte

           *Indian vendors.

Serious competitor of India in BPO sector

Philippines boasts of strong skills in finance and accounting. The other countries India is competing with are Mexico, Canada and Ireland. In terms of cost, Philippines and Malaysia are competitive with India. However, India's main competitors in the BPO space produce a fraction of the graduates that India does.

BPO's Contribution towards Indian Employment

Company

Number of Employees

EXL

4,500

Spectramind

2,600

Daksh

2,000

WNS

1,600

vCustomer

1,500

Tracmail

1,365

HCL e-serve

870

Epicentre

700

ICICI OneSource

650

GTL

650


Growth of Indian BPO Industry

According to studies conducted by NASSCOM and leading business Intelligence Company, McKinsey & Co. the Indian IT/BPO segment is expected to employ over 1.1 million Indians by the year 2008. In the financial year 2005-2006, ITES-BPO companies were the largest recruiters in the IT/ITES sector, adding a total of about 70,000 jobs.

An estimated 70,000 new Jobs expected in 2007 in the field pf ITES. Plus there will be additional hiring to replace industry attrition that is around 25%. On the other hand BPO and outsourcing services would generate around 1, 75,000 new Jobs in 2007. McKinsey & Co. predicts global market for IT-enabled services to be over $140 billion by 2008. In that the opportunity for India will be around $ 17 Billion. The industry will attain a growth rate of over 35% in the next few years, says Jainder Singh, Secretary, IT, Government of India. The contribution of IT and ITES to the GDP will rise to 7% by 2007-08 as against 4.8% in 2005-06, according to Jainder Singh, Secretary, Information Technology, Government of India. The market potential for Business Transformation Outsourcing (BTO) is expected to be around US $ 680bn by the end of March 2009. IT software exports, which grew at 32% during 2005-06 had a growth rate of 23.4% in the last couple of years, said the IT Secretary. IT and ITES will record a growth rate of over 40% with KPO and BTO services making further inroads into the IT sector.

"The concept of BTO is new to India in particular. Its growth rate, estimated in most pessimistic form is expected to be around 5%. But as BTO gains popularity and vendors become more mature in providing these services, it is expected to grow at 9% to 10% per annum," said Singh.

The market potential for BTO is expected to be around US $ 680bn by 2008-09. Also, the percentage of BTO services in the outsourcing pie is expected to increase, from 19% in 2004 to 31% by 2009.

IT Landscape of key Indian cities

City

Focus

Prominent firms

Delhi
(includes Gurgaon and Noida)

Call centres, transaction processing, chip design, software

GE, American Express, STMicroelectronics, Wipro Spectramind, Convergys, Daksh, ExL

Mumbai

Financial research, back office, software

TCS, MphasiS, i-flex, Morgan Stanley, Citigroup

Bangalore

Chip design, software, boi-informatics, call centres, IT consulting, tax processing

Infosys, Wipro, Intel, IBM, SAP, SAS, Dell, Tisco, TI, Motorola, HP, Oracle, Yaho, AOL, E & Y, Accenture

Hyderabad

Software, back office, product design

HSBC, Satyam, Microsoft

Chennai

Software, transaction processing, animation

Cognizant, World Bank, Standard Chartered, Polaris, EDS, Pentamedia

Kolkata

Consulting, software

PwC, IBM, ITC Infotech, TCS

Pune

Call centres, chip design, embedded software

MsourcE, C-DAC, Persistent Systems, Zensar


Conclusion:

Every new opportunity has got its own blessings and curses like the same outsourcing industry has also got its own opportunities and threats in this post LPG era but it depends on our companies how well they are going to encounter the threats and how well the are going to capitalize the opportunities gifted by LPG.
 


B. Sathish Kumar
A. Elgin
Faculty-MBA
V.L.B. Janakiammal College of Engg & Tech
Coimbatore-641 042
 

Source: E-mail February 12, 2007

       

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