It started small.

And people had no qualms in experimenting. After all, the idea was not bad at all. For the men in the busy streets of a small town in North India, the proposition of having their hair cut at a barbershop was not just a new-fangled idea that caught everyone's fancy. Come on, hair-trimming was not the main chore of these breadwinners. And it made sense to have a non-core chore kept aside for a shop just around the corner where a specialist could not only cut the hair cheap and fast but at convenient hours and with panache.

Soon, the business grew and the barbershop started moving beyond small trimmings to bigger value. It started giving hairstyles, beauty treatments, therapies, and an overall healthy look to its customers. Cost became value. Specializations grew and so did the spectrum of customers. It started touching and luring other members of the household – the women and children became new business segments.

And so the plain salon turned to a nationwide chain, as it kept opening its wings.

This might not be the perfect metaphor for the Indian BPO industry but it has nonetheless traversed its journey from kindergarten to adolescence with as much smartness as the savvy salon owner.

Start small and attack costs, take over a non-core task for the customer, prove your worth and then keep taking more non-core needs into your fold, while keeping efficiency, growth, scale and value intact. That's in short, the Indian BPO saga.

The appetizers

Outsourcing as a proposition, engendered somewhere in Adam Smith's book - The Wealth of Nations. Its original users lay in the manufacturing sector where third-world countries gained on a new paradigm by providing cheap labor for manufacturing giants during the Industrial Revolution.

Soon, as telecom and IT became the spine of global business, outsourcing's wand made its touch felt in the modern era where certain business processes could be outsourced to a company in another country on the promise of doing the same chore better, faster and with satisfaction. For India, it was not until the last decade that outsourcing bloomed to its rightful glory.

In 1994, the Indian telecom sector was liberalized and with the 'New Telecom Policy' of 1999 and concomitant entry of IP telephony and liberal international calling facilities, was heralded an entirely new industry – the ITES/BPO industry, that soon became a deluge of inbound/outbound call centers and data processing centers.

GE was one of the first ones to grasp the potential of outsourcing certain functions to India's well-educated and cheaper work force. In 1995 the company started contracting significant pieces of its software developing and maintenance to Indian firms. Two years later, it formed GE Capital International Services, now known as Gecis, for back-office work like processing credit card applications and market analytics.

In 1999 Gecis established the first international call center in India and in 2004 GE sold 60 per cent of Gecis for $500-million to private equity firms Oak Hill Capital Partners and General Atlantic Partners.

The early birds also comprised European airlines like British Airways that started tapping India's back-office muscle, a captive model that was eventually spun off as WNS Global Services in 2002.

In the incipient club, there were also conglomerates like American Express, the back office operations of which in New Delhi.

So came GE. And this initial wave was steered by the archetypal father of the BPO force in India - Raman Roy. Around 2000, Raman Roy and some team members from GECIS quit and started Spectramind with VC funding from Chrysalis Capital.

Some co-eval BPO biggies also took birth in the form of EXL in Noida and Daksh in Gurgaon.

Slowly, almost all the Indian software industry like Infosys (Progeon), Inforlinx, HCL, Satyam (Nipuna) and Patni joined the bandwagon. Third party global BPO players like Convergys and Sitel as well as the captive outfits of Accenture, IBM, Hewlett Packard, and Dell etc joined them.

The menu grows bigger

Hence, what begun as a utility confined to multinational companies, has today bloomed to a broad and deep business model pumped by leading Indian IT software and services organizations and other third party service providers.

Lot of action and consolidation happened as the industry grew and matured. In 2002 Spectramind was bought by software major Wipro and the former's team went on to start Quatrro in 2006.

By 2003 Daksh was bought out by IBM and later in 2006 MphasiS by EDS. With the listing of WNS on NYSE, followed by peers like EXL, India's BPO flag was set sure-footedly on the global atlas. Today, stellar third-party BPO companies like WNS, EXL Service Holdings, Mphasis BPO, Intelenet Global Services, 24/7 Customer, Wipro BPO, HCL BPO Services, ICICI OneSource, IBM Daksh, Progeon, Aegis BPO Services top the industry.

The spectrum could only grow. From the initial areas of medical transcription, data processing, medical billing, and customer support, through MNCs' offshored requirements to their subsidiaries, to an ever expanding continuum to KPO, LPO, RPO, HRO, Web sales/marketing, accounting, tax processing, transaction document management, telesales/telemarketing, medical research etc, the industry has achieved remarkable depth in the last decade.

In terms of breadth, too, the industry has through the past few years expanded well.

From initial hotspots like Bengaluru, Chennai, Hyderabad, NCR (New Delhi, Delhi, Gurgaon, Faridabad, Noida, Greater Noida, Ghaziabad), Pune, and Mumbai to Tier II cities like Mangalore, Mysore, Hubli-Dharwad, Belgaum, Coimbatore, Madurai, Hosur, Nagpur, Kochi, Trivandrum, Chandigarh, Mohali, Panchkula, Kolkata, Ahmedabad, Bhubaneswar, Jaipur and Visakhapatnam, the appetite to grow continues.

Inching towards the main course

Ask for numbers and the industry has delivered superlative performance since its inception. BPO, which today is an important part of the export-oriented IT software and services pie, has grown over the last decade to achieve nearly $11 billion in export revenues.

The sector employs more than 700,000 people, and accounts for more than 35 per cent of the worldwide BPO market.

The industry, as per a Nasscom-Everest group study, can reach around $30 billion in export revenues by 2012. A fivefold growth in the Indian BPO market will add nearly 2.5 per cent directly to India's GDP from exports earnings and provide direct employment to about 2 million people.

However, the sector can set itself a stretch target of $50 billion (that is, approximately five times its present size) in export revenues by 2012, the study says.

So far, this spectacular growth has been driven by accelerated adoption by buyers of different sizes, from across industry verticals and geographies, and rapidly evolving supply-side maturity across service segments as is reflected in the widening of the service portfolio, increased scope of services, greater penetration across verticals and geographic markets served, evolution of business and engagement models, and development of global delivery capabilities of Indian BPOs.

Interestingly, as pointed out in the study, most horizontal BPO segments (Customer Interaction and Support, Finance and Accounting, Human Resources, Procurement Services, and Knowledge Services) have matured significantly and account for more than 70 per cent of the Indian BPO sector.

Just desserts

The sector clearly stands in front of a unique opportunity to augment its role as a full-service, value-adding partner with a lot of headroom in the addressable BPO opportunity for buyers and providers, and many potential untapped areas.

It is projected that over the next five years, vertical-specific BPO services will provide a larger market opportunity (60 per cent; $145-175 billion) compared to horizontal BPO services.

At the same time, horizontal BPO services also provide a significant addressable market opportunity of around $75-105 billion spread across traditionally mature areas like CIS and F&A as well as emerging segments like HR, Knowledge Services, and Procurement Services.

As for the middle-office and front office services, there is an opportunity of $100 billion by 2012.

In terms of the bigger picture too, the industry might be a witness and participant to increased merger and acquisition activity, with scale and new capability acquisition, better geographical reach and new service segments on the cards of many smart providers already.

And so just like the good-old barber who turned to a savvy and successful health specialist, the industry is striving to deliver value beyond cost savings and sustain high growth levels through increased use of tools and technologies, adoption of standards and best practices, and leveraging a global delivery model.