BPO: The competition war will get tougher

Indian BPO players are now playing the big league against the global MNCs. With Infosys winning a $250 million deal from Royal Philips recently, the Indian industry has a lot to cheer about.

However, with MNCs getting quick to beef up on their offshore capabilities to beat the Indians in their own game, local companies need to differentiate in terms of offering value added services and increasing automation.

Benjamin Pring, vice president (Research) Gartner, who was a delegate at the recent Nasscom ITES-BPO Strategy summit in Bangalore, spoke to Priya Padmanabhan about the trends in the IT and BPO industry.

Why is that global customers prefer end-to-end services from a single vendor for business process outsourcing while they want to have multiple providers for IT outsourcing?

It is all about the relative maturity of these segments. In the IT outsourcing space, the market has expanded from being a niche to segmentation among service providers according to specialization. BPO on the other hand, is less mature compared to the IT outsourcing segment. But this too will follow the natural progression and mature.

What are your thoughts on the $250 million Royal Philips FAO deal that Infosys recently won?

Obviously, it is a huge move since it is a staff transfer deal-something that Indian companies have not done before. It is also significant since this deal is a major European win from a non-UK customer-Netherlands. Around 85 per cent of India's BPO engagements in Europe are with the UK. Indian companies typically have a higher comfort level with UK based companies. Many other companies especially those in France and Germany are insular compared to the UK. But this too is changing. The CapGemini CEO said this May that the company would not hire in France and would have 40 per cent of its workforce in India. Its still early days in France and Germany but it is the beginning to change.

How is the Software-as-a-Service(SaaS) business model evolving?

SaaS is taking off in the US and UK. SalesForce.com has done well with SaaS. By 2011, around 25 per cent of all software will be delivered as SaaS. But the growth will remain stagnant with big enterprise software vendors that offer it as an alternate revenue model to on-premise license. This kind of hybrid model is bound to fail. But they still offer SaaS since they (these companies) want to be perceived as being in tune with the times. But they are not committed to SaaS.

Do you think that automation can outweigh labor arbitrage advantage in a few years?

Not in the short term, but automation would play a larger role in the longer term. The value of labor arbitrage has diluted. Ultimately 30 per cent of all services will be automated. Many global companies like Accenture, EDS and Infosys are providing automated software to some of their customers.

What according to you are areas of improvement for Indian service providers?

First, is to improve in terms of scale and growth. They also need to improve quality of service and cultural awareness. Right now, Indian companies form just a small percentage of the market and there is a long road ahead. They have only scratched the surface. Having come this far, there is no room for complacency. The first generation companies have gone public. The competition war gets tougher now. Chapter two of this story would get even harder. Global companies are adjusting their pricing against Indian players and the cost advantage has diluted.