FLAVOR OF THE MONTH l BPO: Coming of age

William Allen White, a renowned American journalist once stated: “I am not afraid of tomorrow, for I have seen yesterday and I love today.” This sums up India’s ever expanding proficiency in the Business Process Outsourcing (BPO) arena.

Over the years, the once most preferred outsourcing destination in the world now has competitors mushrooming across the world, vying for the outsourcing pie.

If you thought Indian companies in the outsourcing space were complacent, think again?

India’s BPO market has maintained a sustained growth owing to a range of economic, regulatory and demographic drivers. In order to grow, companies have laid importance to trimming operational costs, dealt with increased compliance and regulatory requirements in an efficient manner, remained price competitive, transforming into a global services oriented business model and addressing challenges of rising skill shortages, across several developed markets.

Industry at inflection point

Pramod Bhasin, vice chairman, Nasscom is of the opinion that the BPO industry in our country has reached an inflection point and has the right foundation to augment its role as a full service and value-enhancing partner. He feels that there is sufficient headroom to look at avenues that have remain untapped across myriad sectors of the market.

Key BPO practitioners believe that over the next half a decade, correct choices made by policy makers in this industry could produce a fivefold growth.

“More and more companies are enquiring about India and once they come to India, they are interested in building captives, to build rich operations for the small as well as the large companies to play. I believe a lot of us would do well as long as we believe in the delivering of quality services that we have delivered today,” opines Bhasin.

If one takes a glance at the total export BPO market opportunity, it stands at $220-280 billion in the next four years (2012).

What would drive the future?

The BPO landscape is a premier playing field not only for verticals such as banking, manufacturing and insurance but also for other emerging sectors such as Telecom, Technology, Transportation and Travel.

However, the next five years would see Insurance, Manufacturing, Banking and Capital Markets accruing close to $160-190 billion of the total market ($220-280 billion) even as newer verticals such as Media and Publishing, Energy & Utilities, Pharmaceuticals & Life Sciences will share significant contributions to this market.

If one sees this market with regards to types of services being demanded, two critical categories emerge: horizontal BPO services and vertical specific BPO services.

The next five years should see vertical specific BPO services taking 60 per cent ($145-175 billion) of the available market opportunity in comparison to horizontal BPO services. Even as the North American market would continue to contribute about 70 per cent of the overall market opportunity for Indian BPO entities, there would be exploration of geographies in Asia Pacific and Continental Europe.

Market opportunity for English-based languages from this market is pegged at $45-75 billion by 2012.

Areas of concern

To sustain the growth that is being witnessed today, investments in infrastructure, education and developing the talent pool in the country is vital.

The future growth of this industry is set to put constraints on the supply side of the business.

Bhasin feels that the growth that is being expected would put pressure on the availability of talent in BPO sector, more so with competition for resources from industries such as Telecom, Retail, Banking and Insurance.

Another issue is the emergence of sector-specific shortages of skill as our BPO industry looks to center on domain expertise as its core offering and take the next leap in its eventful journey.

Ganesh Natarajan, chairman, Nasscom looks for setting an overhaul of the education system. “We can no longer point fingers at the academic institutions and I feel there is a strong need for public-private partnership in this regard. This would involve governments, real estate developers and definitely include traditional educational institutions and establishments.”

Apart from looking at huge investments in education, Nasscom is working out solutions to scale the talent pool in the Tier II, III and IV towns.

In combination with AT Kearney, Nasscom assessed 50 locations in India that would be the potential IT-BPO hubs in the coming time.

The 50 locations have been clubbed into four categories: Leaders, Challengers, Followers and Aspirants. Cities such as Bangalore, Chennai, and Pune come under the leaders’ bracket, while the challengers has places such as Ahmedabad, Bhubaneshwar, Chandigarh etc to name a few. Followers’ category has places such Aurangabad, Bhopal, Goa, Gwalior in its ranks and the category of Aspirants has places such as Allahabad, Dehradun, and Gangtok etc. under its fold.

Som Mittal, president of Nasscom mentions that this study was indicative of the potential that the industry sees in this region--beyond places such as Bangalore, Chennai etc.

“Nasscom and the industry will also present the recommendations and call to action to the Government, based on the report, shortly,” he had said speaking to CyberMedia News.

Another concern in the minds of many is the effects on the operating margins of companies owing to the turbulent economic scenario, adverse currency movements and wage inflation.

But Bhasin showcases a cautioned optimism. “The future according to me looks terrific. Yes there would be hiccups but we should not be scared. That’s part of life. Rupee going up and down affects every industry and these are the nature of the businesses and these are the challenges for which we are groomed and which we must learn to cope with. Maximum private public partnerships are required in education and infrastructure,” he states.

Initiatives to be integrated in the future

From concentrating its operations from 7-10 locations in the past, companies would flex its muscles in Tier II, III and even Tier IV towns owing to the industry maturing. Leaders of BPO entities feel that those locations, which are able to address issues such as infrastructure and put in place, the required enablers would succeed in attracting investments.

Focusing on education reforms is also the key and Nasscom is putting emphasis on this act and Natarajan states, “We are also looking at increasing the quantum of the number of PhDs as the number of PhDs in the country is astonishingly low. I think we need to change this scenario and focus on complete education reforms. In short term, you may see more IIITs and increase in the number of PhDs but over the long term, you would a complete revamp of the entire education system in the country.”

Another initiative would to incorporate ideas from countries such as China would also hold the key and Natarajan is quite clear. “Definitely, China is unbelievable.”

He is of the opinion that there is a need to create a western experience not just in Tier I cities but to incorporate them onto other places as well.

Amidst all the proposals being put in place by companies, leading government bodies and the governments, it is important to keep in mind what former US president Abraham Lincoln stated -- “The best thing about the future is that it comes only one day at a time.”