BPO INDUSTRY by PADMA KUMAR

BPO INDUSTRY







SUBMITTED TO Dr. JAYAMOHAN



SUBMITTED BY PADMAKUMAR.K











FIRST SEMESTER MBA.
INSTITUTE OF COOPERATIVE MANAGEMENT
POOJAPURA.






CONTENTS



1. Introduction.
2. Different types of services offered by BPO.
3. Challenges for HR professional in BPO.
4. Top rankers in BPO.
5. Employee benefits.
6. BPO benefits.
7. BPO limitations.
8. Threats in BPO industry.
9. Advantages at a glance.
10. BPO trends and facts.
11. BPO industry in future.
12. Conclusion.















INTRODUCTION



Business process outsourcing (BPO) is a broad term referring to outsourcing in all fields. A BPO differentiates itself by either putting in new technology or applying existing technology in a new way to improve a process.
Business Process Outsourcing (BPO) is the delegation of one or more IT-intensive business processes to an external provider that in turn owns, administers and manages the selected process based on defined and measurable performance criteria. Business Process Outsourcing (BPO) is one of the fastest growing segments of the Information Technology Enabled Services (ITES) industry.
Few of the motivation factors as to why BPO is gaining ground are:
• Factor Cost Advantage
• Economy of Scale
• Business Risk Mitigation
• Superior Competency
• Utilization Improvement
Generally outsourcing can be defined as - An organization entering into a contract with another organization to operate and manage one or more of its business processes.
We can categorize the present BPO services mainly into 6 areas:
1. Customer Care
2. Finance
3. Payment Services
4. Administration
5. Human Resources
6. Content Development
Among the above customer care is the largest segment and accounts for close to 40% of the industry's revenue. Financial services, insurance, airlines, retail, manufacturing, telecom, utilities, pharmaceuticals and healthcare industries out-source customer care to India. Within customer care, voice based work accounts for over 60percent. The customer care for financial services included data entry, billing and payment services, accounting, investment research support, financial data mining, insurance claim processing and actuarial support. The billing rates varied from $5 to $30 per hour

Different Types of Services Being Offered By BPO's
1. Customer Support Services
Customer service offerings create a virtual customer service center to manage customer concerns and queries through multiple channels including voice, e-mail and chat on a 24/7 and 365 days basis.
Service Example: Customers calling to check on their order status, customers calling to check for information on products and services, customers calling to verify their account status, customers calling to check their reservation status etc.
2. Technical Support Services
Technical support offerings include round-the-clock technical support and problem resolution for OEM customers and computer hardware, software, peripherals and Internet infrastructure manufacturing companies. These include installation and product support, up & running support, troubleshooting and Usage support.
Service Example: Customers calling to resolve a problem with their home PC, customers calling to understand how to dial up to their ISP, customers calling with a problem with their software or hardware.
3. Telemarketing Services
Telesales and telemarketing outsourcing services target interaction with potential customers for 'prospecting' like either for generating interest in products and services, or to up-sell / promte and cross sell to an existing customer base or to complete the sales process online.
Service Example: Outbound calling to sell wireless services for a telecom provider, outbound calling to retail households to sell leisure holidays, outbound calling to existing customers to sell a new rate card for a mobile service provider or outbound calling to sell credit or debit cards etc.
4. Employee IT Help-desk Services
Employee IT help-desk services provide technical problem resolution and support for corporate employees.
Service Example: of this service include level 1 and 2 multi-channel support across a wide range of shrink wrapped and LOB applications, system problem resolutions related to desktop, notebooks, OS, connectivity etc., office productivity tools support including browsers and mail, new service requests, IT operational issues, product usage queries, routing specific requests to designated contacts and remote diagnostics etc.
5. Insurance Processing
Insurance processing services provide specialized solutions to the insurance sector and support critical business processes applicable to the industry right from new business acquisition to policy maintenance to claims processing.
Service Example:
New Business / Promotion:
Inbound/outbound sales, Initial Setup, Case Management, Underwriting, Risk assessment, Policy issuance etc.
Policy Maintenance / Management:
Record Changes like Name, Beneficiary, Nominee, Address; Collateral verification, Surrender Audits Accounts Receivable, Accounting, Claim Overpayment, Customer care service via voice/email etc.
6. Data Entry Services / Data Processing Services
Service Example:
o Data entry from Paper/Books with highest accuracy and fast turn around time (TAT)
o Data entry from Image file in any format
o Business Transaction Data entry like sales / purchase / payroll.
o Data entry of E-Books / Electronic Books
o Data Entry : Yellow Pages / White Pages Keying
o Data Entry and compilation from Web site
o Data Capture / Collection
o Business Card Data Entry into any Format
o Data Entry from hardcopy/Printed Material into text or required format
o Data Entry into Software Program and application
o Receipt and Bill Data Entry
o Catalog Data Entry.
o Data Entry for Mailing List/Mailing Label.
o Manuscripting typing in to word
o Taped Transcription in to word.
o Copy, Paste, Editing, Sorting, Indexing Data into required format etc.
7. Data Conversion Services
Service Example:
o Conversion of data across various databases on different platforms
o Data Conversion via Input / Output for various media.
o Data Conversion for databases, word processors, spreadsheets, and many other standard and custom-made software packages as per requirement.
o Conversion from Page maker to PDF format.
o Conversion from Ms-Word to HTML format
o Conversion from Text to Word Perfect.
o Conversion from Text to Word to HTML and Acrobat
o Convert Raw Data into required MS Office formats.
o Text to PDF and PDF to Word / Text / Doc
o Data Compilation in PDF from Several Sources.
o E-Book Conversion etc.
8. Scanning, OCR with Editing & Indexing Services
Service Example:
o High speed Image-Scanning and Data capture services
o High speed large volume scanning
o OCR Data From Scanned page / image
o Scan & OCR paper Book in to CD.
o ADOBE PDF Conversion Services.
o Conversion from paper or e-file to various formats
9. Book Keeping and Accounting Services
Service Example:
o General Ledger
o Accounts Receivables and Accounts Payable
o Financial Statements
o Bank Reconciliation
o Assets / Equipment Ledgers etc.
10. Form Processing Services: Service Example:
o Insurance claim form
o Medical Form / Medical billing
o Online Form Processing
o Payrol Processing etc.
o
11. Internet / Online / Web Research
Service Example:
o Internet Search, Product Research, Market Research, Survey, Analysis.
o Web and Mailing list research etc.

Challenges for a HR Professional in BPO
1. Brand equity: People still consider BPO to be "low brow", thus making it difficult to attract the best talent.
2. Standard pre-job training: Again, due to the wide variety of the jobs, lack of general clarity on skill sets, etc, there is no standard curriculum, which could be designed and followed.
3. Benchmarks: There are hardly any benchmarks for compensation and benefits, performance or HR policies. Everyone is charting their own course.
4. Customer-companies tend to demand better results from outsourcing partners than what they could actually expect from their own departments. "When the job is being done 10,000 miles away, demands on parameters such as quality, turn around timeliness, information security, business continuity and disaster recovery, etc, are far higher than at home. So, how to be more efficient than the original?
5. Lack of focused training and certifications
Given this background, the recruiting and compensation challenges of HR departments are only understandable.
Key To success
The key to success in ramping up talent in a BPO environment is a rapid training module. The training component has to be seen as an important sub-process, requiring constant re-engineering.
Business Process Outsourcing: The Top Rankers
WNS has emerged as the top BPO in India, pushing Wipro Spectramind to the second position, according to a survey done by NASSCOM. The basis of ranking is the revenues generated by the BPO companies in 2003-04, as per US GAAP. A list of top fifteen BPO companies in India is given below.
1. WNS Group
2. Wipro Spectramind
3. Daksh e-Services
4. Convergys
5. HCL Technologies
6. Zenta
7. ICICI Onesource
8. MphasiS
9. EXL
10. Tracmail
11. GTL Ltd.
12. Customer
13. HTMT
14. 24/7 Customer
15. Sutherland Technologies
The parameters for the survey was: Employee Size (Operation level executives), Percentage of last salary hike, Cost to company, Overall Satisfaction Score, Composite Satisfaction, Company Culture, Job Content / Growth, Training, Salary and Compensation, Appraisal System, People, Preferred Company: (Percentage of respondents of a company who named their own company as the preferred one), Dream Company: (Percentage of respondents in the total sample who preferred a particular company).
Employee Benefits Provided By Majority Of the BPO Companies
• Provident Fund: As per the statutory guidelines, the employee is required to contribute a percentage of his basic salary and DA to a common fund. The employer for this fund contributes as well. The employee can use the amount deposited in this fund for various personal purposes such as purchase of a new house, marriage etc.
• Gratuity: Gratuity is one of the retrial benefits given to the employee in which the employer every year contributes a particular amount. The fund created can be used by the employee for the purpose of long-term investment in various things such as a house etc.
• Group Mediclaim Insurance Scheme: This insurance scheme is to provide adequate insurance coverage of employees for expenses related to hospitalization due to illness, disease or injury or pregnancy in case of female employees or spouse of male employees. All employees and their dependent family members are eligible. Dependent family members include spouse, non-earning parents and children above three months
• Personal Accident Insurance Scheme: This scheme is to provide adequate insurance coverage for Hospitalization expenses arising out of injuries sustained in an accident. It is applicable to all the employees of JFWTC and covers total / partial disablement / death due to accident and due to accidents.
• Subsidized Food and Transportation: The organizations provide transportation facility to all the employees from home till office at subsidized rates. The lunch provided is also subsidized.
• Company Leased Accommodation: Some of the companies provides shared accommodation for all the out station employees, in fact some of the BPO companies also undertakes to pay electricity/water bills as well as the Society charges for the shared accommodation. The purpose is to provide to the employees to lead a more comfortable work life balance.
• Recreation, Cafeteria, ATM and Concierge facilities: The recreation facilities include pool tables, chess tables and coffee bars. Companies also have well equipped gyms, personal trainers and showers at facilities.
• Corporate Credit Card: The main purpose of the corporate credit card is enable the timely and efficient payment of official expenses which the employees undertake for purposes such as travel related expenses like Hotel bills, Air tickets etc
• Cellular Phone / Laptop: Cellular phone and / or Laptop is provided to the employees on the basis of business need. The employee is responsible for the maintenance and safeguarding of the asset.
• Personal Health Care (Regular medical check-ups): Some of the BPO'S provides the facility for extensive health check-up. For employees with above 40 years of age, the medical check-up can be done once a year.
• Loans: Many BPO companies provide loan facility on three different occasions: Employees are provided with financial assistance in case of a medical emergency. Employees are also provided with financial assistance at the time of their wedding. And, The new recruits are provided with interest free loans to assist them in their initial settlement at the work location.
• Educational Benefits: Many BPO companies have this policy to develop the personality and knowledge level of their employees and hence reimburse the expenses incurred towards tuition fees, examination fees, and purchase of books subject, for pursuing MBA, and/or other management qualification at India's top most Business Schools.
• Performance based incentives: In many BPO companies they have plans for , performance based incentive scheme. The parameters for calculation are process performance i.e. speed, accuracy and productivity of each process. The Pay for Performance can be as much as 22% of the salary.
• Flexi-time: The main objective of the flextime policy is to provide opportunity to employees to work with flexible work schedules and set out conditions for availing this provision. Flexible work schedules are initiated by employees and approved by management to meet business commitments while supporting employee personal life needs .The factors on which Flexi time is allowed to an employee include: Child or Parent care, Health situation, Maternity, Formal education program
• Flexible Salary Benefits: Its main objective is to provide flexibility to the employees to plan a tax-effective compensation structure by balancing the monthly net income, yearly benefits and income tax payable. It is applicable of all the employees of the organization. The Salary consists of Basic, DA and Conveyance Allowance. The Flexible Benefit Plan consists of: House Rent Allowance, Leave Travel Assistance, Medical Reimbursement, Special Allowance
• Regular Get together and other cultural programs: The companies organizes cultural program as and when possible but most of the times, once in a quarter, in which all the employees are given an opportunity to display their talents in dramatics, singing, acting, dancing etc. Apart from that the organizations also conduct various sports programs such as Cricket, football, etc and regularly play matches with the teams of other organizations and colleges.
• Wedding Day Gift: Employee is given a gift voucher of Rs. 2000/- to Rs. 7000/- based on their level in the organization.
• Employee Referral Scheme: In several companies employee referral scheme is implemented to encourage employees to refer friends and relatives for employment in the organization.
• Paid Days Off
• Maternity Leave
• Employee Stock Option Plan
Inspirte of all these benefits, the attrition rate in BPO industry is very high, why?. What is the reason for an employee to leave? These and many more are the questions that need immediate attention from the industrial gurus.

BPO BENEFITS
BPO benefits i.e. benefits accrued as a result of outsourcing are numerous. BPO or outsourcing is advantageous as it links to shareholder value. Business processing out source is about optimizing business performance to attain value creation. There has been a tremendous upsurge in BPO and outsourcing industry in many developing countries like India because of their (BPO) expertise in reducing costs while increasing service quality.

Another great BPO benefit is that it helps companies to focus on core areas. Companies generally outsource processes to reallocate accountability and control costs. Thus the management is in a better position to focus on core areas, and not keep itself engrossed in other areas. Outsourcing also helps companies to avoid capital expenditures, which is in particular important in non-core areas that may need new systems and up gradation. By and large, companies only want to spend money on core areas.

Reduction in costs is another BPO benefit. BPO provides quantifiable benefits through improved efficiencies, lower overhead, reduced payroll and benefit expenses, and fewer capital investments. Other BPO benefits include assurance of best practices, skills an technology. It is important to note that BPO provides access to proprietary workflow systems, process reengineering skills, and innovative staffing and delivery models, coupled with world-class technology delivered by experts.





BPO LIMITATIONS
One of the most important advantages of BPO is the way in which it helps to increase a company’s flexibility. However, several sources have different ways in which they perceive organizational flexibility. Therefore business process outsourcing enhances the flexibility of an organization in different ways.
Most services provided by BPO vendors are offered on a fee-for-service basis. This helps a company becoming more flexible by transforming fixed into variable costs. A variable cost structure helps a company responding to changes in required capacity and does not require a company to invest in assets, thereby making the company more flexible. Outsourcing may provide a firm with increased flexibility in its resource management and may reduce response times to major environmental changes.
Another way in which BPO contributes to a company’s flexibility is that a company is able to focus on its without being burdened by the demands of bureaucratic restraints. Key employees are herewith released from performing non-core or administrative processes and can invest more time and energy in building the firm’s core businesses. The key lies in knowing which of the main value drivers to focus on – customer intimacy, product leadership, or operational excellence. Focusing more on one of these drivers may help a company create a competitive edge.
A third way in which BPO increases organizational flexibility is by increasing the speed of business processes. Using techniques such as linear programming can reduce cycle time and inventory levels, which can increase efficiency and cut costs. Supply chain management with the effective use of supply chain partners and business process outsourcing increases the speed of several business processes, such as the throughput in the case of a manufacturing company. Finally, flexibility is seen as a stage in the organizational life cycle. BPO helped to transform Nortel from a bureaucratic organization into a very agile competitor. A company can gain the advantage of maintaining ambitious growth goals while sidestepping standard business bottlenecks BPO therefore allows firms to retain their entrepreneurial speed and agility, which they would otherwise sacrifice in order to become efficient as they expanded. It avoids a premature internal transition from its informal entrepreneurial phase to a more bureaucratic mode of operation. A company may be able to grow at a faster pace as it will be less constrained by large capital expenditures for people or equipment that may take years to amortize, may become outdated or turn out to be a poor match for the company over time.
Although the above-mentioned arguments favor the view that BPO increases the flexibility of organizations, management needs to be careful with the implementation of it as there are a few stumbling blocks, which could counter these advantages. Among problems, which arise in practice are: A failure to meet service levels, unclear contractual issues, changing requirements and unforeseen charges, and a dependence on the BPO which reduces flexibility. Consequently, these challenges need to be considered before a company decides to engage in business process outsourcing
A further issue is that in many cases there is little that differentiates the BPO providers other than size. They often provide similar services, have similar geographic footprints, leverage similar technology stacks, and have similar Quality Improvement approaches
Why people prefer to join BPO's?
In general a person with any graduation can join any of the BPO. Some BPO's like to take people with MBA but then again the specialization are of an individual hardly makes any difference. Again, this is the industry; where there is no reference checks and very often people don't even specify there exact age. Lets me share with you some of the reasons as why people prefer to join a BPO:
1. Did not get a better job.
2. Find nothing better to do.
3. Education level doesn't matter
4. Good work environment
5. Good Benefits
6. Flexibility of time
7. Attractive life style
8. Transport facility
Why people leave the BPO's?
When there are so many benefits associated with BPO industry .when there are so many privileges for the BPO employees than what makes them to change the company/industry?? Is it only MONEY that matters or anything else as well?? Here are some of the reasons for a BPO professional to change his/her job.
1. No growth opportunity/lack of promotion
2. For higher Salary
3. For Higher education
4. Misguidance by the company
5. Policies and procedures are not conducive
6. No personal life
7. Physical strains
8. Uneasy relationship with peers or managers.


THREATS
Risk is the major drawback with Business Process Outsourcing. Outsourcing of an Information System, for example, can cause security risks both from a communication and from a privacy perspective. For example, security of North American or European company data is more difficult to maintain when accessed or controlled in the Sub-Continent. From a knowledge perspective, a changing attitude in employees, underestimation of running costs and the major risk of losing independence, outsourcing leads to a different relationship between an organization and its contractor.
Risks and threats of outsourcing must therefore be managed, to achieve any benefits. In order to manage outsourcing in a structured way, maximizing positive outcome, and minimizing risks and avoiding any threats, a Business Continuity Management (BCM) model is setup. BCM consists of a set of steps, to successfully identify, manage and control the business processes that are, or can be outsourced.
Another framework, more focused on the identification process of potential outsourceable Information Systems, identified as AHP.
BPO Advantages- At a Glance
Cost reductions- Cost reduction is done through process improvements, reengineering and use of technologies that reduce and bring administrative and other costs under control.

Concentration on core business- With the day-to-day back office operations taken care of, the management is free to concentrate more on the core business of the company.

Outside expertise- Company is saved from the hassles of recruiting and training personnel. BPOs ensure that experts from another company provide the needed guidance and skills.

Cater to changing customer demands- It is another great advantage of out sourcing the business processes. Many BPOs provide the management with flexible and scalable services to meet the customers' changing requirements, and to support company acquisitions, consolidations, and joint ventures.

Revenue increase- As stated above, by outsourcing non-core processes, companies can concentrate on increasing their sales and market share, develop new products; spread out into new markets and increase customer service and satisfactions.

BPO TRENDS
Following are the top 10 trends that will shape global outsourcing in 2009.

-- The worldwide market downturn will impact growth and margins for the first 2-3 quarters of 2009 before picking up and ending the year on a stronger. There will also be a reduction in the number of start-ups in the services sector as the focus shifts on sponsoring hard asset-intensive businesses. Also, most large firms will see a decline in QoQ earnings.

-- As Western economies continue to bleed, service providers will shift focus to domestic markets for growth. There is already an increase in focus by vendors towards large and growing domestic markets like India, China, Argentina and Brazil. Fulfillment of customer support and back office services targeted for retail, telecom, and financial services verticals will be amongst the hot spots for providers looking to tap the surging local demand.

-- Global economic downturn will lead to increased outsourcing in recession proof industries like healthcare, education. Other sectors like manufacturing, retail and telecom will have to make a significant shift and reduce cost drastically to survive. These sectors will be attractive industries as they look for opportunities to cut cost.

-- Consolidation in the financial sector is inevitable due to the global financial crisis. This will create M&A opportunities which will generate further business for LPO firms. We expect strong growth for LPO firms. The processes will revolve around integration of software applications, data center consolidation and tighter integration of other operational platforms.

-- Governments will assume a more crucial role in promoting destinations by developing work force capacity, infrastructure and effective regulatory/ trade policies that are favorable to outsourcing. Cebu City, Shanghai, Beijing, Ho Chi Minh City and Krakow make up the top five spot in the recent Tholons study of Top 50 emerging global outsourcing cities.

-- Clients will increase geographic diversity in their service delivery locations as newer service delivery geographies are emerging with niche capabilities. In the coming year, more clients will look for alternatives to India to de-risk their service delivery models that are otherwise geographically limited. Near shoring as a low cost alternative to domestic sourcing will assume greater importance. In the near-term, the top Indian firms are predicted to expand global footprints and open delivery centers in China, Latin America, Eastern Europe and North America.

-- Pricing pressures will result in reduced rates and new measures to achieve cost savings and higher productivity. Client will negotiate hard for every dollar spent, while suppliers will try to protect rates but offer more value added services. Large India-based providers are expected to see EBITDA margins plunge below 20% over the next three years, as they move more IT projects offshore (mostly to India)

-- On the M&A front, large deals will slow due to a more tepid market. Challenges related to integration and maintaining liquidity (as opposed to acquisition), will also be primary concerns for 2009. However, firms will continue to look for small tuck-in acquisitions to plug gaps in their portfolios and gain client proximity. Cross-border, inorganic investments are expected to increase in Japan and China with increased market consolidation seeing small to medium players being likely targets.
OTHER FACTS
The uncertain economic condition has rocked all kinds of businesses, across sectors and regardless of size or specialization. With a global recession underway, the BPO industry cannot remain unaffected. Already the crisis in the financial markets has dampened deal flow in the BPO sector. The number of BPO deals (tracked by Value Notes) dropped from 430 in the year 2007 to 302 in 2008.

Amid all this turmoil and pessimism, BPO companies are putting up a brave front, and gearing up to face the year with innovative strategies to fight margin pressures instead of worrying over ‘who moved their cheese’.

While the first quarter of 2009 will be slow for the BPO industry, we expect increasing activity in the later part of the year. Cost rationalization will become a compelling reason for corporate to consider outsourcing/off shoring in their strategy.

We have identified some key trends that will impact the industry going forward.

The immediate concern of BPO providers, irrespective of the size of their business, is to protect their profitability. Thus cost rationalization will become inevitable. The most obvious impact will be on salary hikes and executive perks.

Recruitment too is expected to significantly slow down in the next year, as service providers push up utilization rates aggressively. Aggressive hiring over the last three to four years, has added to the baggage of unproductive manpower. Given the current scenario, companies will look at this as a good opportunity to trim the flab. While recruitment will pick up again in the latter half of the year as the slack gets wrung out, employers will be much more selective and focused on cost-benefit ratios.

Companies will also look to optimize various administrative or marketing costs. Until recently, margins were never seriously threatened for Indian IT and BPO service providers leading to considerable slack in areas like transport costs, procurement, travel, telecom, etc. In the past, management attention was focused only on growth, but now, the quality of growth will matter more.

FOCUS ON NEW MARKET

Currently, BPOs earn a large chunk of their revenues from the US market. However, BPOs are now paying more attention to geographies like Europe, Australia and Asia Pacific. We expect this trend to intensify in 2009 as service providers make aggressive efforts to de-risk their business and diversify their client base. Alternately, the growing maturity of buyers in Europe, Middle East and Asia is opening up these lesser explored markets.

With (relatively) rapid economic growth, proliferation of technology in various sectors and an increasing number of companies going global, Asia is witnessing a marked rise in IT spend. Although Asia-Pacific constituted only a 6% share of the total global IT services market in 2006, IT spend in the region is growing at a much faster rate compared to the mature markets. IT spending is a precursor to outsourcing (of both IT and BPO) and Asia-Pac (especially India and China) will attract increased competition.

INDIA MARKET WILL SHINE

Even as the offshore (international) BPO market faces severe pressures, the domestic BPO market is getting ready to take off. According to Nasscom, the domestic BPO revenues are estimated to be $1.6 b (Rs. 69 b) for FY08. ValueNotes’ report on “Opportunities in the Domestic BPO Market”, estimated the total market being catered to by third-party players at Rs. 18 b for FY08, and is expected to reach Rs. 77 b by FY12.

Unlike the overseas business, labor or cost arbitrage does not drive the domestic BPO market. Strategic factors such as the need to scale rapidly, focus on core competencies, enhanced productivity and reduced time to market are driving domestic demand. Going forward, we believe that there will be increased buyer awareness and adoption of outsourcing across industry verticals, which will drive the future growth. Significant scale exists amongst banks, telecom operators and government departments, and these are the most attractive segments in the near term.

GREATER FOCUS ON MID MARKET

While the larger companies are relatively mature in terms of outsourcing and off shoring, the mid-market segment and the SMEs have not completely explored the offshore option. Further, the SMEs have been traditionally underserved for a variety of reasons, including lack of knowledge of off shoring, unattractive deal sizes for the premium service providers, etc. However, rising off shoring maturity of early buyers amongst mid-market companies will drive their propensity to further intensify off shoring.

At the same time, intensifying global competition will encourage the larger service providers to look beyond Fortune lists. While the larger service providers will build solutions for the mid-market, SMEs may be more comfortable working with mid-sized service providers.

We believe that in 2009, large service providers will create differentiated offerings for the mid-market segment, and target this opportunity aggressively.

The integration of software and BPO, to what is often called platform based BPO, as well as the emergence of “business process restructuring” into the lexicon of service providers has been underway for a while now. Several service providers are now adding the knowledge component (analytics/legal services/consulting) into the mix, in an attempt to deliver greater value.

This is an attractive opportunity for large service providers (especially IT service providers), some of whom have already integrated their BPO and IT arms. For large end-to-end contracts, knowledge services (typically analytics or consulting capabilities) will become an integral part of the selection process. The knowledge component will enable a more value-added role, in which the service provider partners, or provides services designed to directly impact the buyer's business objectives.

With greater buyer awareness about off shoring knowledge services and increasing service provider capabilities, the share of knowledge services in the overall market will continue to grow. At the same time, the nature of “knowledge” services is quite distinct from traditional IT and BPO, and viewing these merely as additional services may not work. However, that is a discussion for another forum.
Despite the current turmoil, off shoring of services to India and other low-cost destinations will continue to grow, both horizontally and vertically. While the economic downturn has reduced demand in certain segments or services, we believe it will also throw up newer and multiple opportunities across segments. So while certain specific areas will see a cutback, certain other services will witness a noticeable spike in demand. For instance litigation support, document review work within legal outsourcing and collections business within mortgages are among those where we see increasing demand.

Looking at the larger picture, the increasing cost pressures will ensure that off shoring becomes an imperative. Many services that were not off shored earlier will now open up – even as volumes in existing services might shrink. Overall, we believe that long-term growth will be robust.

SALE OF CAPTIVES

Cost control has become a big issue. Given the current economic scenario where everybody is looking for liquidity in the market, availability of quick cash is an attractive proposition. This is an opportunity to monetize investment in captives (for example the recent sale of Citibank’s captive).

These captives will be good prospects for cash-rich and reliable service providers looking to strengthen their BPO capabilities. With captives looking at ways to transform from a cost center to a profit center, we believe that there will be more such deals where captives will sell out their businesses.



In the current uncertain economic environment, mid-sized and smaller service providers are worst affected. Many weaker players will start fading away from the competitive landscape. This will include many smaller BPOs and KPOs, especially those with focus on the financial services sector. Service providers offering services to multiple verticals or relatively recession-proof sectors like healthcare will be better positioned to weather the storm.

In line with this trend, we will see accelerated consolidation in the industry. Small service providers will be forced to innovate with a focus on "differentiating" their services and/or partnering with other service providers. A large number of cash strapped mid-sized players will look to exit the game. On the other hand, this is a good time to buy companies, at cheaper valuations, and expand service or vertical offerings.

BPO INDUSTRY IN FUTURE
Now fast forward this situation to year 2014. The Indian BPO industry is an enormous success. It has grown at a compounded annual rate of 50 per cent and now employs 6.5 million people. If you include people who started life in the BPO industry and have moved on to do other things (assuming an annual attrition rate of 30 per cent for the BPO industry as a whole), you will have another 6 million people.
This means that there will be over 12 million individuals in our country who have worked in the BPO industry, i.e. have been through the rigorous recruitment tests, extensive training, are accustomed to working in a very high-quality environment, don't consider air-conditioning a luxury, have a very strong work ethic and expect similar professionalism from their colleagues as a matter of course, are used to satisfying very demanding customers, and delivering quality that is second to none in the world.
These will be the Indians who have acquired global skills without having to migrate to the West.
The dramatic impact of BPO becomes clearer when you consider the fact that the IT industry employs only about 500,000 people. Yet, in 10 years, it transformed the social, economic, and trade pattern of our country. It has increased India's forex reserves beyond belief and has placed India on the world services map where the "Made in India" label can be used with pride.
If 500,000 people can transform India in 10 years, imagine what 12 million can do -- just think of what India would be like if we have an IT industry 24 times its current size…the mind boggles.
We will have a large body of people who will deliver, expect and demand quality not just in their professional lives but in their personal lives too. It will no longer be acceptable to have dirty streets, chaotic traffic, grubby common areas in apartment blocks, and lack of efficiently-run public services.
The traditional apathy of the Indian middle class to our immediate environment will begin to erode because there will be a large multitude of professional people who will say, "No, this is not good enough. We know better and we want better." And these people will not be a small, faceless minority -- thanks to their training, their exposure to global companies, their work ethic and their sheer numbers, they will be a large and vocal group who will insist on being heard.
This is nothing short of a tectonic social shift when you contemplate the sheer magnitude of the BPO industry of 2014. However, we do not need to wait till 2014…this change is happening right now. It is taking place right in front of us but like an underwater earthquake, it is invisible to us on the shore.
Like an underwater earthquake, it will create a huge upheaval in the old landscape that we today take for granted. And when this trend reaches a critical mass, like an underwater earthquake, it will change our shorelines completely and forever.
This is not a theoretical possibility. It is a reality that is here and now. It is simply not obvious. It is up to us to help this wave along and to build a BPO industry that will not only be a commercial success but will redefine our country





CONCLUSION
Although countries like Australia, China, Philippines and Ireland have emerged as the close competitors in the ITES/BPO sector, India is still the favored market for BPO companies. As for 2005, NASSCOM predicts that there would be a considerable expansion in the captive operations of global organizations and MNCs in the BPO sector. Another key development would be the rapid growth in offshore outsourcing, especially in the sectors of Automatic data management, Human Resources (HR), Finance and Accounting and Healthcare.
The rating agency ICRA reports that by 2006, India is expected to capture 56 per cent share of offshore business process outsourcing business, with the demand for BPO services increasing at an annual growth rate of 50 per cent during 2004-06. The size of the Indian BPO market is likely to be around $9-12 billion by 2006 and it will employ around 400,000 people.
While figures are a source of comfort for the BPO segment, there is much to be done to smooth the edges. We might have a multitude of issues to take care of, but at the end of it all India will be shining even brighter.