BPO Industry in India- A Report Summary This report discusses the concept of BPO , its entry in the Indian markets , its reasons for doing so, its present and projected growth, the competition given to the Indian BPO industry by the developing BPO demand in China and also discussing the BPO industry and its growth in China and the major catalyzing factors taking the BPO to the Chinese markets.
BPO industry in Indian is fuelled and propagated by the youth and it is the presence of this youth that this particular industry has been able to penetrate the Indian market and attain the spectacular lightning fast growth that it has The demand for BPO industry came as a majority from students who wanted to bear their own expenses or get some more “fun” money. This seemingly innocent demand by the youth has given birth to an industry so massive that yet in its cradle, the BPO industry has become a colossal giant, loosely organized, yet powerful, and matter of fact so big that its contribution towards the Indian GDP is a 2. % and growing by 10% per annum. While the majority of the force in a BPO is constituted by the youth, suffice it to say that it is governed by the iron fist competitive matured market players deeply seated in the worlds IT market. BPO – Business Process Outsourcing – An 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. History Airlines In the early 1980s several European airlines started using Delhi as a base for back office operations, British Airways being one among them. The BA captive was finally spun off as a separate organisation called WNS Global Services in 2002. Amex In the second half of the 1980s, American Express consolidated its JAPAC (Japan and Asia Pacific) back office operations into New Delhi and NCR region.
This center was headed by Raman Roy, and has been a source of several leading names in the Indian BPO Industry. General Electric In the 1990s Jack Welch was influenced by K. P. Singh, (A Delhi based realtor) to look at Gurgaon in the NCR region as a base for back office operations. Pramod Bhasin, the India head of G. E. hired Raman Roy and several of his management from American Express to start this enterprise called GECIS (GE Capital International Services). Raman for the first time tried out voice operations out of India, the India operations also was the Beta site for GE Six sigma enterprise.
The results made GE ramp up their Indian presence and look at other locations. In 2004 GECIS was spun off as a separate legal entity by GE, called Genpact. GE has retained a 40% stake and sold a 60% stake for $500 million to two equity companies, Oak Hill Capital Partners and General Atlantic Partners. Third party BPO’s Until G. E most of the work was being done by “captives”- a term used for in house work being done for the parent organisation. In 2000 Raman Roy and some team members from GECIS quit , and with VC funding from Chrysalis Capital started Spectramind.
At the same time an organisation called EXL started in Noida and Efunds started in Mumbai and Gurgaon, and Daksh in Gurgaon. However, recently most of the Indian BPO’s even smaller and mid-sized ones are actually setting-up their onshore presence. Most of the serious players are actually improving the outsourced business processes by leveraging on years of experience and now some of them are directly competing with their own older clientbase by marking this transition to KPO ‘s. Entry of IT majors In 2002 Spectramind was bought by software major Wipro, and BPO by then had become mainstream like the IT Industry in India.
The team that had setup Spectramind went on to start Quatrro in 2006, a BPO specialising in high end BPO/KPO services. By 2002 all major Indian software organizations were into BPO, including Infosys (Progeon), Inforlinx, HCL, Satyam (Nipuna) and Patni. By 2003 Daksh was bought out by IBM, and later in 2006 MphasiS was acquired by EDS. Even international 3rd party BPO players like Convergys and Sitel had set up shop in India, swelling the BPO movement to India. Then service arms of organizations like Accenture, IBM, Hewlett Packard, Dell also set up shop in India. Emergence of Rural BPOs
Booming India Inc has led to skyrocketing real estate and infrastructure costs in Tier-1 cities. BPO industry has thrived all these years because of its ability to deliver services at a low cost. Increasing infrastructure costs, real estate costs, and salaries have raised BPO costs significantly and as a result Indian BPOs in Tier-1 cities are looking at Tier-2 and Tier-3 cities for operation. Few entrepreneurs who had a vision of bringing the rural India into the mainstream of knowledge economy have found an opportunity here – setting Rural BPOs. The transformation of rural India started with the emergence of these Rural BPOs.
The major hurdles that these BPOs faced is quality man power. As a result these rural BPOs have remained targeting low end jobs like data entry.  Effect of global meltdown on Indian BPOs American financial meltdown has begun to take its toll on India’s IT and outsourcing business.  Challenges to outsourcing services in India Many analysts believe that the growth of India outsourcing sector is widely optimistic and it will slow down in future. Both IT and BPO sector is extremely dependent in USA and if the US dollar depreciates can adversely impact the entire sector.
Additionally countries like China, Mexico and Vietnam are also expanding outsourcing operations and often providing cheaper services. The Power Of BPO Business Process Outsourcing (BPO) has the potential enabling power to vitalize Businesses and energize Economic growth. BPO benefits are significant, sustainable and strategic – or rather, they can be. To ensure that customer expectations are consistently met and often exceeded requires a BPO Service Provider with the Right Stuff – starting off with: Related Technology Domain Expertise – E-REACH has developed extensive expertise in a wide range of emergent and mainstream Technology Domains.
Some of these Domains bear a direct relationship to a wide range of B. P. O services – CRM/ ERP/ SCM/ Imaging & Workflow etc. Voice: E-REACH offers a state of art Call Center facility with latest technology and competent personnel, ensuring cost effective solution to meet the inbound and outbound calling requirements. We provide round the clock services and support to our clients and ensure that you reach your customer anywhere and everywhere, anytime and every time. E-REACH provides extensive training for the call center executives on the accent and telephone handling skills.
Our training covers Accent and conversation skills, Call center etiquette, Internet skills, Sales skills and Technical skills. Non-Voice: BPO as a segment is witnessing a massive growth. One of the key challenges that BPO companies that provide data entry/data validation services is an efficient and effective way of getting the source documents from different customers and accurately route the same to different operators for processing. This is where E-REACH BPO can help. With data processing outsourcing one can: Structure Restructure Format Reformat Modify/Update Index
Build effective data management tools to sort, track, retrieve data in just a few clicks Non-Voice Services: Outsource our data conversion work and convert our data into a powerful management resource. Document Preparation Handwritten, Machine print and Reader Response Word Processing Image Keying Image Capturing Document Management / Imaging Document Warehousing Document Retrieval Document Workflow Mail Processing Services The Ten Steps to TQM (Total Quality Management) * Pursue New Strategic Thinking * Know your Customers * Set True Customer Requirements * Concentrate on Prevention, Not Correction * Reduce Chronic Waste Pursue a Continuous Improvement Strategy * Use Structured Methodology for Process Improvement * Reduce Variation * Use a Balanced Approach * Apply to All Functions BPO Business Model Size of industry The industry has been growing rapidly. It grew at a rate of 38% over 2005. For the FY06 financial year the projections is of US$7. 2 billion worth of services provided by this industry. The base in terms of headcount being roughly 400,000 people directly employed in this Industry. The global BPO Industry is estimated to be worth 120-150 billion dollars, of this the offshore BPO is estimated to be some US$11. billion. India thus has some 5-6% share of the total Industry, but a commanding 63% share of the offshore component. The U. S $7. 2 billion also represents some 20% of the IT and BPO Industry which is in total expected to have revenues worth US$36 billion for 2006. The headcount at 400,000 is some 40% of the approximate one million workers estimated to be directly employes in the IT and BPO Sector. The related Industry dependent on this are Catering, BPO training and recruitment, transport vendors, (home pick up and drops for night shifts being the norm in the industry).
Security agencies, Facilities management companies. Table 1: Global BPO Market by Industry| Industry| Percentage (%)| Information Technology| 43| Financial Services| 17| Communication (Telecom)| 16| Consumer Goods/ Services| 15| Manufacturing| 9| Table 2: Global BPO Market by Geography| Country| Percentage (%)| United States| 59| Europe| 27| Asia-Pacific| 9| Rest of the World| 5| Table 3: Size of Global Outsourcing Market| Year| Size (USD Bn)| 2000| 119| 2005| 234| 2008 (est. )| 310| Table 4: Size and Growth of BPO in India| Year| Size (US$ Bn)| Growth Rate (%)| 003| 2. 8| 59| 2004| 3. 9| 45. 3| 2005| 5. 7| 44. 4| Currently the Indian BPO Industry employs in excess of 245,100 people and another 94,500 jobs are expected to be added during the current financial year (2005–2006) Table 5: Call Center Employee cost| Country| Cost (USD/yr)| USA| 19,000| Australia| 17,000| Philippines| 9,050| India| 9,500| Nearly 75% of US and European multinational companies now use outsourcing or shared services to support their financial functions. 72% of European multinational companies have outsourced financial functions over the past two years.
Additionally, 71% of European companies and 78% US companies plan to use these services in the next 12–24 months. Overall, 29% of US and European companies expect to increase their use of outsourcing of financial functions, with spending expected to be nearly 16% higher than current levels. Growth in this sector will get a further impetus as Indian BPO companies have robust security practices and emphasis is laid in developing trust with clients on this score. While earlier there were varying quality standards on this aspect, today there is focus on standardization of security, such as data and IP security.
Different Types of Services Being Offered By BPO’s 1. Customer Support Services Our 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
Our 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
Our 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 Our 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
Our 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. . Data Entry Services / Data Processing Services Service Example: * Data entry from Paper/Books with highest accuracy and fast turn around time (TAT) * Data entry from Image file in any format * Business Transaction Data entry like sales / purchase / payroll. * Data entry of E-Books / Electronic Books * Data Entry : Yellow Pages / White Pages Keying * Data Entry and compilation from Web site * Data Capture / Collection * Business Card Data Entry into any Format * Data Entry from hardcopy/Printed Material into text or required format * Data Entry into Software Program and application Receipt and Bill Data Entry * Catalog Data Entry. * Data Entry for Mailing List/Mailing Label. * Manuscripting typing in to word * Taped Transcription in to word. * Copy, Paste, Editing, Sorting, Indexing Data into required format etc. 7. Data Conversion Services Service Example: * Conversion of data across various databases on different platforms * Data Conversion via Input / Output for various media. * Data Conversion for databases, word processors, spreadsheets, and many other standard and custom-made software packages as per requirement. Conversion from Page maker to PDF format. * Conversion from Ms-Word to HTML format * Conversion from Text to Word Perfect. * Conversion from Text to Word to HTML and Acrobat * Convert Raw Data into required MS Office formats. * Text to PDF and PDF to Word / Text / Doc * Data Compilation in PDF from Several Sources. * E-Book Conversion etc. 8. Scanning, OCR with Editing & Indexing Services Service Example: * High speed Image-Scanning and Data capture services * High speed large volume scanning * OCR Data From Scanned page / image * Scan & OCR paper Book in to CD. ADOBE PDF Conversion Services. * Conversion from paper or e-file to various formats 9. Book Keeping and Accounting Services Service Example: * General Ledger * Accounts Receivables and Accounts Payable * Financial Statements * Bank Reconciliation * Assets / Equipment Ledgers etc. 10. Form Processing Services: Service Example: * Insurance claim form * Medical Form / Medical billing * Online Form Processing * Payrol Processing etc. 11. Internet / Online / Web Research Service Example: * Internet Search, Product Research, Market Research, Survey, Analysis. 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 artners 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 9. EXL 2. Wipro Spectramind 10. TRACMAIL 3. Daksh e-Services 11. GTL Ltd. 4. Convergys 12. vCustomer 5. HCL Technologies 13. HTMT 6. Zenta 14. 24/7 Customer 7.
ICICI Onesource 15. Sutherland Technologies 8. MphasiS 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 Majoriy 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 provides 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 provides 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 reimburses 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. 000/- 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 Inspite 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. 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 . 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 What they have to say? With so much of uncertainty in the market.. people are trying their best to stop or to at least have a control on the attrition ratelet me share with you the opinion of the real gurus of the industry. “Training is a very important aspect of the ITES-BPO industry”- Mr. Arjun Vaznaik, COO, Tracmail ” Career growth in the industry is robust and there is a long-term opportunity. The great growth momentum that the industry is witnessing is creating both vertical and lateral career opportunities.
There also exists enough growth opportunities in the middle-management and supervisory level within the industry”. – Aadesh Goyal, Executive Vice President & GM, Hughes BPO Services As of 2008, around 0. 7 million people work in outsourcing sector less than 0. 1% of Indians). Annual revenues are around $11 billion, around 1% of GDP. Around 2. 5 million people graduate in India every year. Wages are rising by 10-15 percent as a result of skill shortage. * | Leading BPO-ITes cities in India Bangalore, Chennai, Hyderabad, Kolkata, NCR, Pune, Mumbai and Ahmedabad are Tier I cities that are leading IT cities in India.
With rising infrastructure costs in these cities, many BPO’s are shifting operations to Tier II cities like Nashik, Sangli, Aurangabad (Maharashtra), Mangalore, Mysore, Hubli-Dharwad, Belgaum, Coimbatore, Madurai, Hosur, Nagpur, Kochi, Trivandrum, Chandigarh, Mohali, Panchkula, Ahmedabad, Bhubaneshwar, Jaipur, Vishakapatnam and Lucknow Tier II cities offer lower business process overhead compared to Tier I cities, but have a less reliable infrastructure system which may hamper dedicated operations.
The Government of India in partnership with private infrastructure corporations is working on bringing all around development and providing robust infrastructure all over the nation. BPO And the Indian Economy Growth Prospects Of BPO In India While the offshore (international) BPO market faces pressures with economy-wide slowdown in developed markets, the domestic BPO market is getting ready to take off. According Arun Jethmalani, CEO, ValueNotes, “Unlike the overseas business, labor or cost arbitrage does not drive the domestic BPO market.
It’s strategic factors such as the need to scale rapidly, focus on core competencies, enhanced productivity and reduced time to market that are driving domestic demand”. ValueNotes’ research indicates that the domestic BPO industry stands at an inflection point, with the growing scale of Indian buyers as well as the emergence of significant vendors with greater capabilities. The recently released report by ValueNotes estimates the share of third party revenues is 27% of the domestic BPO market, at Rs. 18 billion for FY08.
This is expected to grow at a CAGR of 44% over the next four years reach Rs. 77 billion by FY12. Specific triggers for heightened outsourcing differ across verticals. While deregulation, massive growth and entry of new players drives outsourcing amongst telecom operators; severe competition and widespread adoption of IT are enabling growth in the banking sector. However, industry growth (growth of organized sector) coupled with aggressive adoption of IT by Indian companies will remain as compelling drivers for outsourcing across all segments.
Further policy reform or de-regulation, especially in markets like banking, retail or government; could provide significant discontinuous growth opportunities that will make these estimates appear conservative. The study found that there are over 700 vendors offering a variety of BPO services to domestic clients. Most of the top vendors have grown their domestic BPO operations by over 60% over the last one year. A number of international focused BPOs (such as Infosys, Genpact, etc) are now seriously looking at the India market.
However, services outsourced by the Indian companies are largely limited to low value, high volume, back office jobs and customer support activities. Managing rapid growth while maintaining competitive costs and quality will be critical to the growth of BPO service providers. Building and developing specialized services and solutions that provide greater value will be a key challenge for vendors to sustain profitable growth in the long term. According to Pranav Dixit, analyst and co-author of the report, “Potential for BPO services will rapidly increase especially for verticals such as Government, Financial services and Retail.
As clients mature in their IT initiatives, the scope to leverage on experience in IT services outsourcing is set to expand. ” Adds Neeraja Kandala, analyst and co-author of the report, “Aggressive expansion plans of existing players coupled with entry of large international BPOs will intensify competition in the BPO market. With a large number of small and mid-sized vendors focused on the domestic market, inorganic growth will be an attractive option for the international players looking to build scale rapidly. We expect increase in M&A activity post 2008. ” | Growth and Development Of BPO in ChinaEver since China embarked on the journey to bolster its services industry, the focus has been on providing IT services to the domestic and international outsourcing market. The Business Process Outsourcing (BPO) industry, on the other hand, was until recently largely neglected. But now the trend seems to be changing — the BPO market has grown from $900 million in 2005 to about $1. 3 billion in 2007. Moreover, the spread of Chinese locations providing BPO services, too, has increased dramatically in the recent past.
Prior to 2005, the majority of BPO activity was restricted to the metro cities of Shanghai, Beijing and Guangzhou. More recently, however, new BPO hubs have emerged, Dalian being an important one. Because of the cultural and geographical proximity of this northern Chinese city to Korea and Japan, it has emerged as an important BPO center for servicing corporates from these Far Eastern countries. In fact, because of language considerations, the BPO landscape in China is quite different from that in other Asian service-provider locations such as the Philippines and India.
American and European customers rarely source BPO services from China, and the market is dominated by three types of customers. First, customer companies from Japan, Korea and Hong Kong are the key drivers of BPO business in China. However, most of these companies restrict outsourcing to only low-end services and are focused on cost savings. Second, multinationals that have large manufacturing operations in China and the Asia-Pacific region, and have substantially grown over the years.
These companies are driven to outsource mostly to harmonize and consolidate their processes, scale operations, seek locations with regional linguistic skills, and, of course, to save costs. Some large foreign investors that have thousands of employees in China are DSM (5,000 employees), Danone (15,000 employees), Fuji (5,000 employees) and Akzo Nobel (7,000 employees). For such corporations, it makes sense to outsource to chineseThird, domestic Chinese companies that outsource within China. Potentially, the demand from such companies is expected to grow considerably.
These companies include state-owned enterprises, government agencies, and private and public enterprises. Traditionally, these companies have never outsourced, but are now starting out. For instance, some Chinese banks have started outsourcing processes such as low-end data processing, information validation and reference checks. Drivers for BPO Growth While cost is the primary driver for any outsourcing to take place, China also offers a lot of other facilities, such as low land rentals and favourable banking regulations.
Emerging regional hubs: Following the commitment to the World Trade Organization, the Chinese economy has been experiencing tremendous growth. There is also a trend of many multinationals shifting their Asia-Pacific headquarters to China. Many multinationals are now looking to setting up their shared-services centers in China or outsourcing their processes to local companies. As such companies gain experience in outsourcing, they plan to make China a regional hub for outsourced services.
Domestic companies getting competitive: Many Chinese companies are aggressively expanding their presence globally, and are now seeking to streamline their business processes to offer best-in-class services. They are outsourcing their activities to some global and Chinese BPO service providers. Consolidation of business units: The growth of many multinationals in China has typically been driven by business units. During the initial phase of market entry, these multinationals focused on growing the business, thus leading to business-unit driven growth.
In the process, various business units set up their own processes in order to efficiently run their respective operations. As the volume of revenue generated and the size of operations increased substantially, the need for consolidation of business processes increased. Presently, many companies that have been in existence in China for years are now in the phase of evaluating the consolidation of services. Banking regulations: More recently, due to the changes in banking regulations in the country, foreign banks are now allowed to offer retail-banking services in China.
Many global banks have entered China through partnerships with Chinese banks and have started focusing on improved service levels and cost efficiency. This will spur growth in banking BPO services in the near future. | Competition of Indian BPO Despite the emergence of China and Philippines as competitors in the business process outsourcing space, India is well placed in terms of parameters like cost savings, competency, technical infrastructure, language and skill pool, according to an industry report by ICRA.
In the BPO field, China is perhaps the biggest challenge in the future and the largest threat to India, and with the largest population and fastest economic growth, the Chinese have at least two advantages in the global outsourcing market — manufacturing and IT — the report said. In terms of outsourcing options, India has a significant cost savings model with multiple competencies in various areas, an emerging technical infrastructure, highly rated skill pool with English language and extensive cultural fit, the rating agency said.
The main disadvantages of China are lack of good quality record in software, whereas India has a better image as quality supplier, ICRA said in its BPO industry report. With low percentage of Chinese population speaking English and a less mature and relatively new BPO industry, India stands tall in these areas vis-a-vis China, it said. However, China has certain advantages in offering low manpower costs compared to India, and being close to Japan, its BPO market is also likely to grow through the Japanese outsourcing route. As India currently offers no BPO services in Japan, China will capitalise on its proximity to it, the report said.
The report also mentions the proactive approach of Chinese government towards BPO sector. “The Chinese government has invested over $5. 4 billion in nine universities to promote English language and other skill sets,” it said, while adding China could also leverage on its strong manufacturing base image. As regards Philippines, the disadvantages are low graduate turnout with only 400,000 graduates per annum which puts it unfavourably with India, poor record on quality vis-a-vis India, and political instability resulting in lack of uniformity in policies, ICRA said.
There is also an absence of multi-location facilities in Philippines and the country faces the important issue of scaling up. The largest call centre in Philippines of AOL has only 800 people and the size of the industry there is only $100 million, the report noted. India’s BPO industry size is $2 billion. Philippines enjoys advantages in being a former United States colony that helps in emulating US culture and language, well developed IT skill set, third largest English speaking nation in the world and large scale technical training programme.
Though countries like Australia , Canada and Ireland are the other players, they are not serious competitors to India due to a small population base, ICRA said. Future of BPO Industry From the last two decades Business Process Outsourcing is catering various industries like Retail, Insurance, Mortgage, Banking and Finance, Healthcare, Telecommunications, Technology, Travel and Hospitality and more. Companies are consolidating and standardizing operating processes by outsourcing the business process to third parties that offer economies and focused management expertise.
In the present scenario many UK and USA based companies are resorting to Asian countries like India, China, Russia and Philippines to outsource their business processes. Offshore BPO is predicted to grow at a significant rate per year. BPO within Asia- Pacific market is expected to display a growth rate of about $14 billion by 2010. Business Process Outsourcing help companies achieve indomitable position in the service market and generate high profits by improving their business operations.
Business Process Outsourcing is a tool that allows the companies to survive in the cut throat competition by retaining their customers and providing high rate of customer satisfaction. The advancements in technology and infrastructure have made it easier to carry out BPO services. Countries offering cost advantage by way of cheap labor along with skilled workforce are ideal destinations for BPO industry. * Future of BPO in India: Today 55% BPO services are carried out by Indians and the future prospects are even more promising with increasing number of graduates in the country who are well versed in English language.
People in India have now started looking at BPO jobs as long term career as it offers fast-track career advancement opportunities. Earlier only professional degree holders used to get hefty salaries but the advent of BPO has made graduates to earn well in the service sector. Subsequently India’s economy has got a hike since the establishment of BPO firms. * Future of BPO in China: According to some sources, the call centre industry in China is expected to grow by 22% this year and will reach to 28 billion dollar revenue by 2010.
This industry will give employment to around 158,000 people including bank services and technical support staff for IT companies. Multinational companies are attracted to set up more BPO firms in China owing to high productivity and cost-effective human resources. * Future of BPO in Russia: In the present scenario many companies are banking upon Russia’s outsourcers wish to have a large number of BPO firms. Russian outsourcing is known for cost effective quality services which gives the clients all good reasons to hire Russian BPO firms. Russia is emerging as a skilled back office administration to the world’s leading corporations. Future of BPO in Philippines: Business process outsourcing or BPO is an emerging industry in the Philippines. Since 1980s service sector has seen good growth in Philippines. Employment of labor force has seen a major shift from agriculture to service sector. Philippines business process outsourcing (BPO) industry is going strong and it has been estimated that by the year 2010 the BPO industry revenues will be approximately US$12 billion. Also the industry will generate one billion jobs by 2010. Philippines BPOs are doing greatly in legal and medical transcription, finance, logistics and accounting. Evolution Of BPO in India
Indian became a prominent destination for outsourcing in the services sector in the 1990s. Outsourcing to India started with the IT industry, which has responded to the changing market requirements by increasing the scale of operations and capability to handle complexity. The Indian software industry, according to Kris Gopalakrishnan, COO, Infosys Technologies Limited, has gone through the following four stages of development: 1. 1970s to early 1990s: There was a shortage of skills and cost was the prime driver for outsourcing to India. Companies focused on expanding their skill sets during this period. . 1994 to 1998: This was the most crucial time for IT outsourcing in India. The post liberalization reforms helped already existing companies speed up expansion. New companies also got support in the form of incentives from the government. The important tasks outsourced to India during this period were medium and large application projects on legacy migration and enterprise wide IT and problems related to Y2K syndrome. Companies focused on acquiring diverse skills and execution capabilities, along with achieving client delight trough productive and quality delivery of projects. 3. 999 to 2001: While projects related to Y2K syndrome were outsourced on a large scale to India, companies started acquiring additional competence especially in enterprise resource planning and customer relationship management during this stage. The industry gave importance to a variety of business aspects such as achieve excellence in quality of output delivered, making investments in R&D, ensuring business continuity and financial stability, gaining world-class project management capabilities, expanding services to IT consulting by gaining domain skills and developing infrastructure for further growth. . 2001 to present: The industry now caters to large application development and maintenance needs of corporate across the world. Indian companies chalk out IT strategies for large corporations, and focus on providing end-to-end solutions. Indian companies are now in the process of aggressively gaining expertise for carrying out high end work such as R&D, architecture and business integration. BPO in India has grown rapidly as compared to software services as the advantages offered by the country (low cost and abundant talent pool) were well known and tested in IT outsourcing.
Most of the infrastructure required was already in place and companies needed to set the processes right to get BPO going in India. According to Mohanbir Sawhney, Professor, Kellogg School of Management, evolution of BPO in India has witnessed three prominent phases. These waves are: 1. Large multinational companies set up their captive centers in the country. American Express, GE and Citibank were among the pioneers which were followed by numerous banks, financial services, manufacturing companies, etc. These companies performed their back-office perations and customer services through these offshore captive centers. 2. The captive centers were followed by the establishment of start-up BPO operations by experienced professionals. Such companies were often backed by venture capital. 3. IT majors such as IBM ventured into Indian BPO market to tap the opportunity. These companies had experience in managing offshore IT operations which helped them in gaining an easy entry into the BPO market. Future Prospects Of BPO in India The future for the IT/BP industry holds bright.
It is estimated that 56% of the BPO market could be India’s by the year 2006 with the demand for BPO services increasing at an annual growth rate of 50 per cent during 2004-06. The pace at which the Indian BPO market is increasing is tremendous. The market of BPO in India is likely to be around $9-12 billion by the year 2006 and will employ around 0. 4 million people. The BPO market is ready to fire up and India Inc is all geared for this big opportunity. This is really great news for India Inc since we have to tackle the BPO backlash as well.
Though there are chances of this party being spoiled by the US led backlash but then also India is sure to have a large share of the BPO market. This will go a long way in making India the BPO super power of the world. If the backlash stays on for sometime, then may be India could only have a 42% share of the market instead of 56%. Though it is a reality that companies outsourcing their business operations to Indian BPOs have been saving a lot of money and also saving jobs of their own countrymen.