The BPO industry is adopting various
technologies and strategies to fight the pressure caused by the
The Indian Business Process Outsourcing industry is in the throes
of another evolutionary change as the US recession finally begins
to take its toll. The industry is looking at various strategies
and technologies to survive and thrive amid growing pressure of
the US recession.
US recession has its roots in the housing crisis, rising oil prices
further adding to the crisis. The rise in unemployment in the US
is yet another problem. The recession is forcing the US companies
to slow down with many mortgage firms closing shop.
As a result, the outsourcing pie itself has come down. This is probably
an important reason why the industry body Nasscom has scaled down
the growth projection for the industry to 21-24% from 23-24%, as
projected earlier. A study conducted by Nasscom and research firm
Everest earlier this year estimates that between 2008 and 2012,
the industry will see a CAGR of 28-30%, which could go to as high
as 45-50% if supply constraints are eased.
“Client spending has become prudent, forcing us to
re-look at the value we are adding to our clients. There is an increased
accent on usage of productivity tools, maximizing utilization of
resources, and overall improvement in operational efficiencies on
projects. Clients continue to outsource, sometimes contracts have
taken longer to close and projects have been delayed,” says
Ramesh Gudalur, president, MphasiS BPO.
The industry is divided on the effect of recession. Most industry
players believe that the recession is likely to help the Indian
outsourcing industry in the long run. This is if the industry focuses
on value additions. The US recession will also force the smaller
companies to focus on differentiating factors. It is the next step
in the evolution of BPOs, as the industry looks at ways and means
to reduce operational costs and increase profit.
Rampal, country manager, India & Saarc, 3Com India says, “Clients
are taking a longer time to close deals, and there is uncertainty
regarding change in policies as a result of the presidential election.”
“We have witnessed some measure of caution from our prospective
customers to outsource, primarily because of the uncertainties in
the economic policies that might come about after the presidential
elections,” says Narasingarao Dataram, executive vice president,
Strategic Operations, e4e Business Solutions.
The US recession is likely to help the outsourcing industry in the
long term, but not without some effects in the short term. “The
large players will continue to invest in technology, since they
realize that the business is going to grow. There is already a shift
toward more value adds, and they would want to cash in on that,”
says Gaurav Gupta, principal country head (India), Everest Group.
“Hiring has slowed down. There is a delay in decision making
as well among enterprises,” Swapan Baida, MD, India &
Sri Lanka, Aastra telecom. While the BPO industry as a whole is
thinking of strategies to combat the impact of the recession, legal
process outsourcing firms are seeing an upsurge in demand. This
is mainly because the credit crisis-related litigation jobs are
getting outsourced to India.
The most obvious strategy of the BPO players is to reduce
the dependence on the American market, and to look for other markets.
“The Indian BPO industry, which was heavily focused on the
US market, has now begun to successfully farm projects out of newer
markets in Europe and the Asia Pacific,” Gudalur of MphasiSs
The appreciating rupee provides a perfect platform for Indian companies
to open centers in countries like Bulgaria, Poland, Romania and
the Czech Republic in Europe, Mexico in Latin America, and China,
Philippines and Vietnam in Asia. This is also led by the fact that
most clients now demand global delivery.
“The US recession has not impacted the BPO industry negatively.
This is because many companies are looking at cutting their spends
by moving more processes off-shore. There are clear signs that the
volume of work being outsourced/off-shored is on the rise including
first time outsourcers. The volume, however, is getting distributed
among several countries, including India, the Philippines, and Latin
America. So, if a BPO provider is predominantly India-based, it
may have some effect on them,” says PV Kanna, CEO of 24/7
Customer. “We changed our delivery structure to a global delivery
model in 2008. This has helped us to ensure that we are able to
serve our clients from several geographies and not be restricted
to India,” he added.
The move to smaller countries is led by big players who want to
move overseas for talent as well to service global customers. Most
clients now require global delivery. 24/7 Customer is increasingly
moving offshore and believes that around 40% of the company's delivery
will be from outside India. According to Nasscom, Indian companies
are present in seventy-seven cities in twenty-five countries.
spending has become prudent, forcing us to relook at the value we
are adding to our clients. Also, there is an increased accent on
usage of productivity tools, maximize utilization of resources and
overall improvement in operational efficiencies on projects”
Ramesh Gudalur, president
are very seriously looking at workforce management tools and are
exceedingly moving away from excel sheets”
Dhananjay Ganjoo, VP, Enterprise
“There is an obvious movement toward `pay-per-use' model,
which helps both the vendor and the client. The overseas clients
are looking at more value addition with reduced cost and this model
Pankaj Garg, president of IKF's
Global Telecom Operations
Besides expansion in different countries, BPOs are also expanding
in tier-2 cities in the country. Companies are fast moving to smaller
towns to reduce operational costs, since the cost of real estate
and manpower is much lower than the in metros.
“We have leveraged our India base by tapping the huge domestic
market, where we see a high level of profitability and potential
in the years to come. We will also explore the possibility of opening
centers in tier-2 and -3 cities to reduce costs and boost the bottom
line during a recessionary phase,” says Dataram of e4e.
For small BPOs dependent on the US, the going might be tough. Clients
are increasingly looking at value additions and BPOs with commoditized
services will be forced to differentiate their services from the
run-of-the-mill or face extinction.
“In the short term, the US recession is impacting the BPO
industry as new efforts are being put on hold. However, in the medium
to long term, the recession will accelerate the growth in the BPO
industry. The biggest challenge to growth is the increase in wages
and real estate costs in India,” says Rinku Wadhwani, managing
director, Cipher Dynamics.
Cipher has deferred some technology spend in line with growth. “We
are looking less for new technologies and more for reducing the
cost of existing technologies for our internal needs and the needs
of our clients,” adds Wadhwani.
The recession in the US market is also forcing BPO companies to
seriously look at the burgeoning domestic market. According to Nasscom,
the domestic Indian outsourcing market was around $8.2 bn in FY
2007. BPO companies are mostly looking at two types of companies
for the domestic market, global companies planning to enter the
Indian segment and the big Indian companies. The main drivers for
companies interested in the Indian space are: the booming Indian
economy, global aspirations of the Indian firms, and the rupee appreciation.
Verticals spurring the domestic demand are telecommunications and
financial services. Consumer goods and airlines along with travel,
hospitality, retail, and media are likely to demonstrate a significant
demand for outsourcing services in the country. Genpact is seriously
considering the Indian market and believes that the contribution
of the domestic market to its revenue will be substantial in the
coming years. They are not the only ones. IBM Daksh, Firstsource
Solutions and Intelenet Global Services are some other BPOs considering
the Indian domestic market.
“We would be focusing on new markets as part of our
strategy to mitigate the impact of the recession. There would be
an increased concentration on the booming domestic Indian BPO market.
We will also build domain-based expertise with a client-centric
approach to our solutions,” says Gudalur of MphasiS.
Platform for Success
Platform BPO, which is increasingly finding favor with the industry,
will go a long way in reducing the cost for the vendor since the
same platform could be used to service other clients as well.
While the concept of Platform BPO has been around for some time,
it is only now that it is picking up. The concept works especially
in the bearish time since it reduces dependence on human capital.
While investments are high in developing a platform for different
verticals, the services are based on the number of transactions.
The platform model is also known as Software-as-a-Service (SaaS)
Infosys BPO believes that Platform BPO will constitute a substantial
part of its revenue by the next financial year, and that the adoption
of new models would be higher during the recession because of its
flexible cost structure.
While earlier clients used to have their own technology platforms
through which vendors used to deliver the services, this is no longer
the case. Some clients started insisting that vendors have their
own platform and deliver services through them.
TCS is another company betting big on Platform BPO with plans to
add more platforms. The company is looking at areas such as retail
and banking among other sectors and will be developing these new
platforms on its own. Besides, the company is also looking at partnerships
to develop platforms for other verticals. IGate is also planning
to have presence in the platform BPO segment.
Earlier, clients preferred their own platform because of security
issues because in platform BPOs the same infrastructure will be
used for different clients. However, this has become popular in
the current bearish market where companies are looking to reduce
“A key ingredient of the 'integrated' offering will be the
creation of platforms, especially for back-office and transaction
processing services. Platform BPO will allow vendors to de-linearize
growth through large-scale productivity payoffs and pay-per-use
revenue models. Acquisitions of companies with proprietary platforms
will also pick up, although acquiring cannot help vendors do away
with investments in capabilities for customization and backward
integration,” says 'BPO 2008: The Year Ahead', a report by
ValueNotes Database. Service providers endorse this view as well.
“There is an obvious movement toward pay-per-use model, which
helps both the vendor and the client. The overseas clients are looking
at more value addition with reduced cost and this model offers that,”
says Pankaj Garg, president of IKF's Global Telecom Operations.
IKF is a telecom solution and managed telecom solutions provider.
“Customer requirements vary, and solutions are framed on customer's
requirement. In order to provide optimal and cost effective solutions,
we adopt open source and hosting model, by which we operate in the
opex model rather on the captive model. Solutions like SaaS and
hosted solutions will help because there is a much lower capital
expenditure involved and fewer budgetary hurdles. Collaboration
and remote meeting products will minimize travel costs,” says
Dataram of e4e Business Solutions. e4e is a global business services
company with services being offered in application and infrastructure
management and transaction processing services for various verticals.
There is a trend toward bundling of deals, combining both operations
and technology. Setting up a platform requires huge investment.
In this scenario, the smaller BPOs will find the going tough.
The Vendor Perspective
Most technology vendors report that there is no decrease in the
technology spends of BPO companies, and they haven't experienced
any impact as a result of the US recession. “We have recorded
a growth of 14.5% in H1 of this year, as compared to H1 last year.
As far as the number of new customers is concerned, there has been
an increase of 55% new enterprises in the first half of this year.
So we don't see any major impact of the US recession,” says
Rajeev Soni of Aspect Software.
Commenting on the trends in the technology spend of the BPOs, Soni
says, “The industry is certainly moving toward more productivity-based
solutions. There is also a clear preference for Unified Communications-based
technology, which offers high productivity at lower TCO and uses
the existing infrastructure as well. Basically, they (BPOs) are
looking at technologies to further enhance productivity.”
There is a movement toward efficiency improvement projects, which
will go a long way in reducing the operational cost in the big BPO
companies. “There is definitely an increase in the purchase
of technologies to record the conversations, but this is because
it is now a law. BPOs are also very seriously looking at workforce
management tools and are exceedingly moving away from excel sheets,”
says Dhananjay Ganjoo, VP, Enterprise, Nortel India.
Vendors view the current US recession as an opportunity and believe
that BPOs would be forced to spend on technology to survive. “Small
BPOs, especially the ones focused on North America, would be affected
strongly. But the large BPOs would be able to weather the storm,
and, in fact, will continue to make large investments in technology.
Large BPOs realize that it is an opportunity, and the thrust is
on value-adds. So they would in fact increase their investment in
technology,” says Gupta of Everest Group.
Cable&Wireless, which was recently awarded international long
distance and national long distance licences by DoT, is focusing
on providing full communications suite to the clients. “For
instance, we're now providing full communications suite to Aviva,
comprising seventy-two separate services, including voice telephony,
data, local and WANs (IP-VPN and MPLS) and, international services.
So the clients are looking at the full range,” says Sunanda
Das, managing director, India Operations, Cable&Wireless. “We
believe that US recession is a market opportunity for us,”
“The US slowdown is both positive and negative for us. While
earlier we used to focus on the snazziest products, now we work
on customized solution on how to meet the client objective. This
change in perspective has come because contact center is no longer
a standalone application, but it has to be connected to all the
application. For instance, in the Bharti deal, every time a call
was transferred to an agent we would lose money. So, we developed
the IVR in such a way that most calls would terminate at IVR itself,”
says Ravi Chauhan, leader, Global Multimedia Applications, Nortel.
The company is working with prominent BPOs like FirstSource, Spectramind
Many believe that because of the lost business, especially in the
mortgage segment, there is a lot of capacity lying unused. “The
industry is under pressure to make full use of the available resources
and is looking at technology to increase productivity,” says
Garg of IKF.
Overall, the future seems bright and sunny for the BPO industry.