ACKNOWLEDGEMENT

First of all, I would like to thank our college for giving us the opportunity to deal with

projects as a part of the BMS curriculum.

I would like to take this opportunity to express our humble gratitude to our respected

professors, for the creative support and motivation we received from them.

It was very reflective learning with them and I am sure that it will be very helpful in my

further studies and fields of work. I am grateful to them as they helped me in all the

necessary requirements of my project. Thus, this is my sincere thanks to the professor for

the guidance and support and for imparting me with great knowledge.

Thanking you

Rahul Agarwal

TYBMS

PREFACE

1

It gives me immense pleasure to present my project on BPO. I am greatful to my teacher Mrs. Padma Sai Arora who helped me every way out in the successful completion of the project.

The project briefly describes outsorcing, pros and cons of outsourcing, BPO, Chronologically, Global BPO Industry , Types Of BPO Services, Important areas of training in BPO, Challenges before BPO in India, Impact of recession on BPO, Role of BPO in India’s economic growth, BPO Benefits, BPO Threats, Problems in BPO, Future opportunities for India, Scope of BPO sector in future.

DECLERATION CERTIFICATE

2

This is to certify that anubhav jain of b.com. (h) 3rd year has completed project on topic BPO Business Process Outsorcing under my complete supervision and guidance.

I certify that the subject is upto my expectations and as per the guidance issued by delhi university.

Padma Sai Arora

Lecturer

Department Of Commerce

Delhi University

Index

3

Contents Page noWhat is outsourcing 5-6Why companies outsource 7Knowledge process outsourcing 7-8Pros and cons of outsourcing 9What is BPO 10-11BPO Chronologically 12-13The BPO Industry 13-14Why BPO? 14What constitutes BPO? 15-16Global BPO Industry overview 17Why India? 18Indian BPO Highlights 19Types Of BPO Services 20What does BPO Includes? 21Top 10BPOs in India 22Important areas of training in BPO 23Employee attrition in BPO 23Influence of foreign exchange on BPO 24Challenges before BPO in India 25-28Impact of recession on BPO 29-30Role of BPO in India’s economic growth 31BPO Benefits 32-36BPO Threats 37Problems in BPO 38BPO Backlash 39Scope of BPO sector in future 40Future opportunities for India 41-43Conclusion 44Bibliography 45

What is Outsourcing?

4

Outsourcing is contracting with another company or person to do a particular function. Almost every organization outsources in some way. Typically, the function being outsourced is considered non-core to the business. An insurancecompany, for example, might outsource its janitorial and landscaping operations to firms that specialize in those types of work since they are not related to insurance or strategic to the business. The outside firms that are providing the outsourcingservices are third-party providers, or as they are more commonly called, service providers Although outsourcing has been around as long as work specialization has existed, in recent history, companies began employing the outsourcing model to carry out narrow functions, such as payroll, billing and data entry. Those processes could be done more efficiently and therefore more cost-effectively, by other companies with specialized tools and facilities and specially trained personnel.

Currently, outsourcing takes many forms. Organizations still hire service providers to handle distinct business processes, such as benefits management. But some organizations outsource whole operations. The most common forms are information technology outsourcing (ITO) and business process outsourcing (BPO).

Business process outsourcing encompasses call centre outsourcing, human resources outsourcing (HRO), finance and accounting outsourcing, and claims processing outsourcing. These outsourcing deals involve multi-year contracts that can run into hundreds of millions of dollars. Frequently, the people performing the work internally for the client firm are transferred and become employees for the service provider. Dominant outsourcing service providers in the information technology outsourcing and business process outsourcing fields include IBM, EDS,CSC, HP, ACS, Accenture and Capgemini.

Some nimble companies that are short on time and money, such as start-up software publishers, apply multisourcing -- using both internal and service provider staff -- in order to speed up the time to launch. They hire a multitude of outsourcing service providers to handle almost all aspects of a new project, from product design, to software coding, to testing, to localization, and even to marketing and sales.

The process of outsourcing generally encompasses four stages: 1) strategic thinking, to develop the organization's philosophy about the role of outsourcing in its activities; 2) evaluation and selection, to decide on the appropriate outsourcing projects and potential locations for the work tobe done and service providers to do it; 3) contract development, to work out the legal, pricing and service level agreement (SLA) terms; and 4) outsourcing management or governance, to refine the ongoing working relationship between the client and outsourcing service providers.

In all cases, outsourcing success depends on three factors: executive-level support in the client organization for the outsourcing mission; ample communication to affected employees; and the client's ability to manage its service providers. The outsourcing professionals in charge of the work on both the client and provider sides need a combination of skills in such areas as

5

negotiation, communication, project management, the ability to understand the terms andconditions of the contracts and service level agreements (SLAs), and, above all, the willingness to be flexible as business needs change. The challenges of outsourcing become especially acute when the work is being done in a different country (off shored), since that involves language, cultural and time zone differences

“The strategic use of outside resources to perform activities traditionally handled by internal staff and resources”.

It is also defined as, the process of transferring an existing business activity, including relevant assets, to a third party.

Why Companies Outsource?

6

Outsourcing can be divided into two broad categories:

BPO KPO

Apart from BPO and KPO, ITO or Information Technology Outsourcing is another major category.

KPO or Knowledge ProcessOutsourcing

Typically calls for work that needs higher Levels of involvement from the worker.

The worker has to employ advanced levels of research, analytical and technical skills and has to make decisions of a higher order than BPO work.

Examples: pharmaceutical research and development, patent/ intellectualproperty research, animation and simulation. Data research and analysis, legal services, content writing and development and databasedevelopment services.

KPO industry is less old and mature than the BPO sector.

7

Reasons for outsourcing

Cost savings Focus on Core Business. Cost restructuring. Improve quality. Knowledge Contract Operational expertise Access to talent Capacity management. Catalyst for change. Enhance capacity for innovation.. Reduce time to market Commodification. Risk management. Venture Capital. Tax Benefit

8

The pros and cons of Outsourcing

It is imperative for business houses to be knowledgeable about the pros and cons of

Outsourcing before they decide to jump the outsourcing bandwagon. As outsourcing while

certainly an attractive proposition on paper, can spring many a nasty surprise on company in

practice.

It is important to take a good look at both the advantages and disadvantages of the outsourcing

before taking the decision on whether to outsource or not. Company should make sure that

they know exactly what they stand to gain or lose by outsourcing their work.

First of all, the advantages of outsourcing for one’s business are that one will be able to get

done some of the less important jobs cheaper. For instance, if one is finding that one do not

have enough money in his budget to make necessary changes in order to keep ones business

afloat, then he should probably find a way to reduce the amount of money that he is spending.

Another advantage of outsourcing is that there are actually other companies and places where

one can get the work done better than in his own company. Not only that, but if one have a

company that requires a large number of different products or services in order to function, it

might take less time for him to find a good outsourcer than it would take him to train new

people.

There are a few disadvantages to outsourcing, however, and one should definitely take those

into account as well. For one thing, if one outsource, it means that he is going to have to work

very closely with the company that one outsource your work to. Otherwise, you won't get the

finished work as soon as you need it. Having another company involved in ones business

might get tiresome after a while.

Another thing that one should consider is that depending on where he outsource to, it might

hurt your business. This is generally only a big deal if who one’s customers are really matters.

Some people shop at small businesses because they're local - and if one has a business like

that, then outsourcing might be to his disadvantage.

In the end, however, one can only answer the question of whether or not outsourcing is right

for his business?

9

What is Business Process Outsourcing?

What is business process outsourcing? Business process outsourcing otherwise know as BPO is the process of leveraging technology vendors in various third world or developing nations for doing job which was once the responsibility of the enterprise or simply put, it is the process of shitting an internal job process outside/external company which might have a completely different geographical location.

BPO usually consisted of outsourcing processes such as payroll. Then it grew to include employee benefits management. Now it encompasses a number of functions that are considered "non-core" to the primary business strategy. It is common for organizations to outsource financial and administration (F&A) processes, human resources (HR) functions, call center and customer service activities and accounting and payroll.These outsourcing deals frequently involve multi-year contracts that can run into hundreds of millions of dollars. Often, the people performing the work internally for the client firm are transferred and become employees for the service provider. Dominant outsourcing service providers in the BPO fields (some of which also dominate the IT outsourcing business) include US companies IBM, Accenture, and Hewitt Associates, as well as European and Asian companies Capgemini, Genpact, TCS, Wipro and Infosys.Generally the processes being outsourcing as part of BPO are backend jobs like call/help centres, medical transcription, billing, payroll processing, data entry and the like. Most of these jobs are outsourcing by first world nations like USA and UK to third world nations like India, Philippines, China, Malaysia and some eastern European countries.These nations have a good pool of English speaking youth who receive accent and job related training before they are inducted at a salary which is much lesser than what their counterparts in first world nations would demand. This allows first world organizations to get higher profits and provide better services by lowering the prices and by recruiting more labour than they could possibly do otherwise. In addition to benefiting the first world nations, business process outsourcing has also benefited third world nations by generating much needed jobs.

Hence, Business Process Outsourcing and can be aptly defined as “The act of utilizing the services of a third party by a company in order to perform its back office operations that might be payroll administration, customer help desks/ call centres, tele- marketing, accounting, billing; the list is endless.”

Business process outsourcing (BPO) is typically categorized into back office outsourcing - which includes internal business functions such as human resources or finance and accounting, and front office outsourcing - which includes customer-related services such as contact center services. BPO that is contracted outside a company's country is called offshore outsourcing. BPO that is contracted to a company's neighboring (or nearby) country is called near shore outsourcing.

10

Given the proximity of BPO to the information technology industry, it is also categorized as an information technology enabled servicer ITES. Knowledge process outsourcing (KPO) and legal process outsourcing (LPO) are some of the sub-segments of business process outsourcing industry

Business process outsourcing (BPO) in other Words is, “The act of giving a third-party the responsibility of running what would otherwise be an internal system or service.”

For instance, an insurance company might outsource their claims processing program or a bank might outsource their loan processing system. Other common examples of BPO are call centre and payroll outsourcing.

Typically, companies that are looking at business process outsourcing are hoping to achieve cost savings by handing the work to a third-party that can take advantage of economies of scale by doing the same work for many companies. Or perhaps the cost savings can be achieved because labor costs are lower due to different costs of living in different countries. In exchange for the potential cost savings, the company in question must relinquish control over an aspect of their business which explains why business process outsourcing is often reserved for non-critical, non-core type of work.

11

BPO: India chronologically

The Birth(1995-2000)

1995 Pramod Bhasin and Nigel Andrews of GE make a case for captive back office operations in India. GE M & A asks Anderson Consulting to explore the market for third party vendors.

1996 British Airways sets up a 30 people captive back office in Mumbai to undertake data entry work. American Express assigns Raman Roy the task of setting up a call centre in Gurgaon. The same year, Anderson submits its verdict to GE: captive is the way to go.

1997 GE flags off captive BPO operations in Gurgaon through subsidiary GE Capital International Services (Gecis). Raman Roy is signed on as CEO. Gecis starts operations with basic data entry work.

1999 Driven by the Internet boom, Sanjeeev Agarwal, backed by $3 million venture funding from CDC Capital Partners, sets up Daksh eServices in Gurgaon and begins offering email support service.

2000 Raman Roy quits Gecis to set up Spectramind in Gurgaon. CustomerAsset and 24/7 Customer setup shop in Bangalore. All three rope in venture capital investment and follow Daksh’s lead in fashioning teir business models around email support services. The third party industry is born.

The Gold Rush(2000-02)

2001 The dotcom crash is followed by boom in demand for voice bsed services. Customer support and telemarketing services fuel boom in call centres. Captives like Dell, HSBC, Standard Chartered, AOL, and HP lead the boom. Multinational third partystart upsl land big ticket customers- Daksh-Sprint, Spectramind- American Express.

12

2002 Private equity investors, Indian IT sevices majors and large corporate houses rush into third party BPO. Warburg Pincus acquires a 70percent stake in British Airways’ captive. WNS Global Services is born. General Atlantic pumps $21 million into Daksh. Oak Hill Capital backs a management buyout of the Conseco group’s stake in EXL Services. Indian IT majors enter the space Wipro buys Spectramind for $100 million, Infosys sets up Progeon and Satyam announces Nipuna. ICICI subsidiary I-One Source buys CustomerAsset. India’s BPO revenues surge to $2.7 billion as on March 2003 and voice corners 60 percent of the market.

Consolidation(2002-04)

2003 Third party firms begin to scale up revenues and diversify service lines through aggressive M&A led strategies. WNS buys UK based Town and Country and US based ClaimsBPO to enter insurance segment. I-One Source buys British Telecom’s call centre in Ireland. Transworks is acquired by Aditya Birla Group.

2004 WNS becomes the first Indian third party BPO firm to hit $100 million revenues. IBM buys Daksh for $130 million. Signals the entry of the Global Big Five in India’s BPO market. GE sells 60 per cent in Gecis to private equity firms General Atlantic and Oak Hill Capital for $500 million. Gecis becomes the largest third party Indian BPO firm.

Coming of Age

2005 onwardsM& A – driven consolidation leads to emergence of four third party camps. Indian scale players with multiple service lines across the value chain- Genpact, I-One Source, EXL, WNS, MNC third party players – Convergys, ADP, Hewitt. Integrated IT and BPO services offering – Infosys, Wipro, IBM, Accenture, Niche players – Evalueserve, Office Tiger, Marketrx, Indecomm.

Captives continue to set up operations but are now looking at different models – BOT, hybrid (third party and captive). The next phase of BPO will see players in all categories moving towards high end, knowledge based services like analytics and market research.

The BPO Industry

The BPO industry has flourished at a frantic pace in the last few years and companies have ended up with huge savings by being a part of the industry. By outsourcing their back office

13

business processes to cheaper nations like China, India, Philippines, Mexico, South Africa etc companies can cut costs, better concentrate on their core businesses and strengths, ensure better customer satisfaction and in a way get an edge over their competitors. A report suggests that US firms have saved nearly $8 billion through outsourcing to third world nations like India

Industry sizeIndia has revenues of 10.9 billion USD from offshore BPO and 30 billion USD from IT and total BPO (expected in FY 2008). India thus has some 5-6% share of the total BPO Industry, but a commanding 63% share of the offshore component. This 63% is a drop from the 70% offshore share that India enjoyed , despite the industry growing 38% in India last year, other locations like Eastern Europe, Philippines, Morocco, Egypt and South Africa have emerged to take a share of the market.China is also trying to grow from a very small base in this industry. However, while the BPO industry is expected to continue to grow in India, its market share of the offshore piece is expected to decline. Important centers in India are Bangalore, Hyderabad, Kolkata, Mumbai, Pune, Chennai and New Delhi.The top five Indian BPO exporters for 2006-2007 according to NASSCOM are Genpact, WNS Global Services, Transworks Information Services, IBM Daksh, and TCS BPO. According to McKinsey, the global "addressable" BPO market is worth $122 - $154 billion, of which:35-40 retail banking, 25-35 insurance, 10-12 travel/hospitality, 10-12 auto, 8-10 telecoms, 8 pharma,10-15 others and 20-25 is finance, accounting and HR. Moreover, they estimate that 8% of that capacity was utilized as of 2006.

Why BPO?

It has been expensive to hire best people in company.

Therefore many companies have chosen to outsource various aspects of MIS functions.

A specialized firm can always offer better services at better price.

Worldwide spending on BPO services reached $405 billion in 2003, an increase of about 8% from 2002.Revenues are expected to grow at a compound annual rate of 11% through 2008, when they will total $682.5 billion.

14

What constitutes BPO?

BPO deals mainly with non-core processes of an organization. Some of these processes have been briefly explained below.

Administrative support: Outsourcing of administrative support functions includes data entry, document conversion, forms processing, document scanning, indexing,

secretarial tasks support, etc. Customer relationship management: Customer service outsourcing includes

outsourcing of functions such as customer support, order taking, customer service, product support, technical help desk, collections and market research.

Document processes: Document process outsourcing includes outsourcing of customer facing, technical, marketing and communications, financial accounting, and

regulatory compliance documents. Finance and accounting: Finance and accounting outsourcing includes services

such as internal auditing, time and expense management, travel expenses, credit and debt analysis, collections, invoicing, accounts payable, accounts receivable and billing-dispute

resolution. Human resources and training: Human resources (HR) is one of the most critical

assets of a company and companies need to carry out various tasks such as recruitment, training, attrition/retention, database management, contract-worker management, etc., for their employees. Carrying out these tasks through an internal HR department is costly and diverts the attention of the management from its core business issues. Hence, companies

are now resorting to HR outsourcing big time. Intellectual property research and documentation: Outsourcing in

intellectual property research and documentation includes filing and drafting of patent

applications, prior art research, licensing support, and patent portfolio analysis. Legal services: Legal process outsourcing (LPO) involves consulting, research,

transcription, documents management, billing, translation and other administrative and secretarial support services required for various legal functions such as commercial litigation, arbitration and mediation, appeals, government contracts, legal risk evaluation,

etc.

15

Medical transcription: Medical transcription is writing down medical records dictated by physicians and other healthcare professionals. These records include patient history and physical reports, clinic notes, therapeutic procedures, clinical course,

diagnosis, prognosis, discharge summaries, etc. Payroll maintenance and other transaction processing: This segment

includes payroll, payment, check, credit card and stock trade processing. Forester research predicts transaction processing to be a large segment within the BPO industry soon, with a market size of USD 58 billion in 2008. Some vertical processes such as mortgage, loans and insurance claims processing are also being outsourced.

Product development: Companies need to constantly innovate to remain competitive in the market. With the increasing specialization of expertise required to carry out product development, companies choose to outsource their R&D functions to vendors who have expertise in a given field. Over the past few years, numerous MNCs have initiated offshoring R&D to other countries including India which is emerging as a hub for R&D outsourcing.

Publishing: Publishing outsourcing involves outsourcing of publishing functions such as book design, book digitization, e-publishing, drawings and graphics, indexing, journal administration, etc.

Research and analysis: Companies require data and its analysis for making informed strategic decisions. These companies have started outsourcing their research and analysis requirements to vendors who specialize in typical research and analysis work such data analytics, financial analytics, market research, secondary research, primary research, industry overview, competitive intelligence, etc.

Sales and marketing (including telemarketing): Sale and marketing outsourcing involves delegating parts of sales and marketing functions such as cold calling, email pitches, telephone surveys, lead generation, lead qualifying, appointment

setting, sales team management, etc. Security: Companies have to search for new technologies and employ qualified

security professionals to keep their data secure from theft. Maintaining these resources and implementing a fool-proof security policy is a difficult task which can be better handled by experienced third party security agencies. Security outsourcing involves

management of investigative services, physical security, electronic security systems,

computer and network security, etc. Supply chain management: Outsourcing in supply chain management involves

logistics, procurement, warehouse management, contract management, supply chain

relationship management, etc.

16

Global BPO industry Overview

TOP 25 BPOs -Global

17

Capabilities: Why go to India?

The driving forces that account for the increase in foreign investments through the BPOs in India are:

Language major attraction for multinationals advantage over competitors.

Educated Employees large number of qualified workers Proven to be the best in the IT and computer software fields

Strong technical skills Eagerness to engage clients

Emphasis on quality services

Skilled sets and workers

Cost effectiveness

Quality products

English speaking manpower

18

Business Functions or Process that can be Outsourced

Human Resource Sales, Marketing and Customer /service Payment Service Finance Administration Maintenance Manufacturing

Indian BPO market: Key highlights and trends

19

Break-up of Indian BPOs

BPO in India is growing at 32% and is estimated to cross $ 8.63 billion in 2007 Direct employment in BPO was 415,000 in 2006 and is expected to cross 545,000 in

2007 Indian IT-BPO industry has helped create an additional 3 million job opportunities

through indirect and induced employment, which will go upto 6.5 million by 2010 The contribution of BPO & IT to India’s GDP will rise to 5.4% by 2007, against

1.2% in 1998 The industry is moving from transaction processing & voice to complex knowledge

based services

20

Indian BPO Exports

3.104.60

6.30

8.63

11.82

-

2

4

6

8

10

12

14

FY 2004 FY 2005 FY 2006 (E) FY 2007 (E) FY 2008 (E)

US

D B

illi

on

46%

40%

3%

11%

Customer InteractionServices

F&A

HR

Others

46%

40%

3%

11%

Customer InteractionServices

F&A

HR

Others

Types of BPO Services

BPO services are generally categorized into horizontal and vertical services. These have been explained below:

1. Horizontal BPO: Horizontal BPO involves function centric outsourcing. The vendor specializes in carrying out particular functions across different industry domains. Examples of horizontal BPO are outsourcing in procurement, payroll processing, HR, facilities management and similar functions. Automatic Data Processing (ADP) is an example of a horizontal BPO vendor. ADP focuses on providing services in horizontal functions such as payroll, HR, benefit administration, tax solutions, etc. However, according to Gartner, companies should focus on providing vertical services as the market matures.

2. Vertical BPO: A vertical BPO focuses on proving various functional services in a limited number of industry domains. Healthcare, financial services, manufacturing and retail are examples of vertical BPO domains. EXL Service Holdings is a vertical BPO having focus on industry domains such as healthcare, business services, utilities and energy and manufacturing.

BPO Business Models

Over the years, different models have been used for conducting business in BPO. The regular outsourcing models of on-shoring, near-shoring and offshoring are seen in BPO as well. TPI, a sourcing advisory, has observed that in addition to on-shoring, near-shoring and offshoring, BPO operations are also conducted through the following three business models:

•  Transactional BPO: Transactional BPO handles one aspect of a process only. The customer has to carry out a significant part of the process in-house and hence the customer owns the risk of the process. Also, outsourcing many aspects of the process in a transactional mode leads to complex fragmentation which can pose as a threat to productive delivery.

21

•  Niche BPO: A niche BPO carries out 3-4 aspects of a process. A niche BPO, which also makes certain investments in the customer's process, aims at improving the efficiency of the process. The vendor in a niche BPO works in close coordination with the buyer, sometimes seeking the services of the customer's employees. Both the vendor and the buyer share the risk of the process.

•  Comprehensive BPO: A comprehensive BPO handles both transactional and administrative tasks in a process and takes 70 percent responsibility of the output. The vendor purchases the buyer's assets and also hires most of its employees. Comprehensive BPO has bulk deals lasting for 7-10 years.

Top 10 BPO companies India

Sr. No Companies*

Revenue (In Cr)

1 Genpact India Pvt Ltd 2220

2 Transworks 1510

3IBM-Daksh Business Process Services Pvt. Ltd.

1260

4 Tata Consultancy Services BPO 1107

5 Cambridge solutions 1000

22

6 WNS Global services 990

7 Wipro BPO 935

8 Convergys India 890

9 First source 809

10 HCL BPO 756

Important areas of training in BPO

Accent training Accent training Communication skills Telephone etiquette Tele sales CR and Call centre terminology.

23

Employee Attrition in BPO: Top 5 Reasons

The attrition rate in BPO was always a cause of concern for the companies. Before they can settle down with a stable team of call center agents and get on with their work, there are employees leaving for greener pastures. While the reason for the attrition rate being high varies from one Telemarketing Company to another, there are some common reasons as well. In this article, let’s pin down the top 5 reasons that can be applied to explain the high attrition rate in almost all the call centers. These reasons are not specific to a particular call center BPO and the generalized reasons can be added to the specific ones as well. Here they are:

1. Pay: The salary of the call center agents is a bug source of employee attrition in the BPO sector. BPO service employees are generally paid more than employees of other industries. The reports of the International Labor Organization (ILO) prove that. Yet, payment is a primary reason for the answering service agents to change their turf. The payments may be good at one center, but it generally is better in some other unit. Lead generation companies are always willing to pay extra for trained agents if they are invincible to the project. And if the agent finds the raise more than what he expects from the current company, he/she readily quits.

2. Stress: The working conditions of BPO units are far from ideal. You can again fall back on the ILO reports to confirm that call centers don’t really have an amicable and competitive working atmosphere. There is too much of stress in the air, causing a lot of the call center agents to fear burnout. After working for some months at a stretch, working additional hours and handling more than meets the eye, the answering service agents get so stressed that they feel they need a break. And a change of conditions and projects is just what they need, more often than not.

3. Timings: The timing of call centers is another reason. Call center agents have to work graveyard shifts for months. Timing for the call center services don’t really change unless the project gets over. There is no way a BPO agent can change his shift time to more convenient ones unless they move to another unit. Seeing no other way, they end up doing so.

4. Health: The crazy shift, the stress and the body clock going for a toss are health crashers for the call center agents. It’s not a very comforting idea to keep working under these conditions and not take a body blow. Many BPO agents have been advised by their doctors to quit working and take a break.

5. Better Opportunities: The lack of internal growth opportunities have a lot to do with attrition. When a call center employee finds that the next step is beyond means, it’s time to leap over to another unit. Growth prospects and the opportunity to learn new skills in technology, telemarketing or answering service, is always a prime mover.

INFLUENCE OF FOREIGN EXCHANGE ON BPO SECTOR

24

The sharp appreciation of the rupee in relation to the dollar and, to a lesser extent, the euro, the pound and the yen has naturally affected the booming software exports and the BPO industry. The rupee could become even stronger. The BPO industries are reportedly operating on thin margins.

An analysis of the recently released first quarter (April-June 2007) results of the top four information technology (IT) companies — Infosys, TCS, Wipro, and Satyam — is noteworthy for two reasons. First, it shows how these companies fared at a time the dollar lost more than 7 per cent in rupee terms. Secondly, it provides insights into how they might cope with a dearer rupee over the mediumterm. It needs to be stressed that the financial performance of these companies continues to be impressive, although it may not have matched the lofty standards the share market has routinely come to expect of them. These four companies account for more than 40 per cent of receipts from software exports that totaled over $29 billion in 2006-07. For the domestic stock markets the relevance of these companies can hardly be overstated. A company such as Infosys counts not onlyin an evaluation of other IT stocks but also in deciding the behaviour of the stock market as a whole.Unlike merchandise exporters who secured a partial relief by way of a Rs.1400 crores package of concessions, the IT and the ITES sectors will have to grapple with the consequences of a stronger rupee in a number of more nuanced, and often unique.

Challenges before BPOs in India

In the domain of Business Process Outsourcing (BPO), the countries competing with India are Mexico, Philippines, Malaysia, China, and Canada. These countries have obviously placed several challenges before BPOs in India. The challenges that India faces from these countries include availability of workers who are more skilled and educated.

BPOs in India are also facing challenges since the competing countries have several advantages over India. It's not that India cannot or does not provide these advantages but it's sufficient to

say that these amenities in India are still at a nascent stage. These include:

Infrastructure for providing good telecom facilities Finding workers who are aware of the American culture Setting up new service lines

25

Improving operating processes Further cost reduction

The workers in Philippines are more conversant with foreign languages like Spanish, German, French, and Japanese and are used to the American culture too. It is also a challenge for India to continue maintaining its talented task force in the BPO sector because it is facing competition with China in this area. The good news, however, is that not all Chinese worker can speak English as fluently as Indians can.Challenges before BPOs in India include possibility of a backlash from European and North American markets which are posing a great threat to the Indian BPO industry. India is looking forward to take up huge offshoring ventures but it's difficult to set up the infrastructural requirements for this. The other reason behind the slowing down of offshoring in India is due to the political reasons concerning markets of Europe and North America. In 2004, many jobs were lost in the offshoring venture due to these reasons. India is faced by the challenge to provide secure and quality offshore services. The services include power and cafeteria services which are important for facilitating employee well-being.

As already mentioned above, India is facing difficulties in finding skilled workers for BPO jobs and statistics of 2004 show that out of all the students graduating in India, only the following are suitable for BPO jobs:

25% of technical graduates 10-15% of non-technical graduates

The challenges before BPOs in India are increasing rapidly but that could be the motivating factor for India. BPOs in India need to improve the workforce by emphasizing areas such as foreign languages as well as streamlining operational procedures.

Some other Challenges faced by BPos in India

26

Challenges for India

Rising competition

In the next ten years, China will replace India in its number 1 position in the global ITES-BPO industry.

Rising costs and low efficiency in many cities like Bangalore will make software outsourcing less attractive in future. The giants may show a drop in earnings.

India ’s terrible Infrastructure will continue to be a drag on the potential of India giving other countries the competitive advantage.

27

Other competing countries providing low-cost outsourcing options will exert a downward push on costs – East Europe, Latin America, South Africa

Infrastructure

India ’s ability to develop infrastructure is far outpaced by neighboring China Metro cities are getting saturated and costs are rising -- Tier II towns need to develop

infrastructure but India’s track record does not bode well for fast development.

Human resources and training

The demand-supply gap in India for knowledge workers is being felt now in Bangalore but may peak India wide in 2008-2009

The education system needs transformation to produce people with skill sets that match industry needs.

The transition to knowledge processing will be a much bigger challenge for the Indian company and employee than it was for BPO services. The typical college graduate many not have background or flexibility to understand global issues required by this type of service.

Drivers, Inhibitors & Challenges for the Indian BPO Industry

28

IMPACT OF RECESSION ON BPO SECTOR

29

Consequences of US recession on India job market

Worst affected because of US recession will be the service industry of India. Under service industries come BPO, KPO, IT, ITeS etc. Service industry contributes about 52% to India's GDP growth. Now if that is going to get hurt then it will also hurt India's overall growth but very slightly. India is not going to face a major impact due to US recession. People may say that there is going to be a huge job loss due to recession. and will cite the example of TCS firing about 500 employees but these were employees who didn’t perform and for cost cutting one have to reduce Non performing asset and that exactly what has been done. There is no threat to the skilled people. According to NASSCOM India will have a shortage of about 5 million skilled people in IT/ITeS. So there are lots of opportunities.75 per cent of its revenues come from the US. Low demand for services may force most Indian Fortune 500 companies to slash their IT budgets. Zinnov Consulting, a research and offshore advisory, says that besides companies from ITeS and BPO, automotive components will be affected. During a full recession, US companies in health care, financial services and all consumers demand driven firms are likely to cut down on their spending. Among other sectors, manufacturing and financial institutions are moderately vulnerable. If the service sector takes a serious hit, India may have to revise its GDP to about 8 to 8.5 per cent or even less.

As per Raman Roy, Father of Indian BPO industry, recession is not a decrease in consumption. it is just that the rate of growth has changed. Recession actually provides the opportunity to create value for customers at different price points. According to Lokendra Tomar, senior vice-president, Integreon, a BPO firm, says recession is likely to have a dual impact on the outsourcing industry. Appreciating rupee along with poor performance of US companies will affect the bottom line of the outsourcing industry. Small BPOs, which are operating at a net margin of 7-8 per cent, will find it difficult to survive. According to Dharmakirti Joshi, director and principal economist of CRISIL, along and severe recession will seriously affect the portfolio and fixed investment flows.

Corporates will also suffer from volatility in foreign exchange rates. The export sector will have to devise new strategies to enhance productivity.

EFECT OF RECCESSION ON THE MARKET LEADERS IN

30

BPO SECTOR

In a year when outsourcing of application development and maintenance projects has slowed down, top customers such as Bank of America, JPMorgan and Citibank continue to send more back office projects to India, as they seek to lower their cost of operations by up to 40 percent.According to Nasscom, India’s back office outsourcing industry will grow at 18.4 percent this year to reach $14.8 billion. Outsourcing of IT services will clock a lower growth at around 13.5 percent this year, and could even decline to single digit growth if the situation does not improve.“The Indian BPO industry is likely to maintain double digit growth rate as most of the work done by them is ‘keeping the lights on’ or non-discretionary,” said Everest Group principal & country headGaurav Gupta. The current recession is forcing companies from other verticals such as media, entertainment, healthcare, energy and utilities to consider outsourcing of back office work.“BPObusiness is largely annuity in nature where the contracts are for a longer term making it slightly more immune from economic recession,” said Intelenet EVP Sandeep Aggarwal says. “A CFO is constantly looking at gaining control on the cost structure,” said Gartner senior research analyst Arup Roy. According to a Gartner study released in April, 2009, Indian BPO providers have proved to be stiff competition to western BPO providers, accounting for 5 percent of market revenue generated among the top 150 providers in 2008. Gartner expects this increase in revenue to be maintained, with the BPO market share of Indian vendors expected to nearly double by 2010.Meanwhile, Infosys BPO CEO Amitabh Chaudhry said that the BPO growth story is primarily driven by captive outsourcing. Captives have not stopped outsourcing; they have infact increased their pie,”

REVENUE GENERATION IN BPO SECTOR

Revenue is generated on the basis of volume / seats a BPO has or is required for any process.

For eg. If a process is outsourced to a vendor, client provides the data on the volume and a charge per unit is defined in the agreement. Then the vendor is paid on the basis of volume (no. of calls*price per call). The average revenue earned by BPO industry in 2007 in India was $ 13,811 million.

BPO Role in India's Economic Growth

31

Indian revenues from BPO are estimated to have grown 107% to $ 583 million. Leading Competitors: - Philippines, Mexico, Canada, China and Ireland. 67-72% of costs to call centres operating in the US/UK is directly linked to manpower costs. India only spends 33-40% of costs on man power. This includes training, benefits and other incentives for labour.

The Business Process Outsourcing (BPO) industry in India has been growing 70 percent a year and is now worth $1.6 billion, employing more than 100,000 people. The role played by BPOs in boosting India’s economy shows that the IT and ITeS sector have been contributing largely to the economic growth of India. The growth in the contribution of BPOs to Gross Domestic Product has shown a steady rise from 1.2% to 5.4%. It is hence evident that the BPO industry is making an impact on the Indian economy.

BPOs are aiming at contributing towards bringing in more earnings to the country and IP creation. Currently, BPOs in India are focused on the domestic segments and offshoring. The benefit to the local economy is subject to judicious exploitation of resources existing in these areas. The following are some useful statistics with regard to the growth of the IT-BPO sector during the past 10 years: 1997-98: US$ 4.8 billion

2006-07: US$ 47.8 billion Current rate of growth is 28% Employment to be generated -1.6 million

BPO Role in India’s economic growth is set towards making a significant impact in the time to come as well. The driving forces that account for the increase in foreign investments through the BPOs in India are:

Emphasis on quality services Skilled sets and workers Cost effectiveness Quality products English speaking manpower

These features of the Indian BPO industry attract long-term contracts and as a result, there are high earnings which in turn result in major contribution to economic growth. As a matter of fact, the Indian BPO industry is leading in the market and is improving in the area of training professionals in learning foreign languages and increasing the number of skilled workers. This will give India the ability to sustain its global leadership and probably generate export revenues of USD 10 billion by 2010. The setting up of more BPOs is also bringing in more job opportunities for the Indian youth. BPO role in India's economic growth will even facilitate great maneuvering in the country’s balance of payments. BPO role in India's economic growth is definitely at the growth stage but is all set for a major contribution to the Indian economy, especially if the government supports the sector in terms of

32

financial growth, openness to trade, rural-urban migration, and education. The BPO industry is expected to continue to grow in India, its market share of the offshore piece is expected to decline. Important centers in India are Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, Pune and New Delhi.

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 Process Outsourcing 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, and 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. Following are some benefits from Business process outsourcing:

1) Productivity Improvements:

An important facet of business process outsourcing is its ability to free corporate executives from some of their day-to-day process management responsibilities. Conventionally, executives spend 80 percent of their time in management of details and only 20 percent on formulating strategies. But the scenario is remarkably different when the business process is outsourced. Once a process is successfully outsourced, the ratio can be easily reversed. In such situations, executives get more time. This saved time helps them tremendously to explore new revenue areas, accelerate other projects and focus on their customers. This, beyond doubt, leads to productivity improvements.

Companies that outsource their business processes are often able to capture new efficiencies and in the process improve upon their productivity. They are in a better position to reallocate their resources to other important projects. This also helps their employees to increase their efficiency and productivity. In most cases, high-caliber subject-matter experts are brought in to design and manage these processes. They bring with them increased productivity and years of experience that most companies don't have access to or can't afford on their own. Availability of highly

33

qualified skill pool and faster adoption of well-defined business processes leads to productivity improvements without compromising on quality.

2) Cost Savings: One of the most important benefits and advantages of outsourcing the business processes is in terms of cost savings. The companies that outsource their work have the access to the best of talent and expertise in the BPO field and that too at very low wages. Various studies have indicated that for every one dollar invested in BPOs across India, the value derived by the US economy is between $12-14. This is what makes the outsourcing to India an irreversible process. It is a reality that the companies which have shifted their BPO work to India have garnered savings of around 40-50% till now.

American BFSI (Banking & Financial Services Industry) companies have saved more than $6 billion in the last four years by outsourcing their business to India. It is a simple fact that if a bank shifts work of 1000 people from US to India it can save about $18 million a year due to lower costs in India. Similarly, in the field of pharma research and development, firms can reduce the cost of developing a new drug, currently estimated at between $600 million and $900 million by as much as $200 million if development work is outsourced to India. In the US/UK 67-72% of costs incurred by call centres are directly linked to man power costs whereas call centres in India spend only 33-40% of costs on man power. This includes spending on training, benefits and other incentives for labour

3) Improved HR: Improved HR is another great advantage of outsourcing business processes. Several market studies have shown that HR outsourcing can lead to cost savings in the range of 20-40 percent for customers. It also leads to improved HR. HR Business Process Outsourcing (HR BPO) is a market that has experienced substantial growth over the past few years and is now set for even more rapid expansion. This is based on the fact that gradually more companies are looking at outsourcing transactions and processes to create a more strategically focused HR function.

Clearly, companies all over the world are getting motivated to outsource their HR processes and transactions to run their HR functions more efficiently, free the HR function to focus on strategic people practices that drive growth and add to the organization's long term success and facilitate their professionals to add value to their business. Companies today, require complete domestic and global HR delivery through systems and processes that can generate economies of scale to reduce or eliminate their need to make future investments in quickly outdated technology. Companies can save between 20-40 percent of their HR costs, depending on their business priorities and the pace at which they want to move.

4) Focus on Core CompetencyBusiness Process Outsourcing gives tremendous help to the companies to concentrate more on the core areas of their business. The most important factor behind the growth in the BPO market world wide today is an increase in the number of enterprises that are reviewing their internal operations in an attempt to fully understand their true core competencies. In the process they are able to focus more on their core competencies. Business Process

34

Outsourcing gives more freedom to the management to focus more time, energy, and resources on building the company's core businesses. It is because the BPOs assume full responsibility for managing the day-to-day back-office operations.

Once outsourcing of certain processes take place it becomes easier for the company to compare and evaluate the efficiency and effectiveness of services that are being delivered from outside and inside. This decision-making process often includes an evaluation of the cost of owning technology - with its associated support costs, that are not core to the enterprise (HR is one such example). This trend is leading to an increased keenness to outsource processes that are considered non-core, yet critical activities. These critical activities include claims administration, HR services and payment services.

5) Increase in Capabilities: Apart from other advantages, business process outsourcing has another big advantage which leads to increase in capabilities of the employees and the company. Companies that want to grow internationally must continuously invest in infrastructure and find talent around the world and this is possible only trough business process outsourcing. Many outsourcing providers are already established globally and help in increasing the capabilities of the companies that are outsourcing their work to these BPOs.

Employee Benefits Offered by BPOs

Employee Benefits Offered by BPOs:

Along with Provident Fund, Gratuity, Group Mediclaim Insurance Scheme, Personal Accident Insurance Scheme, Paid Days Off, Maternity Leave, Employee Stock Option Plan, etc., some other benefits are provided to the employees in a BPO. For example:

Food: Breakfast, lunch, snacks and dinner are provided to the employees to facilitate work in irregular shifts.

Transportation: Pick and drop facility is provided to employees.

Recreation, cafeteria, ATM: Facilities like pool table, chess, coffee shops, gym, ATM, etc are provided in the office.

Regular health check-ups: BPOs provide health check-ups for their employees once or twice in a year.

35

BPO Benefits and some Limitations

One of the most important advantages of BPO is the way in which it helps to increase a company’sflexibility. 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 advantage 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 can help 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.

Highly skilled, English-speaking workforce.

Cheaper workforce than their Western counterparts. According to Nasscom, The wage difference is as high as 70-80 percent when compared to their Western counterparts.

Lower attrition rates than in the West.

Dedicated workforce aiming at making a long-term career in the field.

Round-the-clock advantage for Western companies due to the huge time difference

36

The BPO boom seems to be increasing everyday with more and more companies deciding to follow the race, making conditions really viable for a positive growth in the BPO industry. You can make money online through BPO.

Another way in which BPO contributes to a company’s flexibility is that a company is able to focus on its core competencies, 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 maintain growth goals while avoiding 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 issues, which work against 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.

Additional Benefits of BPO:

Increase productivity Cut operational costs

37

Provide better service Save costs Improved accountability

The BPO boom seems to be increasing everyday with more and more companies deciding to follow the race, making conditions really viable for a positive growth in the BPO industry.

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 beoutsourced.

A BUSINESS process outsourcing (BPO) consultant charges huge fees upfront, promises process and then fails to provide the campaign on one pretext or other.A BPO consultant provides process with impossible to meet quality parameters and as predicted when you fail to meet the 99.99 per cent accuracy rate, the process is terminated and the center owner loses the client and the money paid to the consultant plus incur huge cost on running such

a campaign.

Problems In BPO

38

Business process outsourcing, the most flourishing Indian industry sector has emerged as India’s most promising sector, and has been growing at a rate of 40-50 per cent since its inception. BPO is a very fast paced and a high momentum industry. BPO industry is expected to generate one million jobs by the year 2008. Taking advantage form the abundant skills and low cost benefits, large number of BPO companies has mushroomed in India in recent years, many of the well established IT companies have also started their BPO divisions. But, there is another side of the BPO picture too. The side that has already brought the BPO industry in limelight many times. This picture is concerned with the non viability of the BPO and the fact that the young generation of India is actually loosing out in the BPO.

In the past couple of years, India has witnessed many small time businessmen entering the bandwagon of the flourishing the business process outsourcing sector without adequate investment capital or vision that is required to run an employment organization. (This article is not critical about individual business or small entrepreneurial efforts) Even many biggies and MNCs were found exploiting the psyche of people who favour and safeguard employment generating and economic development efforts against critics. Many are taking an advantage of the favorable climate created by the recent outsourcing culture of the west.Business process outsourcing organizations, commonly known as call centers – work when rest of the India sleeps! Most of the BPO organizations work according to the international (US and UK) timings, therefore most of the BPO employees work in might shifts starting anywhere from 10 p.m. to 2 a.m. and ending at 6 a.m. to 10 a.m. There is also a graveyard shift starting at 4 a.m. working in such shifts having odd timings have started showing hazardous results on the health of the Indian youth.Prolonged working in shifts of odd hour’s can have major implications on the physical and mental health of the employees. The physical strains like sleep disorders, depression, odd working shifts, learning foreign accents, constantly handling abusive calls and high stress levels are making the BPO employees more prone to hypertension and heart attacks.

Various surveys and research conducted amongst the call centre employees have shown that depression is the most common problem faced by BPO employees. Frequent headaches, feeling of fatigue, sleeping disorders and frustration have become regular problems for them. The basic profile of the BPO employees is trouble-shooting, sales or revenue collection. All of these are done through tele-calling. Talking to foreigners in a fake foreign accent, solving other people’s problems, facing and handling the anger and abuse of the clients become a routine for these juvenile population. The youth is facing the brunt of the thoughtless campaign of many employers who are just trying to encash the flourishing BPO scenario. With no particular qualification required for call centre jobs (except fluency in English and good communication and convincing skills) BPO jobs provide a quick gateway to good pay packages. Many youngsters are quitting their education right after the 12th standard for these jobs. This step can block and kill their long

39

term (future) career prospects. Also, at the very young age they get lot of money in hand and they are unaware of the rational utilization of that money. Also, working in overnight shifts does not get accepted easily in the traditional Indian culture and the youth are resistance from the seniors in the society.Due to the increasing gap between the supply and demand of the talent for Bpo’s, and the already saturated talent market, the companies are luring and attracting youngsters with attractive pay packages and other benefits as soon as they get out of college. But the youngsters have to face the realities of the industry as they fail to cope up with the stress and responsibilities of their work life. It is clearly a case of hyper-growth with an immediate fall-down as soon as the reality strikes. With no time for personal life, the erratic schedules and monotonous work of business process outsourcing also disturbs the family life of the employees adding to their frustrations. This will definitely lead to loose family ties and other unhealthy behaviour.All these problems have triggered the problems of attrition and retention for the BPO industry itself. If not taken care of, these problems can lead to hazardous health and other implications for the youth of India.

BPO Backlash

BPO India is one of the popular business practices in the world's competitive environment. The Indian BPO industry is constantly growing. According to India Infoline, the ITES-BPO segment recorded a growth of 59% in the year 2002 and touched US $2.3 billion in the year 2003. However, along with the phenomenal increase in BPO to India there has been a backlash against outsourcing. The opposition and backlash is coming mainly from developed countries that are directly affected by outsourcing to India. Though this anti-outsourcing movement is gaining momentum but the pace at which the trend of outsourcing is continuing to India, this is going to double in a couple of years. It is because of numerous advantages that India enjoys in comparison to other countries.

Fame comes at a price. And being the fastest-growing and most cost-competitive outsourcing destination could sometimes elicit such negative responses. The reality that India is fast emerging as the back office of the world and our BPO industry is estimated to grow at a rate of 65 per cent per year is not taken too well by most of the developed countries of the world, from where these jobs are coming to India. Even as investments in the ITES-BPO industry are increasing by the day, banners and slogans demanding a ban on outsourcing of jobs to India are increasingly noticeable.

Some states in the US have tried to legislate banning the transfer of state data processing contracts to developing nations. Despite the bill being passed by the US senate barring the

40

shifting of BPO work to India, the BPO supporters lobby in the US is working at changing the mindset and perceptions.

Scope of BPO Sector

BPOs have a great scope in India. Around 5 years back, BPOs were just a means by which companies could save costs. Only a few activities were outsourced. But now BPOs are emerging as a management tool and focus is shifting from non-core processes to core processes. This is how BPOs gave rise to KPOs and LPOs. In the near future, BPOs may give rise to some other sectors as well. Outsourcing involves many risks, too. These risks can be:

Data security Vendor's financial instability : The buyer will have to search for a new vendor

if the vendor becomes financially unstable. Loss of expertise : The knowledge and expertise of carrying out the outsourced

processes can be lost with time.

Loss of control of one's own company's processes.

Future Opportunities for India

41

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

42

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.

Near-shoring as a business strategy

India can collaborate with other countries to leverage local knowledge of the business environment and language skills while providing its domain knowledge and technological expertise for successful outsourcing. For example, TCS has a Latin American arm based in Mumbai, India which serves an insurance client in Chile with a center in Uruguay as a near-shore location. Outsource2india has a collaboration with a company in NE India that leverages the unique talents of the people of this region.

Opportunity areas

Today more industries are where IT was in the 1990’s - knowledge based. Research and Analysis Outsourcing may soon be the biggest revenue grosser in India as BPO companies move up the value chain in their service offerings. This includes:

1. Research and Development

 Product Innovation - Companies are going beyond basic research to invest in innovation and new product development. Companies that have invested in R&D in India are Cisco Systems, Motorola, Hewlett-Packard, Google General Motors Corp. and Boeing Co among others.

Co-development- In pharmaceuticals, India has the opportunity of co-development and ownership of new patented drugs through drug research, clinical trials and manufacturing. Indian pharma major Ranbaxy has an agreement with MNC GlaxoSmithKline to commercialize compounds they develop together.

2. Legal OutsourcingIndia ’s large pool of qualified English-speaking lawyers with experience in the British legal system can offer paralegal support, legal support and patent services. A few Indian companies affiliated with American law firms are now able capture a tiny piece of the American market. They are now doing legal research at very high rates by Indian

standards but yet 50% below typical American rates.

3. Engineering OutsourcingIndia can provide high-quality engineering services in the fields of:

43

Mechanical & Electronic engineering - analysis and design , embedded software

Plant Design, Process Engineering

Plant Automation Services

Enterprise Asset Management and OEM solutions

4. Remote Infrastructure Management Services India can offer management services for IT infrastructure, applications operations, IT security and maintenance. This sector presents great potential through large-value multi-

year contracts

5. Accounting ServicesWe are in the initial stage where payroll processing services and some accounting is being done for large American companies. This trend will continue and soon a full range of accounting and tax services will be provided by Indian companies.

6. Outsourcing opportunities for India exist in other fields like Financial Research, content development, medical writing: animation, film, publishing, web services; Human Resource outsourcing: recruitment, training, Education, Nanotechnology and many others.

Conclusion

44

India has fundamental advantages - abundant talent and cost, are sustainable over the long term. Timely government policies and increased public- private participation have played a key role in developing and enabling business environment for the Indian IT-BPO industry.

But one thing is sure. The trend of BPO is likely to continue under all circumstances, because firms have become habitual of moving the BPO work to India, it is now like an addiction, which they can't do without. The only thing that needs to be done now is resolving of cultural differences, which, crop up during the cross-border shifting of BPO work. Indian BPOs have been in great demand because of the low-operational costs here and also because most of our workforce is well educated and has had a university education. Indian BPO industry is driving at the top gear and is sure to maintain that number one position in the coming years too………

The industry is expected to achieve an export target of USD 0- 2 billion by FY 2011, employing 2.5-3 million professionals directly and contributing substantially to the socio-economic development of the country.

BPO is one of today’s key management tools. Companies across the globe have realized the importance of outsourcing their non-core functions whether to reduce cost or support expansion. India continues to be a preferred destination for outsourcing .

45

BIBLIOGRAPHY

asia.stanford.edu/events/fall03/slides/dossaniSlides.pdf wikipedia.org Google images bpoindia.org sourcingmag.com 24x7bpo.com oneindia.in

46