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1. Introduction :-

Few years back, nobody would have imagined that a day would come

when no direct contact with customers are needed. All the business processes are

done from a remote location with the help of technological advancement.

Telecommunication industry has spread their hands an all over the globe through

internet services. During 1990s the development of telecommunication reduced

the cost and enhanced the ease of communication across the world. All the

informations are now converted into digital format, which is easy to transfer of

work offshore utilizing resource arbitrage.

In the era of globalization all the multinationals reviewed their

strategic positions to overcome severe competition and general slowdown in the

global economy. All the companies want to maximize their profits through proper

allocation of resources. The activities of the companies can be segregated as core

and non-core activities. The main emphasis is given to the core processes of the

company by utilizing their resources and managing their limits. So all the non-core

processes are handled by the outside experts. The outburst of information

technology made an easy route to compete globally. All the companies want to be

economically benefited by off-shoring their non-core activities. The real time

communication cost is gradually decreasing due to the enormous application of

web-based tools. Now all the business operations are going across thousands of

miles due to globalization of non-core processes. Standardized web-based tools

have used globally to transmit data. Information Technology enabled services (ITES)

outsourcing helps the multinationals to diversify their non-core operations. Cost

advantages, competitive pressures, specialized service providers act as a catalyst

of outsourcing. So the core processes are the main activity of the companies. Toenhance these core processes the company utilizes their resource base and time

management to hold a good share of global market.

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2. Concept/Meaning:-

Outsourcing is not a new activity to outsource the business processes.

From the barter age it is originated as a specialized tool to overcome theincreasing economic pressures. It is a transfer of delegation of authority and power

to an external service provider to accomplish the task of day to day business

operations. The outsourcing job may be done by the individual or the organization

itself but they prefer to do it from the specialized service provider. At the

beginning of 20Th century, the automobile giant Ford utilized outsourcing

providers for making their car-tyres. Words best sports-shoe makers e.g. Adidas,

Nike, Reebok outsource their research design & manufacturing jobs to a Chinese

shoemaker, Yue Yuen.

The idea of outsourcing has its root in the competitive advantage

theory propagated by Adam Smith in his book The Wealth of Nations which was

published in 1776. The shifting of manufacturing jobs to other countries providing

cheap labour during the Industrial Revolution, has taken a new connotation in

todays scenario. In a world where IT has become the backbone of businesses;

outsourcing is the process through which one company hands over part of its work

to another company making it responsible for the design and implementation of the

business processes under strict guidelines regarding requirements and

specifications from the outsourcing company. BPO has become synonymous with

corporate strategy and companies are realizing the strategic role it can play in

marinating global competitiveness.

Adam Smith wrote about 200 years ago the maxim of every prudent

master is never to attempt to make at home what it will cost him more to make

than to buy. The Harvard Business Review identified outsourcing as one of themost brilliant management idea and practice of the past 75 years. Gartner

identifies outsourcing as the delegation of one or more IT intensive business

processes to an external provider that in turn owns, administers and manages the

selected processes based on defined and measuring performance criteria. BPO is

the process of delegating one or more business processes to an external partner. It

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is generally for back-end administrative functions that are necessary to run a

business but are not a part the core business processes. Bargaining businesses,

pressures of competition, shrinking time span, easier time communication, the

concept of global village with seamless synergies, abundant hard working and

skilled personnel at low cost and the ability to work round the clock due to time

zone differences are some of the reasons for the surge in outsourcing. The IT

Enabled Services (ITES) and Business Process Outsourcing (BPO) are used

interchangeably now-a-days. ITES is basically a sub-set of BPO. If the process that

outsourced involves use of Information Technology it is called ITES else it just

Business Process Outsourcing.

3. Why Outsourcing/Rationale:-

Business Process Outsourcing is beneficial to both the outsourcing

company and the service provider, as enables the outsourcers to reduce cost and

increase quality in non-core areas of businesses and utilize his expertise and

competencies to the maximum. BPO saves precious management time & resources

and allow focus while building upon core competencies. Companies are generally

looking at low cost destination where third-party service provider is available.

Optimizing business performance to attain value chain is the main

activity of an outsourcing firm. Following services are provided by the BPO

Receivable & Payables, Inventory Management, Other Processing, Quick Book

Accounting, Financial Statement Preparation and Accounting services. BPO saves

time, explore new revenue areas, accelerate other projects and focus on their

customers. Some motivational factors of BPO enhancement are factor costadvantage, economies of scale and business risk litigation. Benefits derived from

BPO can be summarized as follows

I. Productivity improvements -

As the company doesnt manufacture their products in-house only, they are using

on-shoring or off-shoring business processes to the third party services provider.

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Maximum portion of the manufactured goods are now being taken from outsourcers

who are experts in this fields. So improvement of productivity can be seen in an

increasing trend.

II. Access to expertise -

Low cost destination & experts domain knowledge gives the company better

exposure in their market share. Therefore rather than training own personnel &

recruiting domain experts it is economical to outsource the jobs. Prescribed

guidance & rules are followed by the experts.

III. Operational cost control -

By outsourcing non-core processes, companies can focus on other operational

areas. Many operating costs are being eliminated by outsourcing the jobs. Hence

the company can concentrate on their main operating areas e.g. developing new

products, expanding market span, enhancing customer satisfaction etc.

IV.Cost savings -

Through process improvements, re-engineering, use of technologies, domain

expertise can help to minimize total cost. This leads to reducing the administrative

cost and operating cost. By outsourcing the company can make some control on

cost savings.

V.Improved accountability -Transparency can be seen by outsourcing any job. Some specific guidelines and

rules are being given to the outsourcers. Contract amount are also fixed. Natures

of any job, delivery details, time span etc are being mentioned in the contract, so

easy and improved accountability can be seen.

VI. Improved HR -

Flexible and scalable services are provided to accompany the changing customer

needs & requirements. New inventions to the goods & up gradations are the main

area of outsourcing. HR personnel are taken care to the customer needs.

VII. Opportunity to focus on core business -

As the non-core a\activities are outsourced, management can concentrate on their

core business operations. Increasing scales, inventing new products, supporting

company acquisitions, consolidations etc are the main area of the management.

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4. Implementation Issues In Outsourcing:-

For selecting a BPO partner, certain issues or factors are to be taken

in care. The considerations are as follows

I. Competency

Every firm wants to outsource their non-core activities. But the competency is

related with the core activities of the business processes. Practically all the core

activities are processed in-house but some automobile industries are now-a-days

outsourcing their core processes. HR activity is the only activity which is not fully

outsourced, as HR activity differs from industry to industry. So assessment of

outsourcing agents is very much important for the customer satisfaction.

II. Control -

Control is a very vital factor in choosing BPO. Control can be done in two

perspectives long term & short term control. When any long term contract is

taken into consideration, the supervision or control should get preference because

in long term the controlling aspect may be get weaker. But in short term contract

the control is needed to know how the firm is doing, as the outsourcing company

desires. Too little control is also makes an adverse result and too much control

means doing the job himself.

III. Cost -

Cost is to be determining after evaluation of the outsourcing job. The vendor firm

quoted the least cost. The outsourcing company always looking at low cost

destinations, so the least cost vendor takes the contract. If there is any escalation

cost, then in the long term when inflation arises, outsourcing is uplifted. So theoutsourcing company looked for reasonable savings in the cost without

compromising quality.

IV. Confidentiality -

As outsourcing are done far across the country with the help of telecommunication

services, so no direct control is being seen from the outsourcing company. The

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outsourcers are very much cautious in maintaining the confidentiality of their

client. The Service Level Agreement (SLA) is being implemented to stop hacking or

data leakage.

V. Competitiveness -

Performance is the main measurement of how BPO works. If the BPO works under

the given guidelines then continuity is carried out. Since the outsourcing company

is using multilocational outsourcing operations and then the vendor is to be very

cautious about their contract norms. So the BPO is also hand of gaining competitive

advantages.

5. Models of Outsourcing:-

Business Process Outsourcing is a process which is being adopted many

of the western companies to reduce their cost burden & improve their product

quality. BPOs activity can be classified in the following chart

Business Process Outsourcing (BPO)

Geographical Service Provider

On-shore Near-shore Off-shore Data Voice Software

In-bound Calls Out-bound Calls

There so many models of outsourcing but only three models are

very much practical, which are shown below

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Model 1:US-based Accounting Firm

Flow of work

Captive Centres in India

Model 2:US-based Accounting Firm

Flow of work

Centres in India Centres in India

Model 3:US-based Accounting Firm

Flow of work

US-based Agencies

Flow of work

Centres in India Centres in India

6. Market Segmentations:-

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Source: NASSCOM E - Estimate F - Forecast

Table 1

Information Technology Enabled Service (ITES) industry is very fast

growing area in the Business Process Outsourcing (BPO) activities. According to the

statistics of NASSCOM, this industry is expected to be $17 billion industry in India &

will generate approximately 1.1 million job opportunities by 2008. The growth rate

of the industry is as high as 73% resulting in the Rs. 7100 crores revenue. Totalrevenues and employment of the industry substantially increased from Rs.2400

crores and 45000 in 2000 to Rs.4100 crores and 70000 in 2001 respectively.

Following are the various segments of outsourcing

I. Customer service interaction including call centres -

According to the statistics of NASSCOM there was a growth of 112% in revenue and

86% growth in employment from the year 1999-2000 to 2000-2001. And the call

centres have grown Rs. 3000 crores in 2002-2003 and it maintained a steady growth

of 45% over next five years. Quality services, Low cost manpower, Highly English

speaking persons etc. are the inherent reasons.

II.Back office operations/Data conversion/HR activities-

42% growth in revenue and 27% growth in employment are seen from the year 1999-

2000 to 2000-2001. And it has grown by 111% in the year 2001-2202. Data entry

1999-2000 2000-2001 2001-2002(E) 2008(F)

Segments Employ

-ment

Reven

-ues

Employ

-ment

Reven

-ues

Growt

-h (%)

Employ

-ment

Reven

-ues

Growt

-h (%)

Employ

-ment

Reven

-ues

Customer interaction

services including call

centers

8600 400 16000 850 112 33000 1650 94 270000 2000

Back office

operations/Revenue

Accounting/Data

Entry/Data conversionincluding Finance &

Accounting/HR Services

15000 950 19000 1350 42 35000 2750 111 300000 2100

Transcription/Translation

service

5000 120 6000 160 33 5200 150 -6 50000 400

Content

Development/Animation/En

gineering and Design/GIS

15000 820 27000 1600 95 30000 2100 31 300000 2500

Other Services including

Remote education, Data

Search, Market Research,

Network

1400 110 2000 140 27 3000 210 50 180000 1100

Total 45000 2400 70000 4100 27 106200 6960 70 1100000 810

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operations of the raw data & paper documents received from the remote location

has an increasing trend in the field of back-office operations.

III. Translation services -

Medical transcriptions involve the transcribing of medical records from audio

format or as dictated by doctors into either a hard copy or any electronic format.

Doctors overseas record their finding into Dictaphone and the sound tracks are

transferred through datacom links to ITES companies specializing in this area. It is

predicted that the segment will produce Rs. 4000 crores revenues and 50000

employments in the year of 2008. It was seen that 33% grown in the revenue inn

the year of 2000-2001 over 1999-2000.

IV. Content development/Animation -

In the world India is the low-cost destination with high skilled manpower are

available. So this is the hottest destination of BPO industry. There were 95%

increase in the revenue & 80% increased in employment in 2000-2001 over 1999-

2000. And there was a 31% growth in the year of 2001-2002(E). Specifically

animation industry is producing a huge impact I this area.

V. Data research, Market survey, Consultancy, Management

etc. -

50% growth in revenue is achieved in the year 2001-2002. And 27% growth was seenin the revenue & 43% growth in employment in 2000-2001 over 1999-2000. It is

expected that in the year of 2008 the employment will reach at 180000 and

revenue Rs. 11000 crores.

7. Outsourcing & ITES:-

The rapid pf the BPO industry is mainly depends upon the mutual

contribution of the ITES & outsourcing activities. ITES includes services that can be

outsourced using the powers of IT.

We can define the emergence of outsourcing activities as follows

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1960s time sharing

1970s parts of IT operations

1980s entire IT operations

1990s alliances/tie-ups 2000s IT-enabled services

Since the outset of globalization in India during the early 1990s,

successive Indian Governments have pursued programmes of economic reforms

committed to liberalization and privatization. The ITES or BPO industry is a young

and nascent sector in India and has been existence for a little more than five years.

Despite its recent arrivals on the Indian scene, the industry has grown

phenomenally and has now become a very important part of the export oriented IT

software and services environment. The ITES/BPO market expanded its base with

the entry of Indian IT companies and the ITES market of the present day is

characterized by the existence of these IT giants who are able to leverage their

broad skill-sets and global clientele to offer a wide spectrum of services. The

spectrum of services offered by Indian companies has evolved substantially from its

humble beginning. Today Indian companies are offering a variety of outsourced

services ranging from customer care, transcription, billing services, data base

marketing to web sales/marketing, accounting, tax processing, transaction

documents management, tele-marketing, HR hiring and bio-tech research.

Looking at the success of Indias IT/software industry, the Central

Government identified ITES/BPO as a key contributor to economic growth

prioritized the attraction of FDI in this segment by establishing Software

Technology Park and Export Enterprise Zones. Benefits like tax-holidays

generally enjoyed by the software industry were also made available to the

ITES/BPO sector. The National Telecom Policy (NTP) introduced in 1999 and thederegulation of the telecom industry opened up national, long distance and

international connectivity to competition. The Government of various states also

provides assistance to companies for overcome the recruitment, retention &

training challenges in order to attract investments to there to there region. The

National Association of Software & Service Companys (NASSCOM) has created

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platform for the dissemination for the knowledge & research in the industry

through its survey & conferences. NASSCOM acts as an advisor consultant & co-

ordinating body for the ITES/BPO industry leasion between the central & state

Govt. committees & the industry. The ardent advocacy of the ITES/BPO industry

has lead to the inclusion of the call centres in the business auxiliary services

segments, thereby ensuring exemption from the service tax under the finance bill

of 2003.

Outsourcing to India offers significant improvements in quality &

productivity for the overseas companies on critical parameters such as no. of

correct transactions/no. of total transactions, total satisfaction factor, no. of

transactions/hour an average speed of answer. Surveys by NASSCOM also revealed

that Indian companies are better focused on maintaining quality and performance

standard. Indian ITES/BPO companies are on an ascending curve as far as the

quality standards are concerned. Organization that have achieved ISO 9000

certification are migrating to the ISO 9000-2000 Standard & companies on the CMM

framework are realigning themselves to the CMM model. Apart from that

investigation in upgrading their CRM & ERP initiative, many Indian ITES companies

are beginning to acknowledge COPC certification for quality & are working towards

achieving COPC licenses.

ITES-BPO Emplyees & Revenues

02

46

8

FY 2004 FY 2005 FY 2006

Financial Year

Employee

Revenue

Employees('00,000s)

Revenues(US $bn)

Table - 2

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Table - 3

8. Outsourcing Activities:-

There are so many activities which are outsourced. These outsourcing

activities can be classified into three broad perspectives

I. Conventional areas -

It includes house-keeping of building and work areas, security of plant and

township, car pool, catering, hospitability and canteen, horticulture establishment

and maintenance etc.

II. Non-conventional areas -

It includes maintenance of critical and specialized equipment, crane maintenance,

internal material handling with equipment, quality lab operations, packing of HR

coils, annual maintenance contract for computers, environment monitoring on

specified parameters, waste handling and health management etc.

III. Emerging areas -

It includes procurements of activities, accounting activities, human resource

functions and management or total solution contracts etc.

ITES-BPO Sector based Offerings

3%

40%

46%

11%

Human Resources

Finance &

Accounting

Customer

Interaction

Others

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In other words IT can be leveraged varies under the influence of

suitability to industry, location, time, costs and managerial perception of the risk

involved. The process that can be outsourced may be classified into IT enabled and

others. So all the business process can be classified into three groups, which are as

follows

Table - 4

8.1. Global Scenario:-

BPO is not a new phenomenon in the global market. Now-a-days the

global off-shoring market continues to grow rapidly for producing high quality

products with low cost. This global off-shoring exceeds US $300 bn. A variety of

sources have predicted that BPO services have grown worldwide from $119 bn in

2000 to $240-$300 bn by the year 2005.

USA and Canada currently have more than 62% of the BPO pie and will

continue to dominate the BPO market. 95% of the work will goes to local BPO

companies while only around 5% is outsourced to off-shoring locations.

There are four drivers to the outsourced boom being witnessed:

a. Focus on core competencies

b. Efforts to reduce costs

c. Improvement in service quality

Nature of Activity Possibilities for OutsourcingCore Process Key to firm success and strategic in nature

(e.g. R&D)Critical Non-core Process Important but not one of the differtiators

(e.g. supply chain management, accounting& HR administration)

Non-critical, Non-coreProcess

Relatively less critical and can be mostlyoutsourced(e.g. data analysis for routine information andadministration)

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d. Increased efficiency

Countries competing in the BPO space

Till the mid 1990, Ireland was considered the most preferred locationfor outsourcing. The large available pool of English speaking workers, government

assistance, low labour cost, goods infrastructure and access to European Eunion

were factors in favour of Ireland. But after 1990, there were so many countries

who want to grab that market e.g. India, Malaysia, Philippines, China, Australia,

Mexico, New Zealand and UK.

(Ratings are on a scale of 1 to 3, with 1 being the lowest and 3 the highest)

* Infrastructure is good only in certain citiesSource: NASSCOM

Indias main competitive advantage stems from the availability of a huge

education, English speaking population and a Competitive cost base.

Table - 5

India made the preferred location for BPO in Asia-pacific. The trend

of relocating non-core business functions off-shore to developing nations such as

India and China continues to gain momentum. Commoditized functions that require

more generic and easily acquired skills will continue to be strong candidates for

off-shore relocation. Advancement in IT during the last two decades have allows

Country Workforce

Market

Access

Local

Market Infrastructure

Cosmopolita

n

Cost

baseNewZealand

2 2 0 2 3 2

Malaysia 1 2 0 2 2 2Japan 1 2 1 3 1 3Hong Kong 1 2 2 2 2 2India 3 2 2 2* 3 1U K 1 2 2 3 2 3

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organizations to separate core from non-core activities. Two common strategies for

reducing costs relating to non-core functions are physically relocating them and

farming them out to service provider vendors. Deployment and outsourcing can

employ either an off-shore or near-shore strategy, based on the location to which

functions are related or the location of outsourcing service providers. Initially IT

services were the focus of most firms off-shore deployment and outsourcing

efforts. The scope of functions that have been deployed or outsourced off-shore

has continued to expand to BPO/ITES, a broad category of functions that include a

great variety of support roles, ranging from answering customer queries in a call

centre to sophisticated financial analysis. In US services imports have grown from

14% to 17% of total imports between 1980 and 2003 (Bureau of Economic Analysis,

US International Transactions Accounts data). According to McKinsey estimation

that the BPO industry worldwide have grown roughly $32 bn to $35 bn in revenue in

2002 and projected to grow at a rate of 30 to 40 percent per year for the next five

years.

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Global BPO Scenario

119

234

0

100

200

300

BPO Market Size

Year

BP

O

Market

S

ize($Bn)

2000

2005

Source: Gartner

Table - 6

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Globa BPO Scenario

74

1032

3

119143

2164

6

234

0

50

100

150

200

250

US-Cana

Jpan

&APE

Europe

Row

Worldw

id

Country

BPOM

arketSize($

BPO Market Size

2000

BPO Market Size

2005

Source: Gartner

Table - 7

Worldwide BPO Market - Functi

wise breakup

050

100

Sales,

Marke

SCM

Paym

ent

Indirec

t

Financ

eH

R

Admin

istratio

Function

Market

Share($)

2000

2005

Source: Gartner

Table - 8

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Wordwide BPO Market by indust

verticals

17%

16%

15% 9%

43%

Financial Service

Communication

Consumer

goods/servicesManufacturing

IT

Total Market Size in 2000 US $ 119 bnSource: Gartner

Table - 9

The off-shoring market for the globe BPO industry could expand by

more than 10 times from its current size of approximately US $150-200 bn. BPO

growth for the globe off-shore IT & BPO industries are quite large, industry

evolution will be shaped by the interplay of three major focuses:

a. Supply (the capacity & quality of off-shore location)

b. Demand ramp up (realistic adoption of off-shoring by companies)

c. Industry conduct (action taken by industry players)

IT and BPO work are higher margin businesses. It is estimated that

profits generated by $10 bn exports by Indian (IT & BPO) is equal to profits

generated by $30 bn of manufacturing exports generated by China. The US is

expected to be the largest source market for the ITES accounting for nearly 60% of

the market. The share of the off-shore components is expected to increase to 23%

of total spending by 2007. Europe is expected to be the second largest market for

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the ITES sector, accounting for 22% of the total spending which is expected to

reach Euro 129 bn by 2008.

Facts & Figures

Total Value of Jobs Exported (USD $ billions), (Offshore Outsourcing & OffshoreSubsidiaries), 2002-2004

Country 2002 2003 2004 As % of 2003 GDP

CAGR

US 106.64 112.29 123.90 1.13 7.79UK 27.15 27.14 27.28 1.64 0.24France 21.68 22.20 22.81 1.38 2.57Germany 45.76 47.58 48.22 2.12 2.66

Japan 196.82 212.36 225.63 6.33 7.07Hong Kong 14.40 14.69 16.21 7.64 6.08Total 412.45 436.26 464.04 --- 5.93Source: FROST & SULLIVAN

Table - 10

Global Predicted Figures

McKinsey & Co. predicts global market for IT enabled services to be over

$140 billion by 2008

These $ 142 Billion can be broken up and shown as underCustomer Interaction Service 33.0Finance & Accounting Services 15.0Translation, Transcription & Localization 2.0Engineering & Design 1.2HR Service 5.0Data Search, Integration & Management 44.0Remote Education 18.0Networking Consulting & Management 15.0Website Services 5.0

Market Research 3.0Total 141.2

Source: NASSCOM McKinsey Study India IT StrategiesIn that the opportunities for India will be $ 17 Billion

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Table 11

SerialNo.

Number of US Jobs Moving Offshore

Job Category 2000 2005 2010 20151 Management 0 37477 117835 882812 Business 10787 61252 161722 480283 Computer 27171 108991 276954 726324 Architecture 3498 32302 83237 843475 Life sciences 0 3677 14478 367706 Legal 1793 14220 34673 746427 Art, Design 818 5576 13846 29639

8 Sales 4619 29064 97321 265649 Office 53987 295034 791034 1659310

Total 102674 587592 1591101 3320213Source: U.S.Department of Labour and Forrester Research, Inc.

Table 12

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IT Services Export ($ mn)

47502800

130

126

0 2000 4000 6000

1

Co

untry

Total Export

Russia

China

Ireland

India

Source: NASSCOM

Table 13

8.2. Indian Scenario:-

At present India is the worlds most important off-shoring location

for the outsourcing of IT services and IT based business processes. India has 44%

share of global market for IT and BPO off-shoring. The global market is currently

worth some USD 40 bn and the Indias total revenue in the fiscal 2004-2005 was

USD 28 bn from software, IT services, geographic location and high skilled

manpower are the main reasons for multinationals to back in India. In the area of

qualifications, capabilities, quality of work, linguistic Excellencies and work ethics

etc. made India in the top position among China, Philippines, Ireland, Australia,and Canada etc.

India is able to offer 24*7 services and reduction in turnaround times

by leveraging time zone differences. About 100000 engineer graduates from India

every year. Many of these engineers are employed with call centres for trouble

shooting and providing technical support at salaries that are dramatically lower

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compared to pay-scale in the US. The average monthly salary in India is $400-700

compared to $2700-2800 in the US. According to the current data, the BPO industry

in India employees around 400 people everyday with the people existing from this

sector being around 12% of the total workforce. Dell, Sun Microsystems, LG, Ford,

GE, Oracle all have announced plans to scale up their operations in India.

Managed care companies, which is more popularly known as

Healthcare players, are increasingly outsourcing business processes due to changing

& challenging business environment and technological and legislative changes. The

combination of low labour costs, project management skills and technological

know-how make India attractive for Business Process Off-shoring. Indian labour cost

is very cheap e.g. a chartered accountant gets $15000 a year where as a CPA in US

earns $75000 a year.

TransactionProcessing Core

TransactionProcessing Non core

CallCentre

TranscriptionServices

DataEntry

Mid 1990s late 1990s 2000 2005

Table - 14

If we see the evolution of the BPO in the India, we can define some

phases as depicted in the table 14. GE pioneered the trend of outsourcing to India

when it set up a facility in Gurgaon in mid 1990s. And some of the other companies

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like American Express and British Airways also operating their back offices in India

since the mid 1990s.

Initially low-end work such as data entry and call centre activity was

outsourced to India. With increasing confidence of the companies in the

capabilities of Indian operations, higher value added work such as processing of HR,

accounts and other non-core functions came to India. The success of these early

pioneers encouraged a host of other MNCs to set up their own back-office

operations in India. Banks such as Citi Bank, HSBC, Standard Chartered and other

companies like Dell, HP set up their own captive operations. In FY 2005-2006, the

Indian ITES/BPO segment grew by 37% contributing to $6.3 bn to the total software

services exports of $23.6 bn.

Indian BPO cities can be divided into two segments, first segment

deals with leading BPO cities and second segment deals with developing BPO cities.

BPO/ITES hubs in IndiaFirst Segment Second Segment

- Bangalore - Ahmedabad- Chennai - Amritsar- Hyderabad - Bhubaneshwar- Mumbai - Chandigarh- Gurgaon - Guwahati- Noida - Indore- New Delhi - Jaipure- Pune - Kanpur

- Fariadabad - Kochi- Kolkata- Mangalore- Nagpur

IT Landscape of key Indian citiesCity Focus Prominent firms Employees

Delhi Call centres, GE, American Express, 73000

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(includesGurgaonand Noida)

transactionprocessing, chipdesign, software

STMicroelectronics,Wipro Spectramind,Convergys, Daksh, ExL

Mumbai Financial research,back office, software

TCS, MphasiS, i-flex,Morgan Stanley,

Citigroup

62050

Bangalore Chip design, software,bio-informatics, callcentres, IT consulting,tax processing

Infosys, Wipro, Intel,IBM, SAP, SAS, Dell,Tisco, TI, Motorola,HP, Oracle, Yaho, AOL,E & Y, Accenture

109500

Hyderabad Software, back office,product design

HSBC, Satyam,Microsoft

36500

Chennai Software, transactionprocessing, animation

Cognizant, World Bank,Standard Chartered,Polaris, EDS,

Pentamedia

51100

Kolkata Consulting, software PwC, IBM, ITC,Infotech, TCS

7300

Pune Call centres, chipdesign, embeddedsoftware

MsourceE, C-DAC,Persistent System,Zensar

7300

Source: NASSCOMTable - 15

Facts & Figures

Year 2003 to 2005, the size and growth of the BPO in India can bedepicted as follows:

Year Size ( US $ bn ) Growth Rate2003 2.8 59%2004 3.9 45.3%2005 5.7 44.4%

Source: NASSCOM

Table - 16

Currently Indian BPO industry employees in excess of 245100 peoples andanother 94500 jobs are expected to be added during the current financial year(2006-2007).

ITES/BPO 2003-2004 2004-2005 2005-2006Exports ($ bn) 3.1 4.6 6.3

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Employment(no. of people in

000s)

253 316 415

Table 17

Table - 18

Table 18

Statistics regarding number of employees vs. revenue sector wisein India

Growth trend of the outsourcing industryService Area 2002 - 2003

Employment Revenue (in $ m)

Customer care 65000 810Finance 24000 510

Payment service 11000 210Administration 25000 310Content development 44000 465HR 2100 45Total 171100 2350Source: NASSCOM

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Indian software and IT:Export-driva

boom(USD bn)

01020

30

1999

2001

2003

2005

2007

Year

MarketS

hare

domestic marke

export

Source: DB Research, NASSCOM, 2005

Table 19

IT sector employment continues to

sharply (Indian IT employees '00

0

50 0

1000

2000 2001 2002 2003 2004 2005

Year

value

IT Software and

services

ITES-BPO (CAG

54%)

Source: DB Research, NASSCOM, 2005

Table - 20

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Percentage Of The Revenue Contributed By BPOCompany June

2002Sept2002

Dec2002

March2003

June2003

MphasiS 16.48% 21.17% 22.61% 25.24% 28.9%Wipro 4.85% 5.78% 6.81% 7.785% 8.61%

Infosys 0.027% 0.23% 0.85% 1.01% 1.175%Digital

Global softN.A. N.A. 1.454% 3.53% 5.9%

HCL Tech 5% 5% 6% 9% N.A.

Source: NASSCOMTable 21

Statistics of the Number Of Employees in Indian call centresCompany Number of EmployeesExL 4500

Spectramind 2600Daksh 2000vCustomer 1500Tracmail 1365HCL e-serve 870Epicenter 700ICICI OneSource 650GTL 650WNS 1600Source: NASSCOM-ITES, September, 2002

Table - 22

Employees And Revenues Associated With BPO UnitsRevenue (in $ m) Headcount

GE 250 12000Wipro Spectramind 95 11500Convergys 94 9800IBM-Daksh 65 6300MphasiS 60 4800WNS 55 4500

EXL 44 4600ICICI OneSource 42 4100HSBC 41 6000Amex 40 3800Source: Economic Times (August,2004)

Table 23

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Voice Vs Non-VoiceCompany Revenues

($ Million)Employees Voice:Non-Voice

Wipro Spectramind 41 5000 80:20Daksh eServices 35 4000 70:30

Office Tiger 25 1000 0:100HCL TechnologiesBPO

- 2346 90:10

ICICI OneSource - 2175 70:30World NetworkServices

35 2500 65:35

exi Service.com 28 2300 75:25MsourceE 20 3162 93:7Hinduja TMT 24 1400 66:34Tracemail 11 1000 50:50Progeon 4.4 685 30:70

Source: Business World (4th august,2003)

Table - 24

Top 15 BPOs in IndiaSerial No. 2004-2005 2005-20061 WNS Genpact2 Wipro BPO WNS3 HCL Technology BPO Services Wipro BPO4 IBM Daksh HCL BPO Services5 ExI Services ICICI OneSource6 MphasiS BPO (formerly MsourceE) IBM Daksh7 Intelenet Global Progeon8 ICICI OneSource Aegis BPO Services9 GTL ExI Service Holdings10 Progeon 24/7 Customer.com11 24/7 Customer.com MphasiS BPO12 Datamatics Technologies Intelenet Global13 Hinduja TMT GTL

14 Transworks TCS BPO15 tracmail TransworksSource: NASSCOM, 2005 Survey

Table - 25

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8.3. Comparative Analysis:-

Outsourcing is the best imperative for MNCs. According to Forrester

Research Study, nearly half of all companies surveyed stated that they used off-

shore providers to avoid high labour costs in US and Europe. The trend is not just in

the area of outsourcing software development work but business-specific back-

office process.

India is the first choice of all multinationals of the world when it

comes to off-shore business processing. But a now-a-days multi-country strategy to

ensure business continuity makes some bad news to Indian BPO. The multi-country

strategy done for minimizing risks in the event of a natural disaster. Top US

companies often begin their off-shoring decision-making by short listing nations

with specific language capabilities before choosing the off-shore destination.

The three factors are to be considered in choosing a country as the

off-shoring destination-

I.The Cost factor:

This includes cost of labour, management and infrastructure and tax and treasury

impact. At present India is the top position in two factors costs and people. On

the cost front, India scores the maximum points (3.4 out of 10) compared to China,

Russia, Hungary, brazil and Czech Republics 3.1 each, Mexicos 3, Philippiness

2.9, Australias 2, Irelands 1.8 and Canadas 1.5. Although India is expected to

retain its leadership position for the foreseeable future, its strong ratings may be

tempered gradually rising labour costs and geographical concerns. In the long run,

India is likely to become the location of choice for high value analytical tasks,

while more generic commodity processes will eventually more to lower costs

environment such as China says the AT Kearney report.II.Environment factor:

It includes economic and political risk, country infrastructure, culture

compatibility, geographic proximity and security of intellectual property. Here

India is not a top position. India scored 1.6 as compared to Canada (2.6), Ireland

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(2.5) & Australia (2.3). Poor intellectual property and cultural compatibility made

India as a medium player.

Canada, Australia, Ireland have good English speaking people, better

infrastructure, lower economic & political risk but they are poor in terms of labour

cost. Canada now becoming a favourite destination of US companies due to

superior employee retention rate & business process experience. While Brazil &

Mexico rank higher than India in respect of the environmental factors. So the key

constraints are language barriers, employee retention problems, poor IT and

telecom infrastructure, political instability and corruption made India as a second

level country in environmental factors.

III.The People factor:

It includes BPO & IT process experience, size of labour market, education level of

workforce, language barriers, and employee retention. In this factor India placed in

the first position scoring 2.3, while Canada (2.1), Ireland (1.5), Australia (1.4),

Brazil (1.2), Mexico (1.3) are far beyond from India. China now going very fast in

this area because china has large low cost workforce pool, language skills, overall

support of MNCs Asia business operations etc.

Comparative Analysis On The Basis Of People Factor

Country LabourQuality

LabourCost

LabourAvailability

LabourTurnover

AverageGrade

India 4.29 2.14 2.57 3.71 2.80Vietnam 6.82 3.30 7.00 5.50 4.09China 6.12 3.40 6.12 4.83 4.22Indonesia 6.42 4.46 6.27 4.83 4.28Japan 2.92 6.06 5.33 2.08 4.40Taiwan 3.20 5.44 4.50 5.05 4.41Thailand 5.61 5.00 6.39 5.18 4.41

South Korea 3.82 6.88 4.94 4.76 4.58Singapore 2.45 6.41 4.86 5.20 4.67Malaysia 4.83 5.08 5.96 5.35 4.77Hong Kong 3.32 6.32 5.42 5.77 4.82Note: 0 Best, 10 Worst

Source: DB Research, MC Kinsey, 2005

Table 26

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Country Attractiveness Analysis

Rank Country Score*Human

ResourcesCost

AdvantageEnvironment Core Capability

1 India 7.12 Very HighVery High Medium

IT services

2 China 5.61 HighVery High Low Manual Labour,

Electronic equipment

3 Malaysia 5.59 MediumHigh High

Electronic equipment

4CzechRep.

5.58 MediumHigh High

Manufacturing(machinery &

intermediate products)

5 Singapore 5.45High Medium Very High Financial & hi-tech

centres

6 Philippines 5.45Medium Very High Low

IT services, Call centres

7 Brazil 5.44Medium High Medium Manufacturing, Export

of basic materials

8 Poland 5.33 Medium High High

Manufacturing

(machinery &intermediate products)

9 Hungary 5.29Medium High High

Manufacturing(machinery &

intermediate products)

10 Thailand 5.20 LowVery High Low

Electronic equipment,Export of basic

materials

11 Mexico 5.12Medium High Medium

Manufacturing(machinery &

intermediate products)

12 Argentina 5.07Medium Very High Low Basic materials,Manufacturing, Financial

services

13SouthAfrica

4.98Medium High Medium

Basic materials,Manufacturing, Financial

services

14 Portugal 4.71Medium Medium High Textiles, Metal working,

Services

15 Vietnam 4.70 Very LowVery High Very Low Manual Labour, export

of basic materials

16 Russia 4.65Medium Very High Very Low Manufacturing, export

of basic materials, IT

17 Ireland 4.49

High Very Low Very High High standard IT

services

18 Turkey 4.44Low High Very Low

Manufacturing, Textiles

* Total score AT Kearney attractiveness indexSource: AT Kearney, 2004.

Table 27

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9. Conclusion:-

India is now the leader in off-shore outsourcing market and the

trend have been seen from 2005. Confidence in the service provider companies putforward the BPO industry in a new generation in India.

NASSCOM McKinsey: in 1999, they estimated that by 2008 it will be $17 bn

but it has been revised to $21-24 bn by 2008. India can capture 25% of global

BPO off-shore market and 12% of the market for other services such as

animation, content development and design services.

Gartner: $1 bn (2002), $1.2 bn (2003), $13.8 bn by 2007. Gartner doesnt

incorporate animation, medical or other (legal) transcription services, GIS,

market research, data research, research development, network consultancy

and other non-business processes in its estimates on the ITES market size

and potential.

Future Outlook to Indian BPO Markets

Revenue

\Year

2002 2003 2004 2005 2006 2007 CAGR

OffshoreBPORevenue

1322 1825 3017 6439 12563 24230 78.91

IndianBPORevenue

912 1205 1961 3928 7412 13811 69.35

TotalBPOMarket

110167 121687 131171 143090 157033 173070 9.45

CAGR in % 2002-2007 Figures in $ Million Source: Gartner Dataquest(May, 2003)

Table 28

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Indias BPO Market in 2008

Service LineFirst Estimate

(1999)Second Estimate (2001)

HR 5.4 3.5-4.0Customer Care 4.1 8.0-8.5Payment Services 2.9 3.0-3.5ContentDevelopment

2.6 2.5-3.0

Administration 1.3 1.5-2.0Finance 0.7 2.5-3.0Figures in $ billion

Table 29

The industry is showing a growing trend globally and also in India,

which is a positive side and India has a lot of potential to make full use of this

opportunity. India has potential enough to sustain its leadership. The factors like

large pool of English speaking and talented people, government support,

conductive business environment, population dynamics etc. are unique to India.

But other countries like China, Philippines, and Malaysia etc. are emerging very

fast to capture the global market share. The Indian companies are the backbone of

the Indias predominant leadership in BPO sector. It helps India to resolve theunemployment problem to some extent and also helps to contribute a significant

portion to the GDP of the nation. A report by Deloitee Research (2003) estimates

that two million jobs (of which 851000 will be from the US) from the largest one

hundred global financial institutions will be moved to India by 2008. According to

Forrester Research, the core BPO market worldwide will be benefited from this.

The NASSCOM figures showed clearly that while the industry is currently on the

high growth path, it has to take a serous look at managing this growth to sustain

and reemphasis its advantages in the global marketplace.

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10. References:-

1) C. Rajeshwer & Sowdeepti A (2003): Indian BPO Sector Finance &Accounting outsourcing, The Accounting World, August.

2) Prasuna D.G (2004): Outsourcing is here to stay, The Chartered

Financial Analyst, April, pp (23-27).

3) Kably L (2005): Outsourcing of tax return to India: AICPA guidelines,

The Chartered Accountant, January, pp (879-881).

4) Samuel P.B (2005): Accounting outsourcers have your number, The

Chartered Accountant, May, pp (1490-1492).

5) Rao N.J. & Adusumilli R.B. (2005): R & D outsourcing Indian scenario,

The Chartered Financial Analyst, May, pp (39-40).

6) Rao N.J. & Kumar S (2005): BPO Bash Is India losing, The Chartered

Financial Analyst, June, pp (58-61).

7) Rao N.J. & Prasad I (2006): BPO will the boom sustain?, The

Chartered Financial Analyst, August, pp (42-46).

8) Satish D & Kumar S (2005): Mega outsourcing the beginning of the end

, The Chartered Financial Analyst, August, pp (53-58).

9) Gangadhar V & Reddy N (2005): Strategies for BPO in India, The

Chartered Accountant, December, pp (857-865).

10)Chhabra S (2006): BPO Finance & Accounting introduction, The

Management Accountant, August, pp (605-609).

11)Other literatures from various websites.