Indian IT & BPO industry

Future of BPO Industry

What is BPO?

• Business process outsourcing (BPO) is the contracting of a specific business task, such as human resources and customer service, to a third-party service provider.

• This allows companies to focus on their core business processes.

• BPO is implemented as a cost-saving measure for tasks that a company requires.

Facts of Indian BPO Industry

• Size of Indian IT & BPO industry is about $ 71 Bn and growing at 38% CAGR.

• India thus has some 5-6% share of the total BPO Industry, but a commanding 63% share of the offshore component.

• Potential size of India’s offshore IT/BPO industry in 2015 is estimated at US$ 120 to 180 billion, providing Direct employment for four million and indirect employment for 10 to 12 million by 2015

Share of GDP

0

1

2

3

4

5

6

FY98 FY00 FY02 FY04 FY06 FY08

% of GDP

Forex Earnings

IT/ITES industry grew by impressive 32.6% in FY07

Expected to reach 40 bn USD in FY08

Capabilities: Why go to India?

• 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

– Produce around 100,000 engineers annually

Capabilities: Why go to India?

• Infrastructure– Improvements have led to increasing success

• Telecom facilities• Power sector• India as a whole

• Government– Realize potential for economic development– Favorable policies have turned India into a BPO/IT

hub.• Examples: Investment promotion, telecom policy, IT

Act

Indian BPO industry continues to grow rapidly

Notes: (1) Leader locations are Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai, NCR (Delhi, Noida, Gurgaon, Faridabad), PuneSource: NASSCOMNotes: (1) Leader locations are Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai, NCR (Delhi, Noida, Gurgaon, Faridabad), PuneSource: NASSCOM

ExportsExports

DomesticDomestic

Indian BPO Sector Revenue(USD billion, percentage)

3.1

6.3

10.9

0.9

1.6

0.3

2004 2006 2008E

3.4

7.2

12.5

CAGRCAGR

38%38%

37%37%

52%52%•Higher process maturity and quality of output•Increasing proportion of non-voice work (e.g., transaction processing, research etc.) likely to be outsourced over the next two – three years•Higher competition for lower end BPO services•Emergence of competing destinations trying to emulate the Indian success•Perceived ‘commoditization’ - Increasing sensitivity to prices•Growth in domestic BPO industry – Still nascent, expected to increase with growing business demands•Primarily driven by Financial Services, Telecom and Retail sectors

However, most of this growth is currently concentrated in ~7 leading locations

Success and economic growth of these locations has led to significant interest from other states / locations to leverage this sector as a growth driver for their economies

The top 7 locations account for around 90% of the industry’s employment today

These locations have helped in transforming their states into a knowledge driven economy with high per capita income

However, the hyper and concentrated growth across most of these leading locations have resulted in:

– Saturation and deteriorating infrastructure– Presence of large number of IT-BPO

players resulting in high attrition and increased wages

– Rapid growth of other sectors, resulting in greater competition for talent

– Rising real estate costs– Deteriorating social and living

environment

Hyderabad

Delhi

FaridabadGurgaon

Bangalore

MumbaiPune

Chennai

Noida

Kolkata

Leaders Challengers Followers Aspirants• Ahmedabad(2)

• Bhubaneshwar• Chandigarh(3)

• Coimbatore• Indore• Jaipur• Kochi• Lucknow• Madurai• Mangalore• Nagpur• Thiruvananthapuram• Tiruchirappalli• Vadodara• Visakhapatnam

• Aurangabad• Bhopal• Goa• Gwalior• Hubli-Dharwad• Kanpur• Mysore• Nashik• Pondicherry• Salem• Surat• Vijayawada

• Allahabad• Dehradun• Durgapur• Gangtok• Guwahati• Ludhiana• Patna• Raipur• Ranchi• Shimla• Siliguri• Srinagar• Varanasi

Findings indicate that the 50 locations in India are categorized along a typical four stage development path

Location Classification

Notes: (1) National Capital Region (NCR) includes Delhi, Noida, Gurgaon and Faridabad(2) Ahmedabad includes Gandhinagar(3) Chandigarh includes Mohali and Panchkula

Increasing Location AttractivenessIncreasing Location Attractiveness

•Bangalore•Chennai•Hyderabad•Kolkata•Mumbai•NCR•Pune

Current happenings and its potential effects on the Industry

• US president Barrack Obama Vowed to end tax breaks for the companies seeking to cut cost through outsourcing.– Bilateral Trade agreements.– Protectionism would backlash in other markets.– Increase cost on US citizens due to non off-

shoring.– Proposed increase in taxes on profits & risky

assets will subdue further investments.

Mantra for future growth

• Non- Linear growth• Focus on domestic growth(growing at 50%

from past 5 years)• Move up the value chain

DELL CONFIDENTIAL

Growth = Headcount Growth = Value

Headcount

Revenue Growth

Headcount

Non-linear is the mantra for future growth

Last 7 Years : Way Forward :

Revenue Growth

Dell Presentation, NASSCOM 2008

Improving the platform . . . Sample ideas under implementationLevers

Change recruiting mix to reduce entry – level salary

Define skill – sets based on complexity of processes

Recruit contractors for simpler tasks

Reduce IT maintenance costs

Increase seat utilisation

Increase productive days

Investigate options for leave encashment and carry forward of leaves

Increase contractors

Increase shift timing (hours/shift)

Create multiple shifts for processes with TAT >1 day

Share same set of seats across voice and data processes

Rationalize demand for IT applications

Redefine services levels appropriate to processes

Benchmark AXA – Tech performance

Standardize shift and break hours across teams as top processes within the centre

Gradually increase productive hours over next 2-3 years

(AXA Presentation, NASSCOM 2008)

Domestic Market

• Domestic BPO market, with a growth rate of 50% over five years, grew faster than the exports market to reach nearly $1.6 billion in the financial year 2008.

• With Indian companies stepping up investments in IT and outsourcing, there is a huge opportunity for the existing service providers to leverage their global expertise and help Indian companies to garner strategic advantage.

Move up the value chain

Conclusion

References

Howcroft D and Richardson H (2009) (eds.) Work and Life in the Global Economy, Palgrave

Howcroft et al (2010) The Back office goes global: Exploring Connections and Contradictions in Shared Service Centres, Work Employment and Society.

Howcroft D and Richardson H (2008) Gender matters in the global outsourcing of service work, New Technology, Work and Employment, 23:1-2, 44-60.

Website:http://www.bpowatchindia.comhttp://knowledge.wharton.upenn.edu http://www.wikipedia.org/http://www.nasscom.inhttp://www.bpowatchindia.com