Business process outsourcing in India

Business process outsourcing in India

The business process outsourcing industry in India refers to the business process outsourcing services in the outsourcing industry in India, catering mainly to Western operations of multinational corporations (MNCs).

As of 2008, around 0.7 million people work in outsourcing sector[1] (less than 0.1% of Indians). Annual revenues are around $11 billion,[1] around 1% of GDP. Around 2.5 million people graduate in India every year. Wages are rising by 10-15 percent as a result of skill shortage.[1]

Contents

History

Airlines

In the early 1980s several European airlines started using Delhi as a base for back office operations, British Airways being one among them. The BA captive was finally spun off as a separate organization called WNS Global Services in 2002.

Amex

In the second half of the 1980s, American Express consolidated its JAPAC (Japan and Asia Pacific) back office operations into New Delhi and NCR region.[2] This center was headed by Raman Roy, and has been a source of several leading names in the Indian BPO Industry.

General Electric

In the 1990s Jack Welch was influenced by K.P. Singh, (a Delhi based realtor) to look at Gurgaon in the NCR region as a base for back office operations. Pramod Bhasin, the India head of G.E. hired Raman Roy and several of his management from American Express to start this enterprise called GECIS (GE Capital International Services). Raman for the first time tried out voice operations out of India, the India operations also was the Beta site for GE Six sigma enterprise. The results made GE ramp up their Indian presence and look at other locations. In 2004 GECIS was spun off as a separate legal entity by GE, called Genpact. GE has retained a 40% stake and sold a 60% stake for $500 million to two equity companies, Oak Hill Capital Partners and General Atlantic Partners.

Third party BPO's

Until G.E most of the work was being done by "captives"- a term used for in house work being done for the parent organisation. In 2000 Raman Roy and some team members from GECIS quit, and with VC funding from Chrysalis Capital started Spectramind. At the same time an organisation called Efunds started in Mumbai and Gurgaon, and Daksh in Gurgaon. However, recently most of the Indian BPO's even smaller and mid-sized ones are actually setting-up their onshore presence. Most of the serious players are actually improving the outsourced business processes by leveraging on years of experience and now some of them are directly competing with their own older clientbase by marking this transition to KPO's.

Entry of IT majors

In 2002 Spectramind was bought by software major Wipro, and BPO by then had become mainstream like the IT Industry in India. The team that had set up Spectramind went on to start Quatrro in 2006, a BPO specialising in high end BPO/KPO services. By 2002 all major Indian software organizations were into BPO, including Infosys (Progeon), Inforlinx, HCL, Satyam (Nipuna) and Patni. By 2003 Daksh was bought out by IBM, and later in 2006 MphasiS was acquired by EDS. Even international 3rd party BPO players like Convergys and Sitel had set up shop in India, swelling the BPO movement to India. Then service arms of organizations like Accenture, IBM, Hewlett Packard, Dell also set up shop in India.

Emergence of Rural BPOs

Booming India Inc has led to skyrocketing real estate and infrastructure costs in Tier-1 cities. BPO industry has thrived all these years because of its ability to deliver services at a low cost. Increasing infrastructure costs, real estate costs, and salaries have raised BPO costs significantly and as a result Indian BPOs in Tier-1 cities are looking at Tier-2 and Tier-3 cities for operation.

Few entrepreneurs who had a vision of bringing the rural India into the mainstream of knowledge economy have found an opportunity here - setting Rural BPOs. The transformation of rural India started with the emergence of these Rural BPOs.

Future of outsourcing services to India

Analysts believe that India remains a vital destination for outsourcing and expect its annual GDP to grow at 8-10% for the next decade.[3] In addition, outsourcing efforts to India are held up as an effective remedy for concerns about both Chinese government policy and labor force issues, such as increasing costs and shortages.[4]

Size of industry

The industry has been growing rapidly. It grew at a rate of 38% over 2005. For the FY06 financial year the projections is of US$7.2 billion worth of services provided by this industry. The base in terms of headcount being roughly 400,000 people directly employed in this Industry. The global BPO Industry is estimated to be worth 120-150 billion dollars, of this the offshore BPO is estimated to be some US$11.4 billion. India thus has some 5-6% share of the total Industry, but a commanding 63% share of the offshore component. The U.S $7.2 billion also represents some 20% of the IT and BPO Industry which is in total expected to have revenues worth US$36 billion for 2006. The headcount at 400,000 is some 40% of the approximate one million workers estimated to be directly employes in the IT and BPO Sector.

The related Industry dependent on this are Catering, BPO training and recruitment, transport vendors, (home pick up and drops for night shifts being the norm in the industry). Security agencies, Facilities management companies.

From a PricewaterhouseCoopers survey

Table 1: Global BPO Market by Industry[5]
Industry Percentage (%)
Information Technology 43
Financial Services 17
Communication (Telecom) 16
Consumer Goods/ Services 15
Manufacturing 9
Table 2: Global BPO Market by Geography[5]
Country Percentage (%)
United States 59
Europe 27
Asia-Pacific 9
Rest of the World 5
Table 3: Size of Global Outsourcing Market[5]
Year Size (USD Bn)
2000 119
2005 234
2008 (est.) 310
Table 4: Size and Growth of BPO in India[5]
Year Size (US$ Bn) Growth Rate (%)
2003 2.8 59
2004 3.9 45.3
2005 5.7 44.4

Currently the Indian BPO Industry employs over 245,100 people and another 94,500 jobs are expected to be added during the current financial year (2005–2006)

Table 5: Call Center Employee cost[5]
Country Cost (USD/yr)
United States 19,000
Australia 17,000
India <7,500

Nearly 75% of US and European multinational companies now use outsourcing or shared services to support their financial functions. 72% of European multinational companies have outsourced financial functions over the past two years.

Additionally, 71% of European companies and 78% US companies plan to use these services in the next 12–24 months. Overall, 29% of US and European companies expect to increase their use of outsourcing of financial functions, with spending expected to be nearly 16% higher than current levels.

Growth in this sector will get a further impetus as Indian BPO companies have robust security practices and emphasis is laid in developing trust with clients on this score. While earlier there were varying quality standards on this aspect, today there is focus on standardization of security, such as data and IP security.

Leading BPO-ITes cities in India

Bangalore, Chennai, Hyderabad, Indore, Kolkata, NCR, Pune, Mumbai and Ahmedabad are Tier I cities that are leading IT cities in India.

With rising infrastructure costs in these cities, many BPO's are shifting operations to Tier II cities like Nashik, Sangli, Aurangabad (Maharashtra), Mangalore, Mysore, Hubli-Dharwad, Belgaum, Coimbatore, Madurai, Hosur, Nagpur, Kochi, Trivandrum, Chandigarh, Mohali, Panchkula, Ahmedabad, Bhubaneshwar, Jaipur, Vishakapatnam , Raipur and Lucknow

Tier II cities offer lower business process overhead compared to Tier I cities, but have a less reliable infrastructure system which may hamper dedicated operations. The Government of India in partnership with private infrastructure corporations is working on bringing all around development and providing robust infrastructure all over the nation.

See also

Portal icon India portal
Portal icon Business portal

References

  1. ^ a b c "India's outsourcing revenue to hit $50 bn". Financial Express. 2008. http://www.financialexpress.com/news/indias-outsourcing-revenue-to-hit-50-bn/266661/. 
  2. ^ EDC Help Desk Location- Amex
  3. ^ "Marketing to India". http://www.amritt.com/Marketing-to-India.html. Retrieved 23 March 2011. 
  4. ^ "Sourcing Advice". http://www.amritt.com/Sourcing-Advice.html. Retrieved 23 March 2011. 
  5. ^ a b c d e "The Evolution of BPO in India" (PDF). PriceWaterHouseCoopers. April 2005. http://www.pwc.com/extweb/pwcpublications.nsf/docid/244E23BB170A0B69CA25718100075183/$file/IACC_PwCBPOSurvey2005.pdf. 

Further reading

  • Friedman, Thomas L. (2005). The World is Flat: A Brief History of the Twenty-First Century. ISBN 0-374-29288-4. 
  • Kobayashi-Hillary, Mark. Who Moved My Job?. ISBN 978-1409271079. 
  • Kobayashi-Hillary, Mark. Building a Future with BRICs: The Next Decade for Offshoring. ISBN 978-3-540-46453-2. 
  • Kobayashi-Hillary, Mark. Outsourcing to India: The Offshore Advantage. ISBN 3-540-20855-0. 
  • Kobayashi-Hillary, Mark. Global Services: Moving to a Level Playing Field. ISBN 978-1-902505-83-1. 
  • Sengupta, Arunabha. Labyrinth. ISBN 0-595-39697-6. 
  • Davies, Paul. What's This India Business?: Offshoring, Outsourcing, and the Global Services Revolution. ISBN 1-904838-00-6. 
  • Aalders, Rob. The IT Outsourcing Guide. ISBN 0-471499-35-8. 
  • Das, Gurcharan. India Unbound: The Social and Economic Revolution from Independence to the Global Information Age. ISBN 0-385720-74-2. 
  • Brown, Douglas. The Black Book of Outsourcing: How to Manage the Changes, Challenges, and Opportunities. ISBN 0-471718-89-0. 

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