Industry Research : BPOs Edge Towards High-end Work in Changing Market
The emergence of countries such as the Philippines that provide call centre services at a cheaper cost, the advent of cloud computing, and a decline in spending on technology because of the global economic slowdown are propelling the $16 billion Indian business process outsourcing (BPO) industry to offer high-end services.
"The concept of your mess for less is dead," said Cliff Justice, lead of US shared services and outsourcing advisory practice at consulting firm KPMG. Justice said that the labour arbitrage that India once enjoyed is flattening which will make the low-end work unsustainable for companies.
He was speaking on the sidelines of the software industry lobby body Nasscom’s annual BPO summit.
The Philippines has already overtaken India in terms of "voice" revenue and China is emerging as a serious competitor. Although the consensus among a majority of top industry officials and experts was that India will continue to have the biggest share of the world’s BPO business (currently 37%), the country can’t depend on the low-hanging fruit.
"India will have to find its own niche, though it will be a bigger niche," Roopa Kudva, managing director of CRISIL, said, adding that high-end services is what India will be best suited to offer. She said that new regulations are making even regional banks opt for outsourcing and the explosion in data is making analytics a serious need for companies in financial services, retail and telecom services. "India already has its foot in the door, it just needs to acquire new capabilities," she said.
According to an estimate by CRISIL, data and analytics is expected to be an opportunity worth $1 billion. "BPO companies are moving away from being vendors to partners," said Vikram Talwar, chairman and co-founder, EXLService Holding, Inc. However, analysts were of the view that it’s a mixed bag for the industry where some companies are innovating while others were continuing to rely on the low-hanging fruit.
"There is still plenty of low-end work floating around and some companies are happy doing it, even though it is margin erosive," said Gaurav Gupta, a partner at A.T. Kearney’s India unit. He added that the trend will slowly change as companies are at least trying to build domain knowledge.
Noshir Kaka, director at the India unit of McKinsey & Co., said the difference between the sales growth of the top five BPO companies and the next seven is almost 18%. "So, clearly some people are doing the right thing."
According to a Nasscom listing, Genpact Ltd, the BPO arm of Tata Consultancy Services Ltd and Aegis have emerged as the top three BPO firms in the country.
The popularity of social media could emerge as both a threat and an opportunity for the industry.
Sangeeta Gupta, vice-president of Nasscom, said social media is being integrated in customer service support being offered by companies. Justice of KPMG said this could further cannibalize the "voice revenues" of the industry. "But, despite all the challenges, there is a lot of outsourcing happening currently, especially of the higher-end processes, and companies are looking at India not for cost arbitrage any more but for their skill sets."
Posted by Veronica Silva Cusi, news correspondent
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Published: Friday, August 31, 2012