BPO past labour arbitrage

The need for value additions to offerings of BPO firms and a move from blind offshoring to systematic movement of tasks "" these are the most important trends that will affect the ITeS space in India in the next few months.

It will also have long-term implications on the structure of the market, according to Vishal Daga, consultant, McKinsey and Co., who addressed the second India Outsourcing Summit.

"With increasing competition and lower price scales for repetitive functions, call centres get only $8 an hour as opposed to $20 a year ago, BPOs in India cannot continue to make margins on labour arbitrage. They will have to evolve and they can do this by adopting some of the models of developed nations," said Daga.

In developed economies, BPOs worked on three distinct models. One, they develop a particular platform and offer services based on it. Two, they involve themselves in process re-engineering itself.

This has traditionally been the area of consultants. Three, they bundle IT and BPO, which is what bigger MNCs like IBM have done.

"I believe that Indian BPO firms will migrate either to a platform model or the re-engineering model. This will begin with task automation which is the first step for companies whose strengths lie in application development and maintenance," he added.

Indian BPO service providers will have to increasingly move to a global process architecture where they can offer clients choices on service delivery from onshore, nearshore or offshore locations.

He also stressed the need for increased training of graduates to meet BPO's growing needs.

"At the present graduation trend, 10 per cent speak English. Then, we get 2,00,000 graduates every year. If this 10 per cent does not change, then BPO will face a roadblock in 2006 when demand supersedes supply."

Outsourcing is passe

Outsourcing has arrived in India so well that it has become almost passe. This is the impression created by the poor participation, on both sides of the podium, at the two-day 2004 India Outsourcing Summit that kicked off on Wednesday in Bangalore.

This is in sharp contrast to the successful event organised last year by the same US-based Michael F Corbett and Associates.

Michael Corbett, president and CEO of the organising firm, told Business Standard that one of the reasons for the poor participation this year as compared to last year is that "last year, many an American company was new to the idea of outsourcing companies from India. So there was a relatively large turnout from the customer side. This year that has changed and the client side is very familiar now with both offshoring and India."

This awareness was largely due to the entry of consultant firms in the market who enable clients abroad to keep themselves abreast of Indian developments.

Interestingly, Corbett said his firm's recent Chinese summit "was a huge success. The main reason for that is the fact that China is still new to the idea of offshore outsourcing. In India, the learning is almost complete, while China is still on the curve. More importantly, in China, the domestic market for outsourcing is huge. This means that our summit addresses local customers and local service provides, in addition to service providers from outside the country who come in to meet local clients."