BPO watershed

General Electric's sale of its BPO business raises an obvious question: Why should such a successful pioneer wish to sell out or reduce its stake?

This question has been underlined further by reports indicating that American Express, which was the first to establish India's potential as a BPO destination, may also be willing to divest its captive operations.

The successful conclusion of GE's drawn-out sales process indicates that there are both buyers and sellers in a business that has passed a watershed in its development.

It was international companies like American Express and British Airways which first perceived the opportunity of outsourcing service functions to India, based on their assessment of Indian back-office skills.

They were able to successfully do so and this made others""first Indian and then foreign third-party operators ""follow suit.

With more players coming in, several processes have been set in motion. Players have to build volumes as everyone knows that only the larger and more efficient players will survive in a market where the rates have crashed and will continue to fall.

The volume game has been aided by venture capital funds which have been eager to exit at good valuations in view of the impending maturing of the market. As happens with all businesses that have not fully settled down, the valuations have been driven more by the top line than the bottom line.

In the resulting rush to secure volumes, there has been severe price competition, and third-party operators, particularly large MNCs which have been late adopters of the offshored model, have led the discounting game.

This has produced a strange result. Those companies which said it was highly profitable to outsource business processes to India have found themselves beaten on costs by the newer entrants.

This has made the pioneers realise that it is about time they got out of the commoditised part of the business. GE, in fact, follows in the footsteps of British Airways, whose divested operations now constitute WNS.

The Indian BPO scene is now dominated by third-party MNC operators (like IBM and EDS) and the BPO operations of Indian software firms (like Wipro Spectramind and Progeon), with pure play third party Indian BPO operators (like 24/7 and vCustomer) getting outnumbered.

The most high-profile loss from their ranks has been Daksh, which was acquired a few months ago by IBM. While BPO jobs multiply exponentially, the ownership of BPO businesses may not remain in Indian hands.

And can a few Indian BPO operations become winners while remaining as appendages of software firms? After all, BPO and software development need different mindsets. This is the issue that will be decided over the next few years.