Dreaming big

Smaller BPOs vouch by cost effectiveness and strategise to stake their claim on larger profits.

Small and medium business process outsourcing (BPO) enterprises are gearing up to give names like Progeon, Convergys, IBM-Daksh, Accenture and WNS a run for their money.

Players like InfoVision, Integreon and Hexaware have come up with individual strategies that are expected to help the companies to combat competitive pressures. Mid-sized outsourcing service providers have placed higher priority on staying cost competitive through offshore acquisitions and staying ahead of global trends in the sourcing market.

Tapping the domestic market for outsourcing opportunities is a key growth area for InfoVision, with nearly 65 per cent of its revenues coming from it.

Says Aditya Gupta, president, InfoVision, "The domestic outsourcing market is growing at 40 per cent per annum, and we will consolidate our experience in this young market."

Gupta is hoping to keep his company's equilibrium skewed towards servicing the domestic outsourcing deals even if that means a lower operating margin of around 13 per cent (as compared to 20 per cent in an international outsourcing deal) and maintains that InfoVision would touch the Rs 1,000 crore mark in three years (from its present turnover of nearly Rs 200 crore).

Pradeep Udhas, executive director, KPMG India, reflects on the trend of US clients preferring mid-sized BPO companies, "The smaller a BPO, the more responsive it would be in addressing creative business models."

The key is in identifying the right service provider, based on skill sets domain knowledge and IT security standards. As large multinational offshore players battle for global outsourcing supremacy, balancing the need for low-cost operations with customer demands for more high-touch service, hopes Gupta, should alter provider global delivery models.

"Second-tier providers have to follow the lead of the larger firms and increase investments in infrastructure to expand their reach and get closer to customers."

InfoVision, as part of its infrastructure expansion this year, has opened a new centre at Mumbai, another in Delhi, and yet another centre has been announced in Chennai. It is hoping to reach the 25,000 employee count by 2010, along with plans to do an IPO to enable cash inflow, "towards the tail-end of 2007".

Integreon, too, will set up new campuses in Manila and Delhi, and has already acquired a company in the US. The company will make investments close to $5 million in its newer campuses and is looking to get listed on the NASDAQ by 2010.

Says Lokendra Tomar, senior vice president, Integreon, "We have a strong track record of delivering a significant cost advantage, with clients regularly reporting savings between 25-50 per cent over the original cost base."

Even the 10-15 per cent wage inflation in India amounts to a lower dollar value increase in the wage bill, compared to the 3-4 per cent average wage inflation in the developed countries, he calculates. Integreon is betting big on legal process outsourcing (LPO), an offshoot of the knowledge process outsourcing (KPO) industry.

"KPOs are gaining traction and will continue to influence the outsourcing industry in future," he says. The KPO segment is expected to grow at 45 per cent per year to reach $11 billion by 2010, with India expected to benefit the most.

LPO is expected to be a $3-$4 billion market for Indian players, and the fact that less than 3 per cent (around $60-$80 million) of the potential market has so far been tapped, Integreon is definitely on the right track.

One look at the net value-added by the IT-BPO sector to the economy, which is estimated at 3-3.5 per cent for FY2007, and it's easy to conclude that India's outsourcing advantage will be played up by the smaller and medium sized BPOs in 2007, with a majority of the companies vying for lucrative outsourcing deals and niche areas of growth.