BPOs finally emerging out of IT shadow

Viewed mostly as the 'poor cousins' and extensions of IT firms,the ones who do the 'back-office' and 'low-end' data-entry work, and the sector that deals with interactive voice (IVR) menus (referring to voice operations), the Indian business process outsourcing (BPO) sector has emerged as the fastest-growing segment of the IT-BPO sector.

It has been growing at a compounded annual growth rate (CAGR) of nearly 37 per cent over the past four years, according to the Nasscom Strategic Review 2008. BPO exports from India grew from $3.1 billion in FY2004 to over $8.4 billion in FY2007.

Over the same period, direct employment in this segment grew from 2,16,000 to 5,53,000 in FY2007. The revenue figure is expected to touch $10.9 billion in FY2008, employing over 7,04,000 employees.

The BPO sector now accounts for 27 per cent of the total exports of the services and software pie. The IT services segment, on the other hand, accounts for 57 per cent, and is growing at 28 per cent, while software product licencing/ development accounts for 15 per cent. Revenues earned from the export of hardware make up for the remaining one per cent.

They are also going global like their IT counterparts to beat a rising rupee and concentration in the US. Leading Indian BPO firms, for instance, have established delivery centres across 25 countries and in over 75 cities outside India. This has helped them in tiding over crises like the recent undersea cable cuts which affected India's call centre voice operations in a major way.

Keshav R Murugesh, president and COO, Syntel, noted that those firms that have delivery centres around the world will not be affected as much, since they can divert some work to other centres.

Moreover, a considerable amount of high-end analytics work can be done offline. Integreon senior vice-president (knowledge operations), Lokendra Tomar, too, concurred with this point of view that helped large BPOs to mitigate the effect to quite an extent. India, though, remains the 'anchor-site' for delivery, as most of these investments and scale of operations are still very small, states the Nasscom report.

Even global vendors and MNC (captive operations) with an existing network of globally distributed delivery sites are increasingly adopting an 'India-led' strategy.

For instance, IBM has around 73,000 employees in India "" a major part of them being on the rolls of IBM Daksh. Accenture has nearly 35,000 employees (20 per cent of its entire workforce) in India as part of its global delivery services (higher than even its US employees in this segment).

"India is all about talent pool and better quality services. We have moved up the value chain and bundle services for our clients which helps us retain them for longer periods. Besides, much of our leadership is local at all our delivery centres, which helps us retain talent longer," says Pakaj Vaish, Head (BPO Operations), Accenture India.

Capgemini, too, has around 17,500 employees, and Salil Parekh, its executive chairman of the India operations concurs: "India is an attractive destination as it has plenty of manpower; besides, still retaining its cost advantage."

Despite the rising rupee and US slowdown scare, Nasscom's projections indicate that the going will be good for BPOs. This may come as a heartening fact for BPOs who did not do well in the quarter ending December 31, 2007.

For instance, pure-play BPO firm Firstsource saw its consolidated net profit drop 31.7 per cent year-on-year. Ananda Mukerji, MD & CEO, has admitted: "The quarter saw emerging challenges in the collections business due to a deteriorating credit environment in the US".

But he added: "While this presents short-term pressures on profitability, the company believes collections continues to be an attractive business segment, and the current environment presents opportunities to expand its customer base and grow market share."

Another major player, WNS, too, reported a 23 per cent decline in net income, as its clients' earnings suffered because of the US sub-prime crisis, eating into profits.

Yet, Nasscom's optimism stems from the fact that all BPO (horizontal) services "" including customer interaction and support (CIS), Finance and Accounting (F&A) and related processing services like knowledge services, human resources management (HRM) and Procurement BPO "" are growing worldwide and outsourcing (and offshoring) more work.