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The third party BPO firms in India grew 34% in rupee terms in FY 09, as compared to 20% in FY 08 to record a total revenue of Rs 35,500 crore. The dollar growth in the same period, however, slowed down to 17%, as compared to 35% in the previous year. While that sounds confusing, two definite trends come out of that: the business actually slowed down, as the dollar growth is a more realistic indicator of the trends; but the other, which we do not explicitly discuss so much in DQ Top20, is that it had a positive impact on the margins. Almost, every company in the Top20 list improved on the margins front. While that is an indicator of enhanced productivity and moving up the value chain, a major role was played by a weakened rupee.

For the last two years, we have not been explicitly studying the captive offshoring out of India. But a rough estimate of the total revenue, based on the headcount, does not give an encouraging picture. While they managed to grow about 9% in rupee terms, for the first time in the history of Indian offshoring, in dollar terms, captives showed a decline of 6%. Part of this is due to changing of sides of two large captives: AOL Member Services and eServe (Citigroup captive), which were acquired by Aegis and TCS respectively.

CyberMedia Research   DQ Estimates

As exchange rates continued to be volatile, the rupee growth accelerated while dollar growth slowed down

Together, the total BPO exports from India grew 25% in rupee terms to reach Rs 51,150 crore, ie $11 bn. In dollar terms, the growth was 9%.

CyberMedia Research   DQ Estimates	CyberMedia Research   DQ Estimates
With two more large captives, AOL and Citigroup falling to third party hands, captives are a pale shadow of their former selves. The question is: how long will they exist as a separate category?	Even if one takes the dollar growth, industry revenues grew higher than people growth. The reason is not so much a dramatic change in productivity but a significant shift in onshore-offshore ratio, thanks to acquisitions onshore

While captives themselves have stopped growing, another reason that has contributed to their share falling in the overall pie is the way we (and even Nasscom) calculate industry size. While in case of Indian providers like TCS and Genpact, we take their entire revenue into consideration, which increasingly is coming from delivery out of onshore and other offshore locations, as opposed to only India, we continue to take captive revenues as that from the Indian operations. So, it is not exactly an apple-to-apple comparison.

Trends 09
The year FY 09 was the BPO industrys first encounter with a real recessionary phase. While the industry did prove its resilience, many of the new initiatives did not move the way they were expected to.

• KPO Slow Down: For example, between 2006 to 2008, many new companies as well as some of the large BPO firms had aggressively entered into knowledge services, an umbrella term used to describe all research and analytics based services. Since most of these were in areas which was discretionary spending for the clients, it took a back seat, at a tough time. Companies like WNS, Genpact, EXL, and Infosys BPO, which have significant practice in these areas, were affected even though core transaction processing did well.
• Existing Clients Ruled: With slowdown, especially the BFSI sector, undertook massive restructuring. That, in many cases, slowed down the decision making. So, many BPO firms found that the new contracts that they had worked on for months, suddenly fizzled out. However, those customers that had stable outsourcing programs, managed to step up offshoring, badly in need to reduce cost. Most BPO companies saw regular, traditional transactional processing work, from existing clients being stepped up.
• Drop in Volumes: While in terms of new projects, many BPO firms bagged quite a few contracts from existing clients, the volumes dropped, thanks to the slowdown. So that did not result in corresponding increase in revenues immediately. But it is good news in the long run. As situation improves, volumes will catch up.
• Voice Players Stepped Up India Market Activity: Most BPO companies, that draw significant revenues from voice aggressively pursued an India domestic strategy. Many players like Aegis, IBM Daksh, Hinduja Global, Aditya Birla Minacs and vCustomer stepped up their India business
• The Philippines gained over India in voice work: For the first time, some other location challenged Indias supremacy as the Philippines emerged a clear favorite over India when it comes to non-tech voice based services. India, however, continued to reign supreme in tech support as well as other non-voice services. As many as thirteen of the eighteen Indian companies in our Top20 list have facilities in the Philippines.
• Acquisitions Slowed Down: Acquisitions by Indian BPO companies slowed a bit, even though Aegis continued on its acquisitions spree. TCS acquired Citigroups captive. But the biggest acquisition was that of a 75% stake in Cambridge Solutions by UK based Xchanging.

Other trends that continued from FY 08 were a thrust on platforms by companies like TCS, Infosys BPO, WNS, and Genpact, which did win more clients on platforms, though few new platforms came in, and the fall of captives. Many large captives remain in the lookout for a buyer. But the elusive Genpact, WNS-kind valuations that many of them are hoping for is surely a thing of the past.

FY 10 may well see a bounce-back. But a lot of trends will be clearer only in the next two-three months.

Shyamanuja Das
shyamanujad@cybermedia.co.in

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